Portfolio too good to be true



It’s the end of the year and therefore it’s time to evaluate our past stock purchases. We invested USD 100,000 in each of the previous three years, so in total our portfolios contain USD 300,000, almost all of which in stocks.

Now you shouldn’t make the mistake of looking at the individual titles, because stock markets unfortunately often behave very irrationally. For instance, how is it possible that Siemens lost half its value? After all, the company is basically still the same global industrial corporation. How can half of their stock’s value just disappear?

The reason is probably because stock prizes are sometimes rather unreasonable. This has been proven by Nobel laureates and this is what we’re taking advantage of with our rule-based method.

As another example, it is hard to understand why Peugeot has gone up by 45% while BMW has gone down. When you look at the companies, this doesn’t really make sense.

The better approach therefore is to look at the portfolio as a whole. All three portfolios together have grown in value in Swiss francs by around 19%, which by itself is not bad. However, this is only one of many ways to view the performance. Since we have many European stocks, we should also calculate in euros. From this point of view, the return is less good with only 9%. If we’re looking at British pounds on the other hand, then the portfolio actually increased by almost 25%.

Each currency tells a different story, even though the assets are the same. Should we look at everything in Swiss francs? This is what most people do, but it is the wrong approach, because in your retirement, you won’t be spending all the money in Swiss francs. If you buy a car, you use the manufacturer’s currency, if you go on holiday, you need the local currency there.

For this reason, we won’t simply consume everything in Swiss francs later in life. The fact is that the Swiss as a whole import around half of the products they consume. That’s why returns in other currencies are at least as important as returns in Swiss francs.

Since this is the case, we will be showing the returns of our investments in four currencies. Especially if you’re convinced that the Swiss markets are expensive – as we calculated in our last evaluation –, then foreign stocks are worth buying and should be viewed in the respective currency in order to get a more complete picture.