Exchange knowledge for investments and investments: How does securities speculation work?


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In times of low interest rates, savers and investors need other forms of investment. Stocks can be a worthwhile alternative. If you know how the stock exchange works, you can even lie down and sleep.

Exchange knowledge for investments and investments: How does securities speculation work? Exchange knowledge for investments and investments: How does securities speculation work?


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Rolf Morrien Rolf MorrienRolf Morrien is a stock analyst, non-fiction author and editor of various exchange services.

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Judith Engst Judith EngstJudith Engst (MBA), born in 1970, is a business and financial journalist.

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Germany: no country of shareholders! Why actually?

The following saying comes from stock exchange guru André Kostolany: "Buy stocks, take sleeping pills and stop looking at the papers." Are stocks really that safe and useful? One thing is clear: the Germans are considered an extremely energy-saving people. However, savings are made quite one-sided. The desire for security dominates. In Germany, life insurance policies with the advertising arguments "security" and "security" have been selling well for decades. From a purely statistical point of view, every German has an average of more than 1,1 life insurance policies. For many years, Germany has been lonely at the top in the discipline of "life insurance contracts per inhabitant". The insurance companies are happy to receive premium payments in the double-digit billions each year. Other forms of savings such as building loan contracts or savings books are also very popular. With this conservative investment strategy, Germans have managed relatively well in recent decades.

The Germans, on the other hand, had less luck with "more aggressive" forms of saving. In the stock boom around the turn of the millennium, the number of stocks and stock fund owners rose almost explosively from 5,6 to 12,9 million. The subsequent slump in the multi-year crash has shaken confidence in the stock investment form. Even the relatively solid German leading index, the DAX, suffered a setback from over 8.000 to 2.200 points. The losses in the "New Market" segment were even higher. Anyone who bought a “people's share” like Deutsche Telekom for 100 euros and then sold it for a short time later for 10 euros will initially stay away from shares.

New investment strategy needed: More courage to share culture

The decline in stock culture therefore began a good twelve years ago and is still ongoing. The number of shareholders and equity fund owners fell from 12,9 (2001) to 10,8 (2005) to 8,7 million (2011) and, due to the persistent low interest rates in the Eurozone, only increased slightly to 2015 in 9,0 Increase millions. This corresponds to only about 11 percent of the population. In England - traditionally a "stock exchange country" - almost every fourth inhabitant owns shares or equity funds. Quotas above 20 percent are not only achieved in the Anglo-Saxon area. In Sweden, almost every fifth inhabitant owns shares - and Sweden is not known as a "gambler country".

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The reluctance of German savers naturally also has consequences in terms of ownership. 15 years ago, domestic investors controlled around two thirds of the DAX shares. Today it is less than half. The majority is in the hands of foreign investors. For the stock market, it doesn't matter where the capital comes from. The large inflows of funds from abroad have led to the DAX reaching a new all-time high in 2015.

However, German investors have hardly benefited from the upswing - they have left the stock market beforehand. Given the major challenges in the area of ​​private pensions, it is probably the wrong decision. There are several reasons why the traditionally conservative investment strategy no longer fits the challenges of the 21st century. As an example, we would like to mention just two points: the structurally low interest rate level and the demographic development that is causing a supply gap.

Low interest rates mean that life insurance policies are barely making any difference

After the bankruptcy of the USBank Lehman Brothers in autumn 2008, capital was drawn from the market worldwide in a panic reaction. Cash was king! Since suddenly the "lubricant" for the global economy was lacking, the central banks worldwide cut interest rates in order to quickly make money available again. In the important economic regions of the USA, Europe and Japan, key interest rates are still around 0 to 1 percent - about eight years after the Lehman bankruptcy.

The flight to secure forms of investment and the low interest rate level caused the average yield on German government bonds to slide into negative territory in mid-2016 - a situation that had never been seen before. The returns are extremely low if the money is only to be invested for a short time. Anyone who wanted to park their money relatively securely with the federal government in 2016 and invested in short-term federal securities also had to accept negative returns - so they paid to be allowed to park money with the state.

