The impulses are missing
It is currently “business as usual” on the stock market: the initial rumble on the markets at the beginning of the year is over for now. The markets have calmed down again, without any particular outliers up or down. Now it’s time to wait for the next impulses. Be it from the central banks, the economy or the quarterly figures.
As far as the economy is concerned, things are not looking good, especially in Germany. The ifo index has continued to fall, so some economists are already assuming that growth could stop completely this year. Inflation is far from being defeated, so the European Central Bank is sticking to its policy of high interest rates. And the US Federal Reserve? Well, we’ll just have to wait and see what Jerome Powell & Co. announce after their next meeting.
Good quarterly figures from the USA
As far as the quarterly figures are concerned, they have been quite positive so far, especially in the USA. So the rally continues. Tesla was disappointing, but the numbers from some banks and especially Netflix were surprisingly good. Both the Dow Jones and the S&P 500 and the Nasdaq 100 have reached new record highs. So it looks good from that point of view. But at some point this could quickly run out of steam if the Fed doesn’t cut interest rates as quickly as the markets hope.
“Luck is a bitch”
So it’s not exactly the time to get rich quick. Not the time of gamblers who invest their money in a new gold mine because a “profit of 500 percent” is promised in the shortest possible time. Such “hints” are widely known – but are often used by gamblers. But: Getting rich quickly is something that can happen to you in the casino. Everything in red or black. Then you either get rich quick or go bankrupt. But on the stock market? Rather not. Because gambling and thus achieving high returns in the short term only rarely works. And several times in a row? As good as never before! Happiness, TV star Daniela Katzenberger, as wise as she is blonde, once predicted, “is a bitch, it makes someone else happy every day.” But never always the same. This also applies to short-term stock market success.
Free lunch with quality stocks and high gross returns
How about a “free lunch”? So a low-risk profit? It definitely exists on the stock market. You just have to have patience for it. We rely on precisely this principle in our mandates such as the Frankfurt equity fund for foundations and the Frankfurt UCITS ETF – Modern Value. And on quality stocks that make such a “free lunch” possible. But what do these shares have to bring with them? It is ideal if these companies achieve returns on capital of 20 percent or more. And if possible, over several years. What is important for this is a good market position, i.e. a moat around the business model, in order to maintain appropriate pricing power in competition with competitors. In addition, it is essential for us to have as little debt as possible and a high cash flow. This is invaluable, especially in times of crisis. And if the gross margins are also right, then all is well with the world for us.
Apple, Ryanair, LVMH & Co.
A few examples from the portfolio of the Frankfurt UCITS ETF – Modern Value: At Microsoft the gross margin is 69 percent, at Apple and Alphabet it is around 44 percent. Overall, this margin for the entire ETF is almost 60 percent. And to give another example: for the low-cost airline Ryanair it is also over 20 percent. We feel comfortable with that.
You just have to be patient and invest in quality stocks. As Warren Buffett once said: “Time is the friend of good companies”. Then there is always a “free lunch” over the long term.