Year 2017 was exciting. Markets grew but were very hard, so even Einstein (although he made 30%) says he failed to beat Mr. Market this year. The big question is how 2018 will be, esp. because the market has not seen a correction for a long time. Neither we know the answer but our goal is not to predict the future but rather to help you analyze what may happen. Understanding your own risks and how the numerous rascals may cheat you is essential in trading and investing because there is generally no profit without risk but there are a lot of (idiosyncratic) risks without profit!
We summarize which such risks we have recognized and will continue doing it in 2018.
1. The main
tool we created for you is the ETF savings plan risk simulator.
You have definitely heard the mantra: "in the long term the stocks will grow". Although it often (but not always, recall NIKKEI) holds true for a one-time investment, it is not true for a savings plan. We also explained why it is so (in German) but if you don't want to dig deeply, you can just quickly check the scenarios with our simulator.
2. Our main
case study is definitely a prediction of IREX bankruptcy. Though the guy did have an edge, his overbetting was so obvious that the bankruptcy was just a matter of time. We even managed to predict in which circumstances it will happen (he switched from CALLs to PUTs but the market continued to grow).
3. The main
theoretical insight was the diversification: we have shown (also with real market data) that adding a new asset may cause more risk (volatility) of the portfolio. Thus a perfect diversification means that no asset can be dropped from (rather than added to) a portfolio.
4. Our main
disappointment was wikifolio: this original fintech project seemed to set the new level of disclosure (the complete trade history is available in real time by every portfolio manager) but tolerating and even advertising such toxic strategies like the above-mentioned IREX, wikifolio degraded itself to a yet another attempt to make quick money at costs of retail investors.
5. Our main
failure was a Put on nVIDIA. We are still convinced that nVIDIA stock is highly overpriced but this is another evidence that the market can stay irrational much longer than one can stay solvent.
Anyway, we don't feel confused when admitting our mistakes. Thanks to a strict money management virtually no single mistake can critically damage our portfolio.
7. The most
ridiculous thing was the fact, that even the "best" funds of such well-known financial groups like Deka and Union Investments, as well as (self-proclaimed) "gurus" like Prof. Max Otte and Dirk Müller were unable to beat the DAX in 2016. In 2017 nothing changed except DE0009750497, which is, however, a small cap fund and the German small caps performed particularly well in 2017.
We will keep up our work in 2018. Happy New Year and good PnL!