Interest rate policy has an impact on life insurance

This interest rate policy has an impact on life insurance. Because of course they also invest their money on the capital market. Yields on life insurance will continue to fall. The reported guaranteed interest rate fell from 4,00 percent in 2000 to only 1,25 percent in 2015 and will be further reduced to 2017 percent from January 0,9. The trend continues. The reason is simple: Over 60 percent of the over 800 billion euros that life insurance companies invest in their customers are in fixed-income securities (we will go into the details in a later chapter). However, if these bonds only yield a return of 0 to 3 percent, the total return cannot exceed 3 percent. Finally, there are also administrative costs and the owners of the insurance groups also want to be served (Allianz shareholders, for example, receive an attractive dividend).

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Since a short-term interest rate turnaround is not in sight, the average returns on insurance are likely to continue to fall. The question is: Which new customers are still investing in life insurance? The insurance companies are still comforting their customers with the fact that the low interest rate will soon be overcome. But hope is deceptive. A radical rate hike is not in sight in the long term. You only have to look at the development of interest rates in the world's most important market - the USA - since 1980. Interest rates have been falling for over 30 years! In 1980, the Federal Reserve fought the last big battle against inflation. Interest rates rose into double digits. The yields on five-year US government bonds rose to 12 to 16 percent. In 1990 the yield was around 8 percent, in 2000 6 percent, in 2010 around 3 percent and since 2012 below 1 percent. There are always fluctuations, but the long-term trend is clearly down.

Why the interest rate remains low

If you are looking for an explanation, all you have to do is look at one statistic: government debt. Since the lifting of the gold standard (the dollar's peg to gold) in the early 70s, US debt has increased. First slowly, then faster and faster. Since the onset of the financial crisis, the pace can only be described as rapid. US government debt reached a record high of around $ 2016 trillion in autumn 19,5. Now just combine the two statistics: If interest rates in the United States rose to the level of 1980, the United States would have to pay over $ 3 trillion in interest annually. A utopian number.

Hence our conclusion: Since the formally more or less independent central banks are familiar with the debt problem, they will keep the interest rate level as low as possible so that the interest burden still has to be shouldered. If the economy is going well again, there will be interest rate hikes, but these will be significantly lower than in earlier upswing phases. In weak economic phases, however, the interest rate level is kept as long as possible in the range of 0 to 1 percent, so that there is no additional pressure on the already catastrophic public finances. Even the abolition of cash is already being discussed in order to clear the way for negative interest rates.

Conclusion: The interest rate level is falling. This is poison for the conservative German life insurance companies, which mainly invest in government bonds (although the question must be asked whether government bonds can still be considered "conservative" in view of the debt crisis in the US, the EU or Japan).

Private pensions become a "must"

The longer the current low interest rate lasts, the greater the risk of turbulence in the insurance industry. It is an open secret that some insurance companies are already living on reserves - but they are finite. Life insurance policies are becoming less attractive. There will be a shakeout. The consequences for the owners of the policies are open. Current contracts should not be terminated prematurely, but "fresh" capital can be invested more strategically.

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The same applies to conservative savers: invest your money on the stock exchange. In this book, you will learn what options are available to invest the money on the stock exchange in order to optimize the return opportunities. The spectrum is huge and ranges from stocks, funds, discount certificates and convertible bonds to gold as a nest egg in the crisis.

Demographic developments mean that we have to work longer and longer. The buzzword "pension at 70" is unfortunately only the beginning. If you want to know where the trend is heading, it is worth taking a look at Scandinavia. State reforms are often discussed in a more objective and far-sighted manner. A radical form of pension has already been implemented in Denmark. The approach: In the long term, legislators should no longer arbitrarily set a retirement age every few years, but instead should incorporate an automatic adjustment to life expectancy. As a rule of thumb, the pension period should average 15 years. The social system tolerates such a period of reference for the pension. That sounds harmless, but it has serious consequences. The Danes currently have a life expectancy of 82 years. The retirement age therefore had to be increased from 65 to 67 years.

