Stock market knowledge for financial investments & investments: How does securities speculation work?

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

Germany: no country of shareholders! Why actually?

Stock market guru André Kostolany once said: “Buy stocks, take sleeping pills and stop looking at the papers.” Are stocks really like that? for sure and useful? One thing is clear: the Germans are seen as a people who are extremely keen to save. However, savings are quite one-sided. The desire for security dominates. For decades, life insurance policies with the advertising arguments »security« and »protection« have been very popular in Germany merchandise. From a purely statistical point of view, every German owns more than 1,1 life insurance policies on average. In the Discipline »Life insurance contracts per inhabitant« has been in Germany for many years lonely at the top. The insurance companies look forward to premium payments in the tens of billions every year. Other forms of saving, such as savings contracts or savings accounts, are also very popular. With this conservative investment strategy, Germans have managed to make ends meet relatively well over the past few decades.

The Germans, on the other hand, were less fortunate with "more offensive" forms of saving. During the stock boom around the turn of the millennium, the number of stocks and stock fund owners exploded from 5,6 to 12,9 million. The following price slump with the multi-year crash has that Trust into the form of investment shares sustained shocked. Even the relatively solid leading German index, the DAX, suffered a setback from over 8.000 to 2.200 points. The losses in the "Neuer Markt" segment of the stock exchange were much higher. Anyone who bought a "people's share" like Deutsche Telekom for 100 euros and then sold it a short time later for 10 euros will initially stay away from shares.

New investment strategy needed: More courage to share culture

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So the decline of stock culture 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 could only increase in 2015 in view of the continuing low interest rates in the euro zone light increase to 9,0 million. This corresponds to only about 11 percent of the population. In England - traditionally a "stock market country" - almost every fourth inhabitant owns shares or share funds. Rates of over 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 »gambling country«.

Of course, the reticence of German savers also has an impact on ownership. Fifteen years ago, domestic investors controlled around two-thirds of DAX shares. Today it is less than half. The majority is in the Hand foreign investors. It doesn't matter much to the stock market where that came from Capital originates. The large inflow of funds from abroad meant that the DAX was able to reach a new all-time high in 2015.

However, German investors hardly benefited from the upswing – they left the stock market beforehand. In view of the great challenges in the area of ​​private old-age provision, probably the wrong one decision. There are several reasons why the traditionally conservative investment strategy no longer suits the challenges of the 21st century. We would like to mention just two points as examples: the structurally low level of interest rates and the demographic development, which is causing a supply gap.

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

After the bankruptcy of USBank Lehman Brothers in autumn 2008, capital was withdrawn from the market worldwide in a panic reaction. Cash was king! Since the "lubricant" for the global economy was suddenly missing, central banks around the world lowered interest rates fast again Money to make available. In the important economic regions of the USA, Europe and Japan, the key interest rates are still around 0 to 1 percent today – around eight years after the Lehman bankruptcy.

The flight to safe forms of investment and the low level of interest rates ensured that the average yield on German government bonds slipped into negative territory in mid-2016 – a situation that had never existed before. The returns are extremely low if the money is only to be invested for the short term. Anyone who wanted to park their money relatively safely with the federal government in 2016 and invested in short-dated federal securities also had to negative Taking returns - so paid to park money with the state.

Interest rate policy has an impact on life insurance

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This interest rate policy has an impact on life insurance. Because of course they also invest their money in the capital market. Yields on endowment insurance will continue to fall. The reported guaranteed interest rate fell from 4,00 percent in 2000 to just 1,25 percent in 2015 and will be further reduced to 2017 percent from January 0,9. The trend continues. The reason is simple: More than 60 percent of the more than 800 billion euros that life insurance covers for their customers invest in fixed-income securities (we'll go into more detail in a later chapter). However, if these bonds only yield 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 (the shareholders of Allianz, for example, receive an attractive dividend).

