Breathless through stock turbulence: The Helene Fischer Phenomenon

Stocks are without alternative, one reads everywhere. But many investors are now starting to flutter: Breathless in the face of stock turbulence – somewhat loosely based on Helene Fischer. So what makes investors tick at the moment, what is their state of mind? Behaviorist and financial expert Manfred Hübner talks about the FOMO phenomenon, the consequences of tokenization – and the question of how financial institutions react in their customer approach.

Manfred Hübner, stock market psychologist, has specialised in sentiment analysis and behavioural finance with his company Sentix. This means that he is not only close to the pulse of the stock market, but also to the gut feeling of investors.

Are rising prices and valuations fuelling fear – or greed?

In principle, sentiment always develops along the price curve. Rising prices are therefore fuelling optimism. If investors also invest accordingly and are rewarded by the market, a euphoric mood usually ensues. On the other hand, long-lasting bull markets often lead to the phenomenon of “learned carelessness”. Both are critical sentiment developments and can encourage greedy investor behavior.

What is the appeal of topics like cryptocurrencies, sustainability and tech companies?

Every market cycle, whether bull or bear, is accompanied or shaped by themes and fads. The radiance of certain themes is thus the result of the prevailing narrative or the accompanying circumstances. Thus, as highly speculative markets, Bitcoin & Co. are not only a fashionable topic, but also an indicator of the prevailing risk appetite in the market. The situation is somewhat different for technology stocks. For investors, these are synonymous with the future and progress. Every investment made by investors is an investment in the future.

No wonder, then, that technology stocks per se are in the focus of investors. At present, however, they are also part of a severe narrowing of the investment spectrum. The world’s 6 most valuable public companies, all U.S. stocks, reflect more than 10 percent of the world’s market capitalization, with a total market capitalization of nearly $10,000 billion. Such a concentration leads to momentum and also additional risks from this concentration of capital.

Technology ensures that asset classes such as private equity (PE) or real estate are partially “tokenized”, thus lowering the minimum investment amounts. What are the consequences for the “investor’s soul”?

In principle, none at all. It is just a matter of new markets and new forms of access. The basic principles of investing, the ability to influence people and their dependence on emotions in investment decisions are not changed. Themes, technologies and fashions remain – people and their way of thinking, feeling and acting, on the other hand, practically do not change.

How can FOMO be brought under control?

FOMO stands for “fear of missing out”, i.e. the fear of not being part of a market rally and not being able to gain a good entry. Here I would like to quote a bon mot from the old master André Kostolany, who once said: “With shares it is like with the tram. If you miss it, don’t run after it. Wait and be patient, the next one is bound to come”.

So the clear appeal to stay calm. Emotions, especially those such as fear, greed, panic or FOMO, are usually detrimental to investment success. And if the investor really wants to get into the market, he should simply split his investment amount and invest it evenly over, say, 3 or 6 months. So in some cases he is in immediately, but reinvests selectively should there be a setback. In addition, every investor should be aware of whether he wants to speculate in the short term or invest for the long term. The longer the investment horizon, the less decisive the entry point.

Sustainability as a price driver?

Let’s talk about sustainability for a moment: The realization among investors is there that the topic is in need. But when it comes to implementation, many fail. Why?

The issue of sustainability is increasingly being taken away from investors by the investment industry. Regulation is forcing all investment houses, as well as exchange companies, to pay more attention to the issues of sustainability, governance and social-ethical standards. In a few years, there will only be investment vehicles that are “compliant”. Investors can, of course, create portfolio focal points by investing specifically in renewable energies or similar. However, investors should also remember that these themes are also subject to fashions – and fashion stocks are generally more expensive. For example, the greater future return for an investor could also lie with a commodity producer that is only now making its processes sustainable and is valued low because of its lack of sustainability to date.

green leafed plant in can hanging on wall

What does this mean for the communication of financial companies?

What has always been true for good communication applies: communicate proactively and transparently.

To what extent do seemingly unemotional products such as ETFs or quant funds obscure the power of emotions?

With an ETF, you invest in a market, so as an investor you don’t have to worry about stock selection. There is no fund manager who negatively influences the result by unskilful stock selection. Nevertheless, the ETF is held by a human. The investment result of the ETF affects the profit and loss account of the investor and generates corresponding joy or regret for him. Therefore, decoupling does not take place. The same applies to quant products, i.e. approaches that are strongly rule-based or directly controlled by algorithms. There, the human factor in the investment process is eliminated or greatly reduced. But it is ultimately people who operate and develop the models and programs. And it is people who have to bear the consequences of the computer’s decisions. So at best, the emotionality shifts one level.

Do you currently see an asset class that is less exposed to emotions?

In principle, no. Where people decide and act, the principles of behavioral finance take effect. However, this also presupposes the possibility of free decisions. On the bond market, this free decision-making ability is severely restricted by the massive monetary policy interventions of the central banks as well as the regulatory framework. We recognize in our data that investors are not free to implement their actual stance. For years, investors have been telling us that they think the current level of interest rates is far too low. That would actually lead to severe underinvestment. In fact, however, investors are sometimes forced by legal regulations to hold on to their positions.

Header photo: Photo credit: Portra

Autor
Arne Gottschalck arbeitet als Redakteur und Autor. Seine Schwerpunkte sind die Themenbereiche Wirtschaft, Finanzen und Technik. Er arbeitet seit 2017 als Redakteur bei der Corporate Publishing Agentur JDB.de. Zuvor war er über zehn Jahre als Journalist beim Manager Magazin angestellt. mehr