Stock exchanges in the United States and Germany set new records last week, but that wasn’t big news. You hardly notice it anymore because you got used to it. The stock exchange bureau SZ has counted how many days the German stock market index (Dax) has passed its previous high since 2013. The number is exactly 157.
157 record days in eight years, you can become numb. Many now take it for granted that prices are climbing. A whole generation, that of the under 30s, has seen booming stock markets almost exclusively in their lives. There have been setbacks like during the euro crisis in 2010 or the Corona crash in 2020, but they were quickly caught up. This gave many the impression that money can be made in the stock market without risk. This posture is extremely dangerous.
There is evidence that a great deal of recklessness has taken hold among investors. This was especially noticeable six months ago with the irrational hype surrounding so-called memes stocks like Gamestop, AMC or Blackberry. Young investors in particular, also in Germany, have agreed to take on the hated big investors on internet platforms. The fact that they were also successful in the case of Gamestop fueled the hype all the more.
Another indication is the bet with individual stocks which have recently performed particularly well. Customers of direct banks and German brokers prefer American technology companies like Apple, Amazon or Tesla. VW stock has now also become one of the most traded securities, as investors bet that the Group’s electric strategy will work.
Open detailed view
Trading room of the Frankfurt Stock Exchange. Savers need to think long term.
(Photo: Arne Dedert / dpa)
Stock discussions like this on discussion boards sometimes feel like a computer game, like it’s only a matter of time before you hit the next level. It becomes especially dangerous when inexperienced investors are tempted to put too much money on such risky papers or even buy them on credit. Because if it goes the other way, hyped stocks fall particularly low.
A third indicator can even be observed among so-called sane investors who do not rely on individual companies, but rather spread their money widely in the stock market; It’s not without reason that ETFs that track stock indexes head-to-head are increasingly popular. But you can also take over with ETFs, especially if you take more risk than you can afford. Only the money should be invested in the stock market which investors do not have to touch for at least ten years. Only then can you sit down longer on times of weakness.
The art of wetting is to hold out, especially in times of drought
This is not about making investors prepare for a slump. Some flute players apply a questionable business model with prophecies such as “The Crash Is Coming” because they are earning their own funds which are supposed to protect investors. You can never predict if and when an accident will happen.
In the current situation in particular, it does not seem so. The main reason for the stock market boom in recent years has been the cheap money policy of the central banks, and they are not thinking of giving it up anytime soon, even now that inflation is soaring in the United States and in Europe.
Still, investors should be aware of the risks that the stock market typically holds. Many have forgotten that stock prices can drop 50%, 60% or even 70% and it can take years to return to their previous levels. Before the stock exchanges began their last record hunt, it was 13 years, from 2000 to 2013.
Anyone who invests in the stock market should do so in such a way that they can survive droughts and not have to come out of panic, financial hardship or disillusionment. Many investors who think they are prepared for risk today have yet to see what it is like when risk is on the right track. The art of investing is to hold on. Because as risky as the stock market is, it has always been so certain that it will set new records after lows – and if they last for years.