Since there is no sign of a short-term turnaround in interest rates, average insurance returns are likely to fall further. The question is: Which new customers invest then still in life insurance? The insurance groups are still comforting their customers by saying that the low interest rates will soon be overcome. But hope is deceptive. A radical interest rate hike is not in sight in the long term. You only have to look at interest rate developments in the world's most important market - the USA - since 1980. The interest rate level has been falling for over 30 years! In 1980 the US Federal Reserve fought the last major battle against inflation. Interest rates rose into double digits. Yields on five-year US government bonds climbed to 12 to 16 percent. In 1990, the return was around 8 percent, in 2000 it was 6 percent, in 2010 it was around 3 percent and since 2012 it has been less than 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 tending to fall. This is poison for the conservative German life insurance companies, which mainly deal in government bonds invest (although the question must be allowed as to whether government bonds can still be considered »conservative« in view of the debt crisis in the USA, the EU or Japan).

Private pensions become a "must"

The longer the current low interest rates last, the greater the risk of turbulence in the insurance industry. It is an open secret that some insurance companies are already living off the reserves – but these are finite. The life insurances verlieren of attractiveness. There will be a market shakeout. The consequences for the owners of the policies are open. Current contracts should not be prematurely terminated, but »fresh« capital can be invested more strategically.

The same applies to conservative savers: Invest your money in the stock market. In this book you will find out what options there are for investing money in the stock market in order to optimize the chances of a return. The spectrum is huge and ranges from stocks, Funds, discount certificates, convertible bonds and gold as a »nest egg« in the Crisis.

The demographic development ensures that we have to work longer and longer. The keyword »pension at 70" is unfortunately only the beginning. If you want to know where the trend is headed, it's worth taking a look at Scandinavia. State reforms are often discussed in a more objective and far-sighted manner there. A radical form of pension has already been implemented in Denmark. The approach: In the long term, the legislature should no longer arbitrarily set a retirement age every few years, but rather incorporate an automatic adjustment to life expectancy. The rule of thumb is: The average pension period should be 15 years. The social system tolerates such a period of drawing the pension. It sounds harmless, but it has serious consequences. Life expectancy in Denmark is currently 82 years. The retirement age therefore had to be increased from 65 to 67 years.

Declining pensions, increasing life expectancy

The big but: Average life expectancy has been rising for many decades and is likely to continue to rise over the next few decades. In Denmark, the forecast for 2030 is a life expectancy of 86 years. The retirement age would then automatically increase to 71 years. And that's just the "cautious" forecast. Other scientists estimate a life expectancy of 89 years. According to the formula, the retirement age would then have to be increased to 74 years. We do not even 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 sounds at the moment, the number "70" will not be the last number in Germany either.

Since retirement begins at 70 for many People is only a theoretical number, this reform has to be translated: it is simply about reducing pension entitlements. Who in future not to the high Age able or willing to work must accept significant deductions. The effects are different: That Problem poverty in old age will increase. At the same time, many people who dream of a relatively high standard of living will have to make big sacrifices.

The only way out: If you have the financial means, you have to (!) save. Private old-age provision becomes mandatory. In this case, too, the stock market offers answers to the problem. When it comes to private old-age provision with shares and funds, it shouldn’t be about »gambling«. are in demand Strategies, which last for decades and enable targeted, strategic asset accumulation. Surprisingly 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 old-age provision. So you have to find the right depot bank, open a depot, set up a savings plan and calculate the later tax burden (also the tiresome topic Taxes must not be concealed).

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

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.

But what is the difference between the weekly market and the stock exchange? Quite simply – in the things that are traded. On an exchange, you don't buy real goods that you can eat, drink, or wear. You're just buying legal rights. What does that mean again? Investors used to buy printed slips of paper – so-called shares – on the stock exchange. These slips of paper certified that the investor was co-owner of a particular product with the purchase Company had become. But that didn't mean that he could simply walk into the company's warehouse and help himself to the products stored there to his heart's content. However, as a co-owner, he had the right, together with the other shareholders, to decide indirectly on the composition of the executive floor. And he could also expect to share in the company's profits. If the profit prospects were good (or at least that's what the stock market traders believed), demand increased and with it the share price - i.e. the price of the share. If there were rumors of impending losses, the price fell. But we'll get to that later. Let's stay with the typical commodities of the exchanges as we know them.

This is how stock trading works

Today, printed slips of paper are no longer exchanged, everything works electronically. The actual commodity on the exchanges this Welt has remained: securitisations. Or you could also simply say: securities.

