• ETF Insights

    A Parisian Hairdresser’s Winning Style

    Martijn Rozemuller, CEO – Europe
     

    One of the marvels of the pandemic crisis has been the rise of the individual investor. Trading on online brokerage platforms, they have punted on the latest hot stocks free of charge.

    They are drawn from one hot theme to the next. Since late last year, many have locked onto the ‘reopening trade’, where value stocks like banks that would perform well in a reflationary world trump the tech stocks that led markets higher in 2020.

    I am a great believer in democratising investment and the power of the individual investor. But I have found myself wondering in recent days whether these market newcomers are riding for a fall. By contrast, I recall the story of a Parisian hairdresser who invested quietly in stocks all his life and on his death in 2012 left EUR 2.5 million to L’Orne, the Norman village of 850 inhabitants where he grew up.1

    While the news article I read almost 10 years ago does not relate the man’s investment style, one imagines that it was long-term, diversified and prudent. In fact, far from the speculative style of the latest newcomers to stocks, taking up investment to escape the boredom of lockdowns.

    New individual investor army

    A recent Deutsche Bank survey, reported in the Financial Times, profiled the new individual investor army. Almost half of US individual investors were completely new to markets in the past year, it found. They were mostly under 34. They were willing to borrow to fund bets; to use options; and to research trading ideas on social media.

    So far, these new investors have looked wiser than many market professionals over the last extraordinary 12 months. Deutsche Bank believes they are the driving force behind the equity market rally running since late March 2020.

    But the future is a long time coming. Over time, it’s the Parisian hairdresser’s style that has won out. In other words, a broadly diversified portfolio of equities, perhaps some bonds and also some real estate and gold. In these modern times, even a small allocation to cryptocurrencies is even thought wise by some investors. ETFs and ETNs are cost-efficient instruments allowing to achieve a diversified exposure.

    In years to come, it may well be that some elements of today’s individual investor inflows come to be remembered in similar ways to the UK railway investment boom of the 1800s or Dutch tulip mania in the 1600s. Both investment crazes sucked in ordinary investors who later suffered huge losses.

    Choose your favourite style

    Illustrating the tendency of individual investors to get sucked in to hot markets, the chart below shows how their number has risen and fallen in sympathy with peaks and troughs of the Euro Stoxx 50 Index.

    Figure 1 – Number of individual investors versus stock market levels. Example: Germany

    Number of individual investors versus stock market levels

    Source: Bloomberg, Deutsches Aktieninstitut. Past performance is not a reliable indicator for future performance. This also holds for historical market data.

    I am not suggesting that today’s equity markets are in bubble territory. Indeed, many investment professionals think the bull market has some way to run. But some individual hot stocks may correct fast, leaving new investors nursing large losses.

    So, for me the winning style is the conservative coiffure of the Parisian barber rather than the reckless buzzcut of the foot soldiers of the new individual investor army.

    1Source: Le Point.


  • Important Disclosure

    For informational and advertising purposes only.

    This information originates from VanEck (Europe) GmbH which has been appointed as distributor of VanEck products in Europe by the Management Company VanEck Asset Management B.V., incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). VanEck (Europe) GmbH with registered address at Kreuznacher Str. 30, 60486 Frankfurt, Germany, is a financial services provider regulated by the Federal Financial Supervisory Authority in Germany (BaFin). The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. VanEck (Europe) GmbH and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index.

    All performance information is historical and is no guarantee of future results. Investing is subject to risk, including the possible loss of principal. You must read the Prospectus and KIID before investing.

    No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.

    © VanEck (Europe) GmbH