Declining pensions, increasing life expectancy

The big but: The average life expectancy has been increasing for many decades and is expected to continue to increase in the coming decades. In Denmark, the forecast for 2030 is 86 years life expectancy. The retirement age would then automatically increase to 71 years. And that's just the "careful" forecast. Other scientists expect a life expectancy of 89 years. According to the formula, the retirement age should then be increased to 74 years. We do not need to discuss the reliability of such forecasts at this point. But one thing is clear: we have to work longer and longer. As high as it currently sounds, the number "70" will not be the last number in Germany either.

Since the start of retirement at 70 is only a theoretical number for many people, this reform must be translated: it is simply a matter of reducing pension entitlements. If you cannot or do not want to work into old age in the future, you will have to accept significant discounts. The effects are different: the problem of old age poverty will increase. At the same time, many people who dream of a relatively high standard of living will have to make big cuts.

The only way out: Those who have the financial means must (!) Save. Private old-age provision becomes mandatory. In this case, too, the exchange offers answers to the problem. Of course, private old-age provision with stocks and funds should not be about "gambling". Strategies that last for decades and enable targeted, strategic wealth accumulation are in demand. Astonishingly small sums per month are often enough for this. Anyone who "feeds" a monthly fund savings plan for ten or 20 years can lay the foundation for private retirement provision. So you have to find the right DepotBank, open a custody account, set up a savings plan and calculate the subsequent tax burden (even the tiresome subject of taxes cannot be left out).

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If you do not want to rely on fund managers, but want to choose the most attractive substance shares for a long-term deposit yourself, you will also find what you are looking for in this book. We explain the difference between cyclical and non-cyclical industries, but also very practically the best selection criteria. So that you can read and understand the annual reports after buying the shares, you will find the key terms here such as EBIT, cash flow, earnings per share or equity ratio with the appropriate explanation.

What happened on the stock exchange?

First of all, the stock exchange is a trading place. Think of it like a weekly market: you go there and buy fruit, vegetables, meat and cheese. The question, of course, is what prices you pay for it. The prices depend on supply and demand. If the cheese dealer is assailed by his customers for offering such delicious French Camembert, he can raise his prices and still get rid of his Camembert. But if no one wants to buy his boring Danish butter cheese, he has to go down with the price for better or worse. Maybe there will be a few interested parties. You notice: The prices depend on the supply and the demand. This is no different on a weekly market than on a stock exchange.

So how do the weekly market and stock exchange differ? Quite simply - in the things that are traded. You do not buy real goods that you can eat, drink or wear on a stock exchange. You only buy securitized rights. What does that mean again? In the past, an investor bought printed notes on the stock exchange - so-called shares. These notes documented that the investor had become co-owner of a particular company. But that did not mean that he could simply walk into the company's warehouse and use the products stored there to his heart's content. As a co-owner, however, he had the right to indirectly determine, together with the other shareholders, the composition of the executive floor. And he could also expect to share in the company's profits. If the prospects for profit were good (or at least that was what the stock market believed), demand rose and with it the share price - the price for the share. If something was rumored about impending losses, the price fell. But we'll get to that later. Let us stay with the typical commodities of the stock exchanges as we know them.

This is how stock trading works

Today, printed notes are no longer exchanged, everything works electronically. However, the real commodity on the world's stock exchanges has remained: securitisations. Or you could simply say: securities.

  • Shares certify joint ownership of one Company.
  • Bonds represent the right to have borrowed money and interest repaid.
  • Fund shares represent the right to the exact mix of goods or securities in which the fund has invested.

Exchanges as we know them today emerged in the 19th century. For (prospective) entrepreneurs, they were the ideal place to collect money for their planned projects. In return, they involved their donors in their companies. This was done by calling their companies "joint stock companies" and selling the company shares as shares. In fact, exchanges are huge redistribution places for money. Anyone with money is looking for opportunities on the stock exchange to invest it as profitably as possible. Investing is done by buying securities. If you need money, you can bring out the relevant securities ("emit" is what they call technical jargon) or sell securities from your holdings. In principle, that's all you need to know.

