About conspiracy theories

One of the most interesting aspects of any crisis is to observe how people react to it. How does the media report on it? How do politicians act? What does your company do? What are the actions of your business partners, competitors, and colleagues?

For me personally, it is most interesting to observe how friends and connections on social media react. When it’s not about business, but about personal opinions, character, and values.

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Conspiracy theories on the rise

It’s hard not to notice the surging amount of conspiracy theories. Whether it’s a try to demonizing Bill Gates, or a push against China, the internet and social media are full of it. And while I wouldn’t expect anything else from Facebook (I stopped using Facebook almost 1,5 years ago), I am very surprised to see the same narratives even on a professional network such as LinkedIn.

Well, in the end, we are all just people. But let me tell you that as professionals who trust each other in business matters, it can really profoundly disturb a relationship knowing that the person I am dealing with is eager to spread misinformation, fake news, racism, and/or propaganda. In fact, this is a reason for me to seize doing business with such a person.

Controlling your emotions

As professionals and as investors, a major rule of thumb is to control our emotions. No matter what we personally think about something, throughout our careers we train to learn to follow data, to collect information from other people who are actual professionals in those fields, and then to draw conclusions based on the information we have at hand.

We can, of course, express our opinions, worries, or reasons which lead us to believe something to be otherwise. But this needs to be presented as such. And it’s needless to say that propaganda or racism is a non-negotiable and resounding no-go in any case.

About China

So today, let me address a few points that I read about in recent days. This is to offer some additional perspective on the blame China receives:

  • Wet markets. People are now eager to blame everything on the wet markets in China. Fair enough, according to the current data the virus came from there. But how certain are we that a similar outbreak could not occur in a wet market in Vietnam, Thailand or Cambodia? And how about slaughterhouses in the USA, or mass animal farming and chicken breeding? How about the hygienic conditions across India? There are so many potential breeding grounds for a virus, it’s mindboggling.
    My point here is that instead of generally blaming wet markets in China, we should rather try to identify general root issues and how to address those across the globe. But we can only do it in coordination and exchange with other nations. Our “artificial” borders matter nothing for a virus or any other natural disaster for that matter.
  • China is lying to the world. It might be. Whether it’s deliberate lies or creative interpretations of facts and data, we know that we have to be very careful with any information that we receive. But instead of pointing fingers, the USA and Europe should use the tools at hand to push for more data, to evaluate it, and to coordinate a response. Amazingly enough, we do have a real tool and task force just for that: The World Health Organization, or WHO.
  • The WHO is being controlled by the Chinese. There might be some influence. More, or less. We don’t know at this point. So we shouldn’t declare it as a fact and we shouldn’t reduce the funding to this organization just now. However, every participating and paying country has every right to analyze and evaluate an organization they pay money to.
    But what would be the best way to evaluate the WHO? I would argue that it’s probably not by setting up investigative committees and withholding funding. Instead, it might be smarter to send our own trusted professionals to support the work. By actively engaging in discussions and exchange of information, by ensuring that resources and measures are being directed to where they are being needed, this approach would quickly debunk any conspiracy theories, it would eradicate the finger-pointing and blaming, and it would result in a globally coordinated effort. Unity. Something that is urgently needed to fight a pandemic.
  • China will use the crisis to buy foreign companies. This idea is highly unlikely. First of all, China needs to do its own stimulus efforts to support the economy. Secondly, China needs to prepare itself for the upcoming economic disaster. What do I mean by that?
    Chinas growth this year is estimated to be less than 2%. The last time it was that low was after the cultural revolution in 1977. And this is just the current estimation. The real impact of the crisis and what will follow after that is difficult to predict. But we are seeing first sentiments and actions from entities worldwide already taking shape. Companies from major economies around the globe start moving production facilities out of China or are planning to do so in the foreseeable future. China is being sued by several states in the US for damages. Diplomatic ties are strained. Hostile takeovers of companies in the US or in Europe during a pandemic would only risk an irreversible lost of trust and global backlash which I doubt the country can afford.