• Shares represent co-ownership of a 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.

The tulip craze: how securitization was invented

How do you get the crazy Idea, instead of just trading goods with slips of paper? The whole thing was invented in Holland in the 16th century. There, people had taken a liking to a flower that was still extremely rare and precious at the time: the tulip. It was considered chic to decorate one's garden with these wonderful flowers. So the price of tulips kept going up. And not just for any tulips - no! Mottled and mottled tulips were particularly popular (btw: a plant virus, the mosaic virus, was responsible for this mottled appearance. But nobody knew that at the time!). If you enter the name "Semper Augustus" in the image search on Google, you will see which type of tulip was very fashionable at the time. The "always sublime" was what today might equate to a luxury villa or a Ferrari. Rich merchants were willing to pay fortunes for such tulips!

But that called on speculators, people who never intended to see such a tulip bloom in their garden. You got involved as a middleman with the Objectiveto be able to resell the purchased tulips as profitably as possible. Perhaps you were startled when you read the word "tulips". Because of course the flowering specimens were not traded, but tulip bulbs. You literally bought a pig in a poke. It was completely open whether a purchased tulip bulb would actually develop into one of the coveted Semper Augustus tulips with a flame pattern. Nevertheless, not only the merchants but also the speculators were now spending 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 the dream of many people today, and the world's stock exchanges seem to be making it come true. Buy a security, wait until its price has risen rapidly, then sell it again at top prices merchandise – what a beautiful dream! And indeed, the tulip craze of the 16th century was not the only derailment of this kind. Countless speculative bubbles have sprung up since then, and they all had one thing in common: they burst – just like the dream of fast money. Getting rich in one fell swoop is also the exception and not the rule on the stock market.

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 speculative bubble is certainly familiar to you: Did you experience how in the late 90s, moon prices were paid for even the smallest Internet gossip? Did you back then with big, round Eyes followed as prices kept hitting new records? And that despite the fact that hardly any of the sought-after companies ever made a profit. On the contrary: most of them were deep in the red. Do you have this Ascent and subsequent fall of the Telekom share, Germany's popular share? They all bought them for up to 100 euros, since the earning potential on the telecommunications market seemed almost endless. Today we know: It's not that easy, even on the telecommunications market, because the competition never sleeps. The price of the Telekom share is still bobbing between 10 and 15 euros. And many Internet slugs didn't keep their promises either, but went broke. A lot of money from bona fide shareholders literally evaporated when the dot-com bubble burst. Many a first-time shareholder fell flat on his face and then wanted nothing more to do with shares.

The last big speculative bubble is still in our bones: the subprime crisis. This time it was less the private individuals who had speculated, but rather the banks. They bought up loans from American homebuilders. From home builders who actually could not afford their own property. Their loans had been broken up into millions of securities. Some insurers had also issued insurance against credit default (credit default swaps) and the risks, also broken up into securities, sold on the capital market. The whole thing was so complicated that everyone felt secure in their possession of surefire bonds, which also paid 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 became clear that an unbelievable number of banks had highly toxic securities in their portfolios. Securities that could easily cost them their very existence. The greed of the bankers once again created a bubble that 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.

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.

By the way: Greed is just as bad as greed Anxiety. Anyone who always invests their money according to the motto »The main thing is that I don't lose anything!« ends up being a loser. Think about it: At best, a savings or call money account currently brings 1 percent interest. However, even in an economically relatively stable country like Germany, the annual inflation rate is regularly over 2 percent. That means: If you store your money only supposedly super safe in the savings account, you lose the bottom line. The purchasing power of money is dwindling. So it's better to invest more profitably. That is also possible – on the stock exchange.

Common sense stock market investments

On the stock market there is always the dream of winning automatically. Everything that can be evaluated on the stock exchange is evaluated: historical price developments (charts), old data series, future forecasts by analysts - everywhere Pattern searched, which appear again and again. If such a pattern is found, an investment strategy is created from it. This pattern is then incorporated into a computer program. With a click of the mouse, 1.000 markets can then be searched through at once. If the pattern, once found, reappears, it can be "bet" on the stock market. The basic assumption is: everything repeats itself over time – including on the stock market.

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

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