Germans aren’t known for their caution-to-the-wind approach to investing. Saving is the name of the game, and very few dabble in the stock markets, let alone buy individual shares.
So spare a thought for the brave few who had bought shares in retail giant and furniture maker Steinhoff, which is based in South Africa but dual listed in Johannesburg and Frankfurt. Its shares plummeted by 80 percent between December 5 and 7 last year, after chief executive Markus Jooste resigned amid suspicions of accounting fraud. The annual financial statements showed a drop of 93.5 percent.
The “result” meant it topped a list of companies that destroyed the most capital on the German stock market in 2017, prepared by the private investors’ association, known as the DSW.
DSW has been analyzing the biggest losers in the Prime Standard segment of the Frankfurt stock exchange since 2001. To be included, companies must have been represented in the segment for at least five years. Shares are indexed and valued in relation to each other, dividends considered, and each is then scored accordingly. At minus 967 points, Steinhoff is close to the maximum negative score of minus 1,000. Other firms that had a year to forget include wind turbine manufacturer Nordex in second spot with a 56.8 percent fall, and Invision Software in third with a drop of 41.3 percent.
“If I pick out an individual share, that means I think I know more than all other market participants. That's quite a risky bet.”
The list doesn’t spare any company their blushes, and that includes the 30 firms listed on the blue-chip DAX index. Over the years, repeat offenders have included energy groups E.ON (15th place this year) and RWE (40th), for example, as well as Deutsche Bank. Germany’s largest bank ranks 13th on the latest list even though its share price gained 5 percent last year. The bank’s shares have simply performed too badly over the years. An investor who bought shares in the bank five years ago would today have lost 38.5 percent of his capital. Rival Commerzbank, on the other hand, managed to escape the list after for the first time in years after its shares gained 73 percent..
Meanwhile, information service 11 88 0 Solutions, fashion retailer Gerry Weber and gaming company mybet Holding are among the top five capital destroyers based on the overall assessment of all indexes.
Who will be on the next DSW list is anyone’s guess. While the markets have enjoyed big gains recently, with the DAX up 13 percent last year for example, the good times may be about to end. All major global indexes have tumbled since February when fears about inflation spooked the US markets. Also, the US central bank, the Fed, is currently in a cycle of interest rate hikes, and the European Central Bank (ECB) could follow suit in 2019. That would mean there would no longer be any stimulus for the stock market.
This should serve as a warning to investors, said Marc Tüngler, managing director of DSW. “We want this to remind investors that they should stay informed about their equity investments on an ongoing basis,” he said. He added that rankings were not an indication that shares should be sold. On the contrary, he believes the figures could actually be a sign that it is a good time to buy.
Whether the list is likely to inspire Germany’s share-averse investors is another question. According to figures from Deutsches Aktieninstitut, an organization that represents all the companies and institutions involved in the German capital market, only 15.7 percent of Germans hold shares or investments in equity funds. The figure drops to 7.7 percent for direct investments, i.e. purchases of individual shares.
Andreas Beck, president of the Institut für Vermögensaufbau, an organization that conducts studies to help private investors, believes that such analyses of historical share price performance are “pointless.” “They strengthen people’s impression that the stock market is a casino,” he said.
He added that while there is nothing wrong with banking on a growing economy, individual shares are not a suitable investment for most private investors. “If I pick out an individual share, that means I think I know more than all other market participants. That’s quite a risky bet,” he said.
He believes it makes more sense to invest in funds that can spread the money across a broad range of indices. That reduces the risk of individual capital losses like those found on DSW’s list.
That may be true. But it would make for a very boring list of winners and losers.
Matthias Streit is a correspondent for Handelsblatt. To contact the author: email@example.com