OUR MISSION & OUR VALUES
What drives us
Unlike many other Western countries, the shareholder ratio in Germany is just about 17%. Many private investors do not even generate any significant profits after inflation.
One consequence of this is that Germany ranks last in Europe in terms of net wealth. The risk of old-age poverty is also growing steadily with a pension system that is no longer sustainable in view of demographic change.
Policymakers are not helping to counter this trend – on the contrary: they are making it more difficult for private wealth accumulation by imposing one of the world’s highest tax and contribution burdens.
We are convinced that the wealth situation in Germany can improve significantly if the broad masses have access to first-class, high-quality financial knowledge.
Net wealth of median household (1.000€)
Source: European Central Bank (2013)
Why previous attempts have not been sufficient
Nevertheless, it is worth mentioning that a lot has already changed in recent years. For example, neo-brokers are currently experiencing a boom. Young people, in particular, are currently taking to the stock market. The shareholding rate among 18-35 year-olds is 35%, which is above the general average.
On the one hand the increased interest in the stock market can be welcomed naturally, on the side is here however large skepticism justified, if one looks at, how young humans invest. The vast majority buy a standard ETF and have the expectation that this ETF will generate them at least an annual return of 8% on average.
This average is historically correct for the U.S. stock market, but people tend to overlook the fact that this is just an average and that ETFs are not a no-brainer, contrary to what is often suggested.
Let’s take a look at three time periods in the S&P 500 that clearly illustrate the dilemma:
In the time periods 1881-1933, 1971-1998 and 2000-2013, one would not have earned any return at all with a simple ETF. Even if returns in other years were then back above 8% and thus the average of 8% was formed again, these periods would have been a tragedy for many people. Investors for whom wealth preservation was the priority even lost money after inflation. And young people who wanted to invest capital early on in order to benefit from the interest rate effect would also have tied up their capital in the capital markets for many years without success.
Now some people may see these historical time periods as an absolute special exception. We are aware that this is not the rule and hope that everyone will be successful with their investment strategy. However, it is not set in stone that we will not see another bear market.
In particular, a look at the current valuation shows how big the drop is. Almost never before have the stock markets (especially the U.S. stock market) been so far from their historical averages in terms of valuation as they are today.
It has been scientifically proven that high valuation correlates with low performance (second image). We consider valuation to be a very important indicator that determines where we recommend investing capital. Unfortunately, valuation is ignored in many financial publication formats, such as the popular YouTube channels.
But the current valuations make very smart and cautious investing more important than ever.
Historical valuation of the S&P 500
Correlation between valuation and performance
Source: CAPE: Predicting Stock Market Returns by Star Capital
Because a wrong conclusion from the high valuation and the partly bad experiences with simple indices from the past (which mostly followed high valuations) would be to run after the crash prophets. Especially in Germany, people who have been warning about the crash for years enjoy a very high popularity. Thus the books of the permanent crash prophets, like e.g. Marc Friedrich/Matthias Weik or Dirk Mueller stand regularly on place one of the best-seller list for financial books.
With the performance of their investment products, however, one would have lost a lot of yield.
Here the course (yellow line) of the Friedrich & Weik value fund and the Dirk Mueller Premium fund. For comparison, the S&P 500 is shown in both charts (blue line):
Friedrich & Weik Wertefonds vs. S&P 500
Dirk Müller Premium Fonds vs. S&P 500
Even holding cash is no longer an option due to negative real interest rates.
At Market Spider, we believe that the best option for wealth accumulation is investing in the stock market. However, in order to beat the market and not put yourself at risk of prolonged stagnation in the markets, you have to do a few things better and smarter than the masses, many of whom just rely on simple ETFs.
We see investing in quality stocks that are trading below their fair value and offer a very attractive risk/reward profile as the pinnacle of investing.
If we were to do a company analysis of Market Spider ourselves, we would say that it is a moat company, as there is no direct competitor.
So we choose the middle ground between the crash prophets and those for whom no valuation is too expensive.