I am probably the last person to put China into a positive spotlight. After living and working there for a year I had really enough and I don’t see myself ever going back there. Vacations – maybe. But spreading conspiracy theories and racism based on some shady propaganda and without thinking the arguments through… we are better than that.

Putting the Business Roundtable to THE test

Capitalism. The most successful economic system in human history. With all its flaws, no other system has generated more wealth and elevated more people from poverty to riches. But like every other system, it’s designed and managed by humans, so obviously it will be full of flaws. And there is no better place on earth to observe these flaws than the United States of America.

The richest country on earth, with huge conglomerates and companies that are homes to the richest people on the planet. But after just a month of shutting down their business, these capital behemoths are already asking their government for bailouts.

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The importance of emergency funds

Financial advisors usually teach their clients about the importance of emergency funds. Rule of thumb is to have 3-6 months of expenses allocated in an easily accessible deposit account. Whether it’s cash or short term, high-yield savings accounts. Whatever. Point is, that if you lose your job or if there is any other reason for why your cash-flow will get suspended, you should have a quick and easy way to access that cash. So even if your life does get disrupted, you can take the time to fully focus on getting back on your feet.

It’s obvious now that such lessons would be also critical for companies, especially the larger ones. As doors are being shut and balance sheets shattered, mass-unemployment is on the rise and demands for government support is increasing. Again, we are only a month into lockdowns, which may easily extend by another month or two.

Should governments bailout companies?

Governments around the world have responded quickly with stimulus packages, low-interest loans, grants and even direct cash payouts to citizens. I honestly don’t know and can’t think of any other solution for now. But it’s ironic, and funny enough, that even a country like the US, which is currently being led by the republican party, jumps in with help so quickly.

The republicans. Everything they are doing now is against every core principle of how capitalism should look like in a country that devoted itself to that system. Why should the government bailout unsuccessful businesses? A company that fails within as little as a month of trouble certainly can’t be called “successful” or “sustainable”.

Keeping an unsuccessful company alive just to preserve some jobs makes no sense. Wouldn’t it be better to restructure the company or to let it go bankrupt so new, smarter and better competitors get the opportunity to fill the void?

The only way I could imagine this to make any sense is if the government would see opportunities in the business for itself. Then it shouldn’t give any grants either, but rather take a stake in it.

By taking a stake in a company, the government can ensure the operations can continue and support a larger restructuring to put it back on feet. It can also keep better oversight to make sure the money goes to where it’s supposed to go to. Does anyone really believe that stock buybacks and CEO bonuses won’t happen in 2020, while employees are being laid-off, or staff salaries and benefits cut?

I am not alone with this this idea. It has been also supported by Mark Cuban and other prominent voices, who by the way might come up as an independent candidate for the presidential election in November.

The real strength

I think I heard the quote from Howard Shultz:

“It’s very easy to lead when things are going great. It gets really hard when you get headwinds, disappointments, and people are telling you that you’re in the wrong way.”

As of now, the headwinds are really strong for all of us. But it’s also an interesting and exciting time, becasue as investors, right now we can observe easily which companies are on the right track, which can endure hardships, and which have sound business strategies designed to go beyond their quarterly reports and dividend distributions.

We can (and should) also observe which companies have the strength not only to navigate through this crisis but to do so by simultaneously supporting their stakeholders. Keeping employees is just one part. Business partners are another piece of the puzzle. And yes, asking for taxpayers money is also a factor.

Being financially strong means, in my humble opinion, to not need to rely on anyone coming to rescue. Not only that but also to make a point that even if one would be eligible to get benefits, grants or subsidies, this money should be rather distributed to those who really are in need of it.

Putting them to the test

Less than a year ago the Business Roundtable declared the end of shareholder primacy and a stronger focus on stakeholders. There won’t be a better time but now to see who of those who signed the paper really meant it.

The best statement on paper is only worth as much as our actions tell. In good times, and in bad times. The world will be watching.