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The tulip craze: how securitization was invented

How do you get the crazy idea, instead of trading goods only with notes? The whole thing was invented in Holland in the 16th century. There people had taken a liking to a flower that was extremely rare and precious back then: the tulip. It was considered chic to decorate your garden with these wonderful flowers. So the prices for tulips rose more and more. And not just for any tulips - no! Spotted and flamed tulips were particularly popular (by the way: a plant virus, the mosaic virus, was responsible for this flamed appearance, but nobody knew that at the time!). If you enter the name »Semper Augustus« into Google's image search, you will see which type of tulip was very popular at the time. The "always sublime" was what today may be tantamount to a luxury villa or a Ferrari. Rich merchants were willing to spend a fortune on such tulips!

This, however, prompted speculators to see people who never intended to see such a tulip bloom in their garden. They acted as intermediaries with the aim of being able to resell the purchased tulips as profitably as possible. Perhaps you were taken aback when you read the word "tulips." Because, of course, the trade was not with the flowering specimens, but with tulip bulbs. You literally bought a pig in a poke. It was completely open whether a purchased tulip bulb would really develop into one of the sought-after SemperAugustus tulips with a flame pattern. Nevertheless, not only the merchants, but also the speculators now spent huge sums on tulip bulbs. And not just for tulip bulbs.

The run on the investment objects

In the late phase of the tulip craze, the tulip growers were exposed to a real run: they could not deliver as many bulbs as ordered. It also takes a while before a tulip plant forms new bulbs again. Nobody wanted to wait that long. So the speculators and traders had written assurances that they would get an onion as soon as it was finally available again. The securitization was invented and also the first futures contract. Because the goods (the tulip bulb) could not be delivered immediately, but only later - by appointment.

It happened the way it had to. At some point the speculative bubble burst. On a stock exchange, traders suddenly hesitated to pay new maximum prices for the onions or subscription rights offered. However, the hesitation didn't stop there. The doubts about the actual value of the tulips were contagious and triggered a sales frenzy. Everyone wanted to get rid of their tulips quickly, as long as they still had a certain value. The tulip euphoria suddenly ended like a haunt. She left behind many poor dealers and speculators who had deprived themselves of all their savings in their greed for money and had invested a complete annual income in tulip bulbs. However, the pretty flowers have remained in the Netherlands: The hit "Tulips from Amsterdam" testifies to this.

Bubbles of speculation: A constant risk for money

Making quick money is still a dream of many people today, and the world's stock exchanges seem to be fulfilling it. Buying a security, waiting until its price has risen rapidly, then selling it again at top prices - what a wonderful dream! In fact, the tulip craze of the 16th century was not the only derailment of this kind. There have been countless speculation bubbles since then, and they all had one thing in common: they burst - just like the dream of quick money. Getting rich in one fell swoop is the exception and not the rule on the stock exchange.

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Do you remember the euphoria with which real estate in the east was sold in Germany after the turnaround? Investment advisors praised eastern properties like hot cakes. The state even supported the purchase with tax benefits. And the well-earning Wessi was always open to new ideas, money-saving and supposedly profitable investments. He bought these properties with terrifying credulity. In some cases, it was similar to the tulip bulbs in Holland: many properties changed hands unsupervised in order to later produce themselves as unsettable and even more unsalable scrap. The word “junk real estate” was invented after this speculative bubble burst. Countless Germans had sunk their money in worthless real estate investments.

