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Equity ownership culture in Germany

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All, I am really surprised that onwership of equities by Germans is so low- the below link says it's only 6.7%:

 

http://www.dw-world.de/dw/article/0,2144,2730224,00.html

 

I do think that the figure may be higher if one takes pension funds and other forms of indirect ownership into account- perhaps the 6.7% figure is only for direct ownership.

 

There was no expectation on my part that equity ownership would be as widespead as in the Anglo-Saxon countries; nevertheless, it is worth asking why not, especially given capital gains treatment that is far more favorable than that in the US for shares owned >1 year (not sure about the UK, but I doubt that there is a CGT there of zero for sales of shares held over one year).

 

Any thoughts on this?

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As you can imagine, being a banker by profession and with a number of years experience in private banking in Germany, I know German investors and their attitude from first hand.

 

There are certainly tons of reasons to be found, one of them being that in German families and schools the great crash from 1929 is still a major story, how greatgrand-dad lost everything and so on. The only time when Germans were starting on a broad front to enter the markets again was exactly on the height of the internt hype and most people did it with greed, no long term strategy, no diversification of asset strategy and so on and lost lots of money again. During the last couple of month, when stock values reached levels of 2000 again, German de-invested their stocks and investment-funds in the area of 6-10 billions worth of Euro because they could finally recuperate their old investments (of course without any profit in the meantime). And because of the current irritations at the market, many will say now: gee. am I glad to be out of that, I knew it wouldn't last and so on.

 

Thus Germans appear to be much more victims of the typical decisions traps when investing and prone to make every mistake Financial behaviourism offers. On the other side, banks and typical German "financial advisers" are not much of a help here either, because the training is poor and it is usually much more profitable to have people invest in life insurances and similar products. Therefore you may be right that indirectly Germans are owing much more equity through the life insurances they hold, but here they usually get a piss-poor bargain because the yield is mostly not much above a savings account if you do the computation correctly.

 

Germans typically invest in a) savings account B) Bausparverträge (loans&savings products) and c) life insurance. the younger generation now understands that they need to do more in order to have enough money ready in old age, but still are hesitant to see stocks and investment funds as a long term investment.

 

My own clients are not overly concerned about the current down-turn at the stock exchanges because they get lectured from the beginning that the time-horizon for investment in stocks should be 10+ years, only then does it make sense from my experience to invest there. On top my clients usually hold shares in real estate funds, private equity funds, hedge funds and other alternative investments such as ships and containers and the investments because these investments have only a very low correlation to the stock markets and provide more security over a long time for an investment portfolio. In addition investments are spread all over the world to make sure that no dependendcy on a single market (Europe, USA or Asia) exists.

 

Noble laureat Markowitz has shown the professionals among us good ways how to structure investments for a long term solid yield. Ups and downs are part of the game and not to be affraid of, on the contrary, if you use monthly investment plans, high volatility is a gift because it allows you to enjoy the extra yield from the cost average effect.

 

But Germans still want ot have a guarantee on investments and do not understand that each gurantee costs yield because the guarantee has to be backed by "safe" investment in bonds etc. Sometimes it can be very frustrating to advise average Germans on better investment strategies...

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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Good post Starshollow, thanks. Your perspective is almost certainly the best one to have of any TT member, but those of others are just as welcome.

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I think another possible explanation is the different culture of corporate financing in Germany/continental Europe and the US.

German companies are rather debt-/bank-financed traditionally, so the equity-market in Germany is relatively small.

American companies in contrast tend to get their money through equities. This in turn might be due to the fact that there were no banks in America when the settlers arrived there, so entrepreneurs had to ask other people to buy shares of their companies when they needed money.

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Eugene, sounds like a good explanation to me; however, why then a lack of interest in foreign-listed companies, or non-German companies whose shares trade in Frankfurt, and sometimes at a discount? That might be explained by the historical "home bias" most investors have had, regardless of their home country, and something that I think is changing. The wealthiest Germans I know are avid purchasers of foreign shares, although their risk tolerance is not that high, either.

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