Monthly comment

March 2010

Long term performance studies have demonstrated repeatedly, that investments in stocks on average produce returns of about 4% to 5% after adjustment for inflation. On the other hand, bonds and savings accounts have only provided returns of 0 to 2% in real terms. Therefore, anybody who is serious in his desire to grow his wealth has to invest in stocks and accept their volatility. Warren Buffett and Charlie Munger have on many occasions stressed the fact that owners of stocks have to reckon with market crashes of up to 50%. If they lack such a capacity for suffering, they should stay out.

Investors, who seriously desire to grow their wealth, should make sure they will not be wavering in the face of extreme stress and adversity. They should work to increase their capacity to face a crisis. Most important is an awareness of history, which puts the present in perspective. People, who lack this, are living in the crisis. Those, who also look backward and forward, extend their horizon, they are more relaxed, considered and less emotional.

Many investors, including pension funds, insurance companies and banks, believe they are capable to be invested only in benign and cheery times and to get out of harms way early enough. This is a huge illusion, as history has illustrated on many occasions. The past teaches us that we can’t avoid hardship, but with an appropriate attitude we will survive it and thrive in the future.