20 Comments
Jul 17Liked by Joachim Klement

There is a great quote from 'The Big Short' which amused me after watching WestLB/Dresdner/Commerzbank

...the folly of subprime mortgage investors, some large number of whom seemed to live in Dusseldorf, Germany. "Whenever we'd ask

him who was buying this crap," said Vinny, "he always just said,

'Dusseldorf.'" It didn't matter whether Dusseldorf was buying actual cash

subprime mortgage bonds or selling credit default swaps on those same

mortgage bonds, as they amounted to one and the same thing: the long side of

the bet.

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"It's the economy, dummkopf" by Michael Lewis sums it up pretty well https://1drv.ms/b/s!At9od58qwtRei-xNwRgRF1OBvXzDKA .

An interesting take on what happened with the Germans and CMOs/CDOs is that it was a result of overly-compartmentalized views of the scope of one's job description as a bond fund manager. "Hey, all those American and British guys started to figure out that a lot of this allegedly AAA-rated paper was trash, and blew it out and/or stopped buying it ... why didn't you?" "Well, it was my job to construct a portfolio of attractively-priced AAA-rated instruments ... if you expected me to have to second-guess the ratings agencies as well, then that's a job for which you're not paying me enough money to perform. And by the way, my benchmark was -85%, but my fund was only -83%, so I did my job and expect a big bonus."

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The German guy who founded a company for which I used to work used to say "Germans are great savers, and great speculators, but lousy investors". I've observed that I am only ever pumped for stock tips by the locals very close to market tops (in fact, I view it as a useful contrarian signal) ... it makes me want to say "well where were you five or 10 years ago?" Then people pile in at the top, and usually into a handful of high-flying single stock names instead of into a broadly-diversified index fund, and then they inevitably get crushed, which reinforces the bad societal vibes on equities ... how many Germans are still carrying a 77% top-tick loss in Deutsche Telekom stock nearly a quarter-century later https://www.google.com/finance/quote/DTE:ETR?hl=de&window=MAX ?

Take a look at a "Bierdeckel" I saw in Frankfurt in 1999 https://1drv.ms/f/s!At9od58qwtRejZBA7omWkC0gw5rfEg . The way German media portrays people involved in the stock market as constantly jumping up and down and/or running around with their ties flapping in the wind behind them is something one doesn't see anywhere else. This isn't a game :-( I was shocked to learn that in Germany, land of needing a license to go golfing, that there's no security licensing requirment as in the US with the Series 7 and UK via the FSA, so kids are plopped in front of telephones to start smiling and dialing on their first day at work. This all contributes to a general public cynicism about the investment business ("investment products are sold not bought").

I think one of the chief contributing factors to the phenomenon you describe is that Americans have self-directed 401k plans, and the British have ISAs, but the attempt at "Riester Rente" in Germany was a flop ... nothing gets one more interested in long-term investing than having some "skin in the game" with a substantial portion of one's own retirement funds. German treatment of investment gains at 25% "Abgeltungsteuer" for everything should make equity investment very attractive, but the German government's insistance on complicated tax calculation as one goes rather than just allowing things to compound up and then taxing it on withdrawl is a serious impediment to building real wealth. Another issue might have been the historic domiciling of brokerage accounts at banks rather than brokerages, and the resulting extraordinarily high fee levels. Before my local German bank kicked me out for being American, they offered to set up a special managed account (which turned out to be pretty much the DJIA), and with a straight face said they'd only charge me 3.5% (!) per year to do so. German retail mutual funds routinely have 150-175bp fees and relatively low-hurdle performance fees (sometimes booked on the first day of the year), which soak up realistic annual investment returns but quick. Finally, people are so over- focused on tax avoidance that they ignore Warren Buffet's famous warning "More investment sins are probably committed by otherwise quite intelligent people because of "tax considerations" than from any other cause.” I'd rather pay 25% flat on a 10-12% average annual equity return than stick my money in some "insurance wrapper" bond thing that turns out to be tax-free but with an effective yield of 1-2%.

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As a German I woulf Like to Add something here: the school system (dominantes by left-Wing/green orientated teachers) ist the Main Problem, the Media is also run by people who hate Markets/investing etc.