We also differ from the competition in terms of methodology. After all, there are hundreds of financial magazines that all do the same thing: Mostly they react to events, sometimes they give far too many buy recommendations full of drive, and sometimes they enter into collaborations with companies and then recommend the stock for purchase as well. The former, of course, is nothing at all reprehensible. After all, there is a demand for wanting to know why share XY crashed by 5% today or why Apple is now splitting its shares. But this has just as little to do with wealth creation and financial freedom as the other sections of a typical financial magazine. Namely, most of the time, the many buy recommendations are merely the result of the urge to employ staff and encourage customers to buy the magazine, just so as not to miss anything. The fact that almost every buy recommendation backfires, because they either recommended the wrong stock or the right stock at the wrong time, does not contribute to wealth creation – quite the opposite: It is a reason why many Germans do not successfully make money with stocks.
We, on the other hand, know that very very good buying opportunities, with which one can clearly outperform the market, are a rarity. And it is precisely with this knowledge that we trade. Of course, we go looking for good investment opportunities every day, but if none present themselves, there is nothing for us to recommend.
Two examples illustrate the success of our approach:
We recommended Philip Morris CR in August 2020 (buy price: 498€). This offered a dividend yield of 10% and fluctuated very little (low correlation to the stock market). The company was debt free, highly profitable and undervalued under all valuation indicators.
Normally, a 10% dividend yield is a warning sign-but here we saw a very attractive opportunity that paid off for our subscribers. Not only does the stock continue to pay the dividend, but it has already risen 40% to €680. For a defensive, conservative stock, that’s a result that can leave most “mainstream dividend stocks” far behind.
In January 2020, we advised buying Zooplus (purchase price at the time: approx. 80€). Here, we noticed the very low price/sales ratio of 0.8, which is an unjustified price discount for a growth stock compared to the peer group. The analysis of the market environment and the business strategy also showed us that most market participants were too critical of the business model at the time and that the share was trading very significantly below its fair value.
Now the share is trading at 468€ and has been taken over. This corresponds to a return of 500% within 20 months.
We think that one thing is especially important in stock analysis: the “Circle of Competence”:
“Knowing what you know and knowing what you don’t know is true knowledge.” – This quote from Confucius, which is over 2,000 years old, is one of the most important viewpoints in our opinion when it comes to stock selection.
Thus, one should be aware that it is not possible to fully understand every company and its fundamentals. This fact causes that it is elementary for a successful investment to invest constantly in its human capital. Thus, we think that you should only invest in a company when you can understand its business model and its industry.
In addition, one should know the fundamentals, the management, the risks, the competitors, the valuation, etc. in detail. We also take macroeconomic correlations into account.
For this purpose, we have a broad-based team of experienced analysts, economists and mathematicians who specialize in specific industries.
In fact, such a highly selective approach excludes a whole range of investments. Is it possible to miss an opportunity? Quite possibly. However, one should keep in mind that the probability of losing money with a stock whose company one does not understand, but simply buys on good luck, far exceeds the chance of an accidental profit. The fact that many private investors lose money on the stock market is due to the fact that they often buy stocks whose brands they know or have heard about from acquaintances, but do not subject this stock to any fundamental analysis. Even with first-class managed companies, many losses can be made. No matter how great a company’s products are, if you buy its stock at too high a price, you will make losses.
On the other hand, if you buy shares of companies you understand, the risk/reward ratio is many times more advantageous and you can make a large fortune on the stock market in the long run.
Specifically, we are interested in companies that have a highly profitable business with a large moat that protects it from new entrants and allows high profit margins to provide the shareholder with a generous return on his capital. In addition, the financial situation is also very important. We select companies with a conservative financial structure that have enough cash reserves to withstand difficult market conditions. The management should also stand out through wise capital allocation.
Only when all these criteria are met do we turn our attention to assessing the intrinsic value. If this value is below the current market value, this stock is undervalued and the chances for an above-average return are very high.