Moon prices for startups

And another bubble of speculation will surely seem familiar to you: have you seen how, in the late 90s, moon prices were paid for every little internet slip? Back then, did you watch with large, round eyes how theCourses always set new records? Even though hardly any of the coveted companies ever posted profits. On the contrary: most of them were deep in the red. Have you seen the rise and later fall of Telekom shares, Germany's people's share? They all bought them for up to 100 euros, since the earning opportunities in the telecommunications market seemed almost infinite. Today we know: Even in the telecommunications market, it's not that easy, because the competition doesn't sleep. The Deutsche Telekom share price is still bobbing around between 10 and 15 euros. And many internet users did not keep their promises, but went bankrupt. A lot of money from good faith shareholders literally vanished when the Dotcom bubble burst. Many a first shareholder fell on their noses and didn't want to know anything about shares afterwards.

The last big speculative bubble is still in our bones: the subprime crisis. This time it was not so much the private individuals who speculated but the banks. They bought loans from American house builders. From house builders who actually couldn't afford their own property. Their loans had been broken up into millions of securities. Some insurers had also issued credit default swaps and sold the risks, also broken down into securities, on the capital market. The whole thing was so complicated that everyone was certain to own surefire bonds that also had above-average interest rates. Until the bubble burst here too. At the latest when the US investment bank Lehman Brothers went bankrupt in September 2008, it was clear: An unbelievable number of banks had highly toxic securities in their custody accounts. Securities that could easily deprive them of their entire existence. The bankers' greed had once again created a bubble that had burst with a loud bang.

But doesn't that necessarily happen when you are trading on the stock exchange and trading in securities? Are speculative bubbles and losses not inevitable then? It is undoubtedly so. But you should not draw the conclusion from this, but better to stay away from stock market investments.

It is not the stock market that is dangerous, but greed and fear

You saw where speculative bubbles lead. As an investor, you can only be warned about this. We do not warn you of the decision to put your money on the stock exchange. After all, if you invest long-term, you can't harm losses in the meantime.

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In other words, greed is dangerous. The speculative bubbles of the past centuries have shown that those who were too greedy, who switched off their brains, followed a mass euphoria and bet on quick profits, suffered severe losses. On the other hand, those who remained calm, invested with foresight, did not allow themselves to be blinded by the promise to make quick money, generated enough money on the stock exchange that it was wonderfully enough for a carefree life. The Deutsche Aktieninstitut has calculated that anyone who invests in shares in the long term can expect an average return of 9 percent per year. At least that's how it was in the past. What does that mean?

Twice as much in a good eight years

An interest rate of 9 percent per year means that the money invested doubles within eight years. During this time, 1.000 euros will become 2.000 euros.

For security reasons, however, we recommend that you do not just invest in stocks. A bit of risk diversification is required, and that includes more defensive securities such as bonds or funds. We'll come back to what exactly you can invest in. But expect that even as a very conservative, risk-averse investor, you can still achieve an average annual return of 5 to 6 percent. This means that the money invested doubles approximately every 12 to 15 years. That is enough for a solid capital accumulation. The stock market legend Warren Buffett has achieved average annual returns of over 60 percent with his equity investments since the 20s.

Incidentally, fear is just as bad as greed. Whoever invests his money according to the motto "The main thing is that I don't lose anything!" Ends up being a loser. Think about it: A savings or call money account currently brings 1 percent interest at most. However, even in a country that is relatively economically stable, Germany's annual inflation rate is regularly above 2 percent. That means: If you only store your money in the savings account in a supposedly super-secure manner, you will lose the bottom line. The purchasing power of money is dwindling. So better invest more profitably. That is also possible - on the stock exchange.

Common sense stock market investments

On the stock exchange there is always the dream of winning automatically. Everything that can be evaluated on the stock exchange is evaluated: historical price trends (charts), old data series, future forecasts by analysts - patterns are searched for everywhere that appear again and again. If such a pattern is found, an investment strategy is created from it. Then this pattern is built into a computer program. With the click of a mouse, 1.000 markets can be searched at once. If the pattern once found reappears, you can "bet" on the stock exchange. The basic assumption is that everything repeats itself over time - even on the stock exchange.

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But the rule applies: Use common sense. Also and especially on the stock exchange.


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