5 Tips how to manage your time (and budget) now

These are tough times. The world is on lock-down. People are losing jobs or are getting pay-cuts. And the probably worst thing of all is that we don’t know when this is going to end. Therefore, now more than ever, it is important to manage the money we have in the most cautious and structured way possible. Frugal living and strict budgeting can’t be a hobby now. It’s a must. So here we go, 5 things that you should consider doing today to navigate your finances and your well-being through these difficult times.

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1. Review your essential spendings

If you never had a personal budget, now is a great time to start. A personal budget plan sounds complicated, but it’s really a simple calculation of income and expenses. The more details you put into it, the more aware you will be about your essential and non-essential spendings. In a situation like now, this information is vital to make smart money decisions.

What do I mean by “essential” spendings? We are talking about survival here. So it’s the 3 basics: Shelter, food and health. Your rent, including electricity, water, and internet. Your spendings on food and drinking water. And your expenses to maintain your health.

Every non-essential spendings need to be put under review and you should consider cutting or minimizing them.

2. Plan ahead with weekly limits on your expenses

After having reviewed your budget, you will know the amount of cash that you have (or that will be available for spending), and how much you need to spend for your essentials. Now plan ahead and split your cash and/or income in a way to keep your essentials going for as long as possible. I guess it’s safe to say that the goal should be to try to sustain your expenses for up to 6 months.

Any remaining cash should be split into equal weekly amounts for the same total period of 6 months. Putting a strong limitation on your weekly spendings is a good way to ensure that you don’t overspend and keep track of your budget.

When I was a student and had hardly any money to live on, I had a very simple system which I still recommend: Withdraw cash for a month ahead for your spendings, divide it in 4, and put each amount in a separate envelope. Each one envelope is for each week of the month, and no matter what happens, be strict with yourself not to open any of the envelopes ahead of time. This method will greatly keep you aware of the money you have and what you can or cannot afford.

3. Get your family on-board

This point doesn’t apply for singles, but for anyone living with a family, this is a crucial one. The whole family needs to be on-board with this. It won’t help if you set up the most delicate and strict plan for yourself while your partner is clueless and keeps on living as if nothing would have changed.

If you have kids, this is a great time to teach them about the value of money. They might cry if they don’t get a toy or some ice-cream, but they will remember this as a “tough” time when the family had to stay strong together. Chances are that you will emerge from this stronger as a family. And it’s never too early to teach kids about the value of money. Trust me, the school won’t do it for you.

4. Consider a side-gig

Financial advisors are preaching to their customers the necessity of having an emergency fund, which should cover at least 6 months’ worth of expenses. The reason that this topic is coming up so often is that there are so few people who actually do it. And to be fair, even most companies don’t follow suit. Just take a look at the world right now: As our economies come to a halt, after only one or two months of missed revenues, millions of restaurants, hotels and even airlines are declaring bankruptcies or are in need of bailout money. They clearly didn’t have any emergency funds whatsoever.

So in case, if you are late on this and can’t see a way to make your finances work over the next 3-6 months, you might have no choice but to consider a side gig. The good news is that if you are reading this, it means that you have a working internet connection, and luckily, there are millions of jobs available online.

Check-out online freelance jobs through platforms like “UpWork” or “Fiverr” which may have jobs matching your skillset. But even if your skills are from completely different fields, consider teaching/tutoring English (or what else you speak), doing transcriptions or translations. There are lots of opportunities out there.

These jobs will hardly make you rich, but they can be of great support to prop up your finances and to get you through this difficult time. Another positive aspect of having a job will be that you won’t go mad while sitting at home doing nothing.

Last but not least, there is a good chance that you might end up keeping your side gig even when this crisis will be over and we get back to our regular lives.

5. Don’t slack off

And finally, no matter how long this may go, I recommend that you don’t slack off. You might relax a little for a week or two, but after that, get a routine in place. You don’t need to wake up at 6 AM, but you shouldn’t sleep until noon either.

Set a proper routine when you wake up, take a shower, shave, have breakfast, dress properly. Then work on your side gig, perhaps study a little bit. Coursera, EdX, and Udemy offer plenty of opportunities to learn some new things for free these days.