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author

Well, the same is true in the UK, the US, definitely France. So why are they doing so much better than Germans?

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Because money talks and bullshit walks? ;-) Self-education on self-directed personal investment is part of the whole narrative: "Those who can't do teach, and those who can't teach teach gym." Too many example of those who "moved fast and broke things" and got rich as a result greatly eclipse tired teachings from grumpy, frustrated, underpaid public school teachers.

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Top comment!

A few German friends of mine got in touch with me to ask me for my opinion about Wirecard ... a few days before it went to $0.

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Jul 17Liked by Joachim Klement

Interesting chart on the fund location and performance. As I don’t see Luxembourg listed, I suppose the chart does not show the fund domicile (e.g. Sivan in LU) but the ultimate manager domicile.

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author

Correct, this is by country of risk, not country of domicile

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Jul 17Liked by Joachim Klement

Great day for the Dutch...Since a few years my mother buys me Japanese socks. To me they are no different from other nationalities' socks but she adores the Japanese shop's 'old fashioned quality'.

At least i now know where to put my money. Too bad the 'great Dutch pension funds' don't use socks anymore.

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100% Zustimmung.

"Stupid German money".

It's changing, tho. I know plenty young folks who ask me about basic investing stuff. Also, on the other end, lotsa 50ish new heirs who know you can do more than just buy pricey real estate.

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Don't forget that "Stupid German Money" originally applied to Hollywood https://de.wikipedia.org/wiki/Stupid_German_Money , but took on a broader meaning over time. Note that this Wikipedia article directly references the 2019 Kiel study Klement cites.

Closed-ended media funds resulted in a lot of bad movies and fleeced investors https://www.nytimes.com/2008/02/05/technology/05iht-film.4.9766435.html . Closed-ended real estate funds result in over-building of commercial space. "Insurance wrapper" products have horrendously low returns. The common denominator in all these sorts of thing is enevitably tax avoidance. I'll repeat the Warren Buffet quote I shared above: "More investment sins are probably committed by otherwise quite intelligent people because of "tax considerations" than from any other cause.”

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Jul 17Liked by Joachim Klement

How come the Japan (aka the Germany of Asia) does so well?

Both contries:

fantastic at making things,

appalling at making software,

hidebound paper-based bureaucracies

ecomonic miracle from 1945

..yet wildly differing investment results

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author

Good question and no idea.

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Jul 22Liked by Joachim Klement

Interesting and, to me, unexpected. Given the inter-connectedness of global markets, with Germany being next door to us, I suggest a bright German fund manager could be delegated to a British fund (and vice versa) and learn how to improve her returns. You, JK, could go back to Germany and earn €zillions as a fund manager; but then we would no longer enjoy your articles.

A minor point of style, please JK - We are ‘Britons’ and ‘British’, not ‘Brits’. I suspect the last is of American origin; although it is not as bad as calling Germans ‘K****s’ (says more about the incivility of the speaker).

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We'll stop calling you "Brits" and "Limeys" when you stop calling us "Yanks" and "Septics" ;-)

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‘Yanks’ is not a term I would use - I believe that, in the USA, it means an American from the North East. I have never read or heard the term ‘Septic’.

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That'd be "Yankee". Cockney rhyming slang "Yank" = "Septic Tank". I've heard it a lot ... along with "Kraut" as I am married to a German.

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Sorry to hear that, Gunnar. ‘Kraut’ sounds more unpleasant than ‘Brit’. When encountering a person who is not British, I would never use such a term - it demonstrates the ignorance of the speaker/ writer. Possibly more so with an American in that I worked with many Americans and liked almost every one.

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Aug 3Liked by Joachim Klement

This is not surprising.

Germans as a whole hate risk, hate losing money, and look at "failing"/"losing" as a personal shame. As such they tend to view investing as gambling and prefer to keep their money in their bank, where it is "safe". Or in the best case in real estate.

Generally Germans tend to view money as some sort of taboo subject that must not be discussed, compared or talked about. When discussing your salary with your parents is considered taboo, then of course you don't talk about your investments and everybody loses as a result. It may be something to do with religion and Germans viewing money as some sort of evil sin, and "work" as being liberating and honorable.

But it's changing - the young generation are a lot more knowledgable about investing and in 20 years this chart will look very different.

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