Door Freddy Forger
At Stoic, we don't try to predict which stocks will rise sharply and which won't. After all, no one has a crystal ball that truly works, and therefore no one can consistently predict the market accurately. That's why we always diversify your money as widely as possible across all stocks worldwide. In this blog post and the video below, we explain exactly how.
In our blog post about the crucial importance of maturities, you'll read that the 10-year limit is crucial for us. We invest everything you need sooner in safe government bonds, and everything you can spare for more than 10 years is invested 100% in equities. Simply because historical data shows that a potential crisis or crash usually takes no longer than 10 years to recover. If you invest your money in equities for more than 10 years, the risk of loss is therefore very small. It is essential, however, that you diversify your money across all equities worldwide. Here's how it works:
Financial markets have become extremely complex and thus completely unpredictable. All sorts of forces influence stock prices: not only whether the underlying company is growing healthily and thus becoming more valuable, but also geopolitical relations, political decisions, societal developments, climate change, investor sentiment, war, peace, and so on. No one is able to consistently and accurately predict the stock prices that result from this complex constellation of factors. In fact, this chaos makes it virtually impossible to discover patterns – although many stock market gurus do try. But in our opinion, every price forecast from a stock market analyst is essentially fortune-telling. And fortune-telling doesn't exist.
We take a completely different approach, drawing inspiration from Stoic philosophy. Our Stoic principle, for example, is that we must completely let go of things beyond our control. What returns should be, price predictions: these are all beyond your and our sphere of influence. We can only hope for a good return or be lucky enough to invest in the right stock. Hope and luck are closely linked to emotions, such as fear and greed: both of which significantly influence stock prices. But we can't control our emotions either. They're there. They overwhelm us. We can learn from them in hindsight, but we have little or no control over them. So we try to keep our emotions at bay as much as possible. We wrote this blog post about it.
So what should we base our investment decisions on? According to Stoic philosophy, we should focus on the hard facts and on things we can control. Duration is one such controllable factor: how long can you afford to miss your money? You can check that yourself – just read this blog post. Costs are also an interesting factor: the lower the costs, the more money remains. We wrote this blog post about that.
Regarding stock prices, what we do know for sure is that the global economy always grows in the long run. While this does come with its fair share of ups and downs (read: crashes and depressions) and ups and downs (read: economic growth), so far, stock prices have only risen since the stock market's inception.
The stock market index is, of course, the sum of the underlying shares in companies. If we look at individual stocks, we see that the prices of long-standing companies have only risen. For example, if you had invested $120 in three shares of Coca-Cola during the 1919 IPO, that would now be worth $1,483,000,000. Or if you had invested $20,000 in Apple shares 20 years ago, that would now be worth $5,080,000,000 (provided you reinvested the dividend in Apple).
The problem is, of course, that we don't know in advance which companies will be so successful and which won't. Apple, for example, nearly went under in the late 1990s. No one thought it was a good idea to invest in Apple back then. And as for Coca-Cola—what do you think? With what we know today about the harmful effects of too much sugar, would Coca-Cola still have a future? Anyone who knows is welcome to say. But we daren't make any pronouncements. After all, no one knows what the future holds. And as individuals, we have absolutely no control over it.
That's why we always diversify the portion of your assets invested in equities across all equities worldwide, and then trade very little to nothing. We call this diversification across the global economy. By diversifying your equities in this ultimate way, we're no longer distracted by the daily grind, but remain stoically focused on the point on the horizon: the moment you want to use your money again. Meanwhile, your assets simply grow along with inflation, any dividend payments, and the global economy. And the beauty of it is that this yields surprisingly good returns. Read this blog post. It shows that at Stoic, we achieve (much) better returns than the average Dutch asset manager. The explanation is quite simple:
The average "active" manager tries to beat the market. This means they try to pick out the specific stocks that perform exceptionally well. Stocks that underperform, of course, must be ignored. This way, they hope to achieve a better return than the market average, which, after all, also includes underperforming stocks.
As mentioned, no one can gamble well year after year. This means you might well encounter an asset manager who, thanks to such an active investment strategy, has achieved much higher returns this year than we have at Stoic. But they'll never be able to repeat this year after year. There are also guaranteed to be years where the active manager is completely off. That's why we at Stoic achieve better returns in the long run with our stoic investment strategy. The fact that we avoid the high transaction costs associated with constantly entering and exiting stocks also helps, of course. Research shows time and again that this way of investing is the best for your returns.
Then, of course, there are other "passive" asset managers. They appear to do the same thing as we do at Stoic. But often, "passive" is actually "active." For example, they invest your money in the Dutch AEX index and then leave it alone. That seems passive, but choosing the AEX index means your manager believes more in Dutch companies than in companies from other countries or continents. This essentially makes it an "active" choice.
At Stoic, we invest without any real vision. We diversify your assets across all stocks worldwide, then leave them alone for at least 10 years. Any money you want to use before 10 years is invested in safe government bonds.
We know, it's boring as hell, but it simply works best: not only is it great for your money, but it's also great for your peace of mind.
Door Henk Kras
