Risk Aversion Not Stocking Up

Despite rising stock prices the past six years, Germans keep shunning share investments, putting their money in secure but low-yielding savings accounts instead.
Up up and away?

He has regretted it for a long time. And he has often apologized.

When Manfred Krug, a famous German actor, campaigned for Deutsche Telekom’s initial public offering in 1996, he could not have guessed the tragedy that would follow. At that time he lured Germans to invest in “T-shares,” becoming the face of advertisements.

Mr. Krug had been known in former East Germany as an actor and Jazz singer, before he had to move to West Germany. He made a career as a police commissioner on the hit TV show “Tatort,” or “Crime Scene”, and as a lawyer in another long-running TV series.

The public was excited by Mr. Krug’s confidence-inspiring appearance and followed his call to invest. The Deutsche Telekom stock listed on November 18, 1996 at €14.57 per share. On March 6, 2000, it reached €103.50: the absolute pinnacle, as it turned out, of the dot com boom. The stock market crash that followed sent shares flying down. Now, they trade at around €16.

In the United States, shares are a key part of any investment portfolio. But in Germany, very few people put even part of their money into the stock market. Carsten Klude, chief economist at private bank M.M. Warbung, told Handelsblatt that Germans are missing out.

“Even with a small share of stocks and a somewhat broader international diversification, the German investor could earn around €1,808 per year,” he said. “Such a mixture would still be conservative, and would therefore be low risk, and that is very important for most customers.”

The customers are afraid, they think that you lose money there, and consider stocks the stuff of the devil. Stefan Meier, An independent financial adviser

If one bets correctly, then the opportunities are endless. Bill Gates is the richest man in the world. Thanks to the exorbitant increase in Microsoft shares, the founder of the software producer earned $80 billion. Those who invested only $1,000 in Microsoft in 1986 would now have more than half a million dollars.

According to calculations based on data from the German central bank, or Bundesbank, the average German portfolio totaled €32,658 at the end of 2008. About three-quarters were held in savings accounts, fixed term deposits, bonds, or simply in cash. The remainder is made up of stocks and mixed investment funds. Based on the development of interest rates and securities, anyone who invested like this would have seen their capital grow 24.5% to €40,654 over the past six years.

But the catch is that with today’s low interest rates a concentration in fixed income investments is becoming less sensible.

What would have been the result if the average German had structured his portfolio differently six years ago?

Mr. Klude offered an example. He suggested taking most of the money out of savings accounts and deposits, leaving a cash reserve of only 10 percent. He would then increase the holdings of stocks to one fifth of the total, and put the large remainder in different European bonds, spread among government and company debt.  The total return would be 57.7%, more than double the result of the average German investment portfolio.


Germans Play Safe-01


The edge gained by the improved portfolio comes from the higher percentage of stock ownership and the international diversification of the securities. That is now more important than ever, Mr. Klude said, because interest rate returns have practically been eliminated in Europe. The European Central Bank has pushed interest rates to 0.05 percent.

“Billions are lying around useless,” said Martin Krebs, member of the management board at ING-Diba, the German subsidiary of Dutch bank ING.

“It is the destruction of money,” said Martina Palte, management board member of Comdirect, a broker which caters consumers with investment services.

Even with a small share of stocks and a somewhat broader international diversification, the German investor could earn around €1,808 per year. Carsten Klude, Chief economist, M.M. Warbung

But Germans have stubbornly refused to change their investment strategies. Their portfolios have hardly changed, as current statistics from the Bundesbank show.

Myths and prejudice shape their beliefs about stocks. A survey done by banks shows that half of those surveyed consider stocks to be purely gambling tools, and see a long-term investment in stocks as a high-risk strategy. Half of those surveyed also consider it an investment for the rich. Only one in five is aware of the fact that dividends can provide additional income from stocks.

Psychology plays an important role here. “The customers are afraid, they think that you lose money there, and consider it the stuff of the devil,” said Stefan Meier, an independent financial adviser.

A primal experience – the losses on Deutsche Telekom’s stock - has been seared into their heads. “When someone at the group of friends’ table talks about stocks that they once owned, it was usually the T-shares,” said Mr. Meier.

Quelle: Deutsche Telekom
Manfred Krug, a famous German actor, is remembered for ads pleading with Germans to invest, only for those investments to turn sour.


Stock market crashes at the turn of the century and during the financial crisis in 2008 have fortified the skeptical German investor. These experiences remain vivid in the minds of Germans, even if markets subsequently made up their losses.

Mr. Klude of private bank M.M. Warburg argues that even with high short-term stock market losses, there are long-term advantages to having a stock portfolio. But while stock markets may have performed strongly in recent years, Germans are unlikely to get over their antipathy towards shares any time soon.

In 2014, half a million Germans sold their shares, the German lobby group of listed companies, banks and brokers, the Deutsche Aktieninstitut, reported Thursday. The Institute’s managing director, Christine Bortenlänger, spoke of a “harsh setback.”

Since 2000, the number of German shareholders and holders of equity funds has fallen from 11.8 million to 8.4 million.

The actor Mr. Krug was a guest last week on a German talk show. The 78-year-old is still affected by his role in the Telekom story. “I was ashamed,” he said, adding that he was surprised Telekom had even assigned the job to a celebrity from the former GDR.

Hoping to defend his role, he tried to explain how the average investor could have avoided the losses. After Telekom's IPO, the stock price quadrupled, he noted.

“The thing has grown,” said Mr. Krug. “If one had had the nerves that are part of a stock-buyer's mentality, one would have observed a doubling, a tripling or quadrupling of the price – and then got rid of the things.”

His point was that one should have used the rising stock price after the listing to sell the stock. But, of course, hindsight is 20/20.


Ingo Narat reports for Handelsblatt on finance in Düsseldorf. To contact the author: [email protected]