However, his stock portfolio has barely changed for some time, despite record stock market indices in the United States and partly also in Europe, India and Japan. Certainly, he holds around 30% in cash at money market rates, in order to be able to buy in the event of a correction on the stock markets. But the composition of the portfolio, focused on rather conservative and cheap stocks, has changed little. He is therefore wondering whether he should now turn to more expensive growth stocks, which are on the rise, or even turn to Asia. Finally, he decides to discuss and rethink his entire investment strategy with his client advisor.
Emotions kill performance
“Lack of performance is often linked to emotions or one’s own assessment of the stock market,” explains Markus Lang, client advisor at Julius Baer. In his twenty years of consulting, Lang has always encountered investors held back by their own feelings. “Many investors would be significantly better off if they followed the bank’s investment strategy or even delegated the management of their portfolio to investment experts. We regularly see investors miss long-term investment trends or fail to reinvest in stocks in time during market corrections out of an abundance of caution.
In practice, ignoring emotions and relying only on concrete facts and understandable figures is easier said than done. “Corrections always come with bad news and usually in a context of fear,” says Lang. Interest rate hikes, inflation fears, the war in Ukraine and other factors have also led to a rapid rise in uncertainty during a weak stock market year of 2022. It is therefore not surprising that even experienced investors were reluctant to increase their portfolio risk again in such a market phase. This often led to typical mistakes, as seen in previous stock market corrections: instead of entering the stock market when prices were low and exiting during boom times, the opposite was often observed: “The The past teaches us to buy precisely during corrections, but few people succeed, even if they have been waiting for this for a long time. Because it takes courage. This is where the support of an experienced customer advisor can be useful,” says Lang.
Lack of performance is often linked to emotions or one’s own assessment of the stock market
A clear investment strategy rather than emotions
For the customer advisor, things are clear: “There will always be turbulence, that’s part of the game. But this should not make you nervous, because you are ultimately pursuing a long-term strategy. Experienced investors know that over the long term, prices on the financial markets have always increased. The capitalist economy, which creates wealth through entrepreneurial activity, causes stock markets to increase in value in the long term. A glance at the stock market indices confirms this. Thus, the S&P 500 index has achieved an average annual return of 7 to 10% over the past 90 years. The Swiss Market Index achieved an average return of 6 to 8% per year.
Despite this knowledge, many struggle to stay true to their strategy during turbulent times. The constant search for the ideal moment to buy or sell is generally doomed to failure. This is why it is important to leave the assets invested in the stock market and not constantly move them. However, this requires discipline: a quality often underestimated when making investment decisions yourself. Markus Lang therefore recommends structuring the assets and delegating a large part of them for the long term in a discretionary equity mandate (for the equity part). At Julius Baer, a team of investment experts is tasked with investing money in appropriate stocks, countries and sectors in an analytical, disciplined and emotionless manner.
For many investors, such an equity mandate forms the core of their portfolio, the so-called core investment. “This asset management mandate allows clients to focus on the big picture and entrust day-to-day investment decisions to experienced investment experts,” explains Lang.
Main and satellite mandates for good momentum
Due to his risk profile, Hanspeter B. opted for an equity mandate with a defined investment objective. Nevertheless, this passionate entrepreneur and private investor wanted to continue to manage part of his assets independently. “It is not uncommon for private investors to want to invest part of their assets independently in topics and actions that are close to their hearts,” explains Markus Lang. This is why the portfolio is divided into what is called a “primary mandate”, managed by Julius Baer investment experts and professionals, and a smaller, self-managed “satellite”. Even with the satellite, Hanspeter B. is not completely left to his own devices. Detailed monitoring of the portfolio and regular reviews with the client advisor ensure that the asset allocation corresponds to the strategy initially chosen and that possible adjustments are highlighted and discussed.
Markus Lang adds: “The basic equity investment can be more dynamic or more defensive, depending on the client’s risk appetite. My preferred combination is one-third Swiss stocks, one-third global growth stocks and one-third value or undervalued stocks,” says Lang. “This gives the core investment a profile which, as experience shows, benefits well from rising stock markets, but reacts less strongly to market corrections.”
For Hanspeter B., this is the ideal solution. He can profit from the unemotional market decisions made by financial experts while focusing on selected stocks and themes that are important to him, without missing a trend he doesn’t see coming.