Having set times for breakfast, lunch and dinner is good for your inner clock. Set some time aside to exercise at home. Body-weight workouts are a great alternative to the gym. Any other hobbies you may have will keep your body and mind sharp and ready to get back on track immediately when all of this is over.

Is this THE opportunity for the next decade?

People were talking about the possibility of an economic collapse for a few years now. Over the last two or three years, whenever I visited a bookstore (yes, I do that) I saw countless books from economy professors, advisors, and other professionals talking about the next crash. I read some of them and I agree that there are many valid arguments that could justify a market crash. But I don’t ever recall reading anything about a possible impact of a pandemic on the world economic system.

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I should probably have read the “Gates Notes” more often. Bill Gates is obviously a guy you want to follow. He is smart, he is rich, and he likes to share his ideas. And yes, we should always be open to learning from the best, whatever our personal opinion about that person might be.

Bill Gates had a Ted Talk back in 2015 presenting a simulation of a very comparable scenario and urging governments worldwide to invest more into possible preventive measures to fight such a pandemic. His experience due to his work at the Gates Foundation together with his experience in the software industry gives him a unique set of skills that qualifies him to make valid assessments in this field. Additionally, he is well known as one of the richest people on the planet. So if anyone could grab some attention on this kind of topic from governments across the globe, it would be him.

He wasn’t as successful as he hoped for, so the Gates Foundation followed up in 2019 with the support of a simulation of such an event. The target was to highlight the impact of a pandemic event on every possible part of society, economy, politics. For those interested, search online for “Event 201”. It is quite impressive. Most things that were simulated during this event are right now developing “live” pretty much according to that playbook.

While some are already bringing up conspiracy theories, the truth is that this is just what scientists do. This is the power of science. A few smart people, computing power, and big data make it possible to foresee and to predict possible events, impacts, effects, and results. Those who see conspiracies at play here are those who don’t understand science.

So while the President of the United States of America keeps repeating that no one could have seen this coming, the truth is that many people did. They just didn’t have the audience, they didn’t get the government support, and they didn’t have access to the cash required to prepare the world for what we have to get through now. Even for Bill Gates alone, this check would have been too large.

Back to the markets

But enough politics, let’s get back to the markets. My income portfolio is currently down 40%. That hurts. My speculative portfolio is down 34%. My portfolio here in Thailand is down 35%. It’s looking not great. And all of this happened only during the last 4 weeks.

So what am I doing? I am losing lots of sleep. Not because of the losses on paper, but mainly due to the time I am spending now on analyzing where I am going to invest next.

I don’t want to rush into it, especially as I think that this recession (yes, we got into a recession by now) might hold on for a little longer. But, as soon as the virus situation starts clearing up markets will start to recover. And there are lots of companies out there that will get back on their feet.

The big question & the strategy

The big question is of course which companies will get back on their feet faster and stronger than others. And while I am analyzing and working on this almost daily, there is a simpler alternative for everyone who doesn’t have the time and knowledge to do that: Index ETFs.

It’s almost impossible to time the market. I don’t know when the lowest point will be reached. No one does. The recession could hold on longer. It could also end as quickly as it started. History has just no precedence to compare this with.

And this is what makes Index-ETFs so attractive. Instead of picking a company, I trust in the market. I intend to invest half of my available cash in just two ETFs. One ETF focusing on small & medium-sized companies in Germany. And another one focusing on major dividend-payers in Europe. I don’t buy them as a one-time investment. Instead, I set up a savings plan that will stretch over the next 8 months putting in equal amounts of cash into each ETF every first day of each month until the end of this year.

The second half of my available cash will be distributed in US and Thai stocks. I can’t say yet which companies I will choose, but to give a direction, it will be mostly in the technology sector. Software. Digital payments. Digital marketing. Telecommunications. But I am looking also at some companies that offer essential services, like food, water, energy, waste management. If anything became clear during the current crisis is that in any event, these are the companies that will sustain their operations (and cashflows) the longest.

More updates will follow soon. But no matter how the next few months will turn out, I see this as a great opportunity. I might of course also be wrong, but if I am right, then this will give my FIRE goal the kick that comes only once every few years.