The WireCard fiasko and newspapers

I have been slightly absent from this blog this month as I got busy with the re-opening of my hotel here in Thailand. I am also working with a friend on a tiny online business, and yeah, the day has only 24 hours. But of course, plenty of things happened on the investment front and one topic deserves an honorable timely mention. I am speaking about the German DAX-quickie-candidate WireCard.

WireCard was the latest addition to Germany’s main stock index, the DAX. It joined the ranks of the most valuable German stocks roughly a year and a few months ago. But it has been a very short ride. Just yesterday the company was forced to file for insolvency.

About newspapers

I won’t go into details of what happened, who’s to blame or make any predictions on the future. There are tons of articles on these points out there. But I will say this: Reading newspapers really helps, and a paper like the Financial Times has much more credibility than any internet blog or forum out there.

I am reading and following several blogs and forums that give advice on stocks. I have also subscribed to several newsletters that supply me with daily updates and info about interesting opportunities and market developments. And often I can find some interesting stock picks there that are suitable for both, short and long term investments. WireCard was often cited as a shining star among German most promising tech and growth companies. And while the reports from the Financial Times were frequently mentioned, the narrative was mostly still being spun around to a more positive one.

But let me say this: When a major newspaper like the Financial Times starts to report on dirt about a potential investment and doesn’t back off even when being sued, then you better wait until things get clarified – beyond any reasonable doubt.

WireCard dropped like a stone when all the allegations and suspicions turned out to be true. Within only 3 days the stock dropped 98%, from slightly above 100 Euros down to 2 Euros.

WireCard found the perfect niche

I had a tiny speculative position in the company. 5 Shares which I bought at around 80 Euros apiece. On the day when the internal investigation report was announced, I moved quickly to sell and got rid of them just on time during the first drop at slightly above 50 Euros. I got lucky to get out with a small loss.

Despite the reports in the Financial Times, I also bought into a positive narrative. The propagated business model and the online news cycle for WireCard were very encouraging and promising. Of course, I still had my suspicions which is why I kept only such a small stake. But my hope was that the doubts about the company would have been eradicated during the investor’s conference. The shares would then have probably doubled in value by now and the company would show great potential to become a solid long-term investment.

Keep your emotions at bay

But greed and hope are seldom good advisors. Knowing this, there are strategies to control your risks.

First, you must know yourself and whether you are ready to take on the risk. If so, then control your stake, and have a plan in place to limit your losses. As in my case, I kept my stake at a very low level and made sure to have enough time to react when the news broke. This helped me to reduce my loss substantially.

If you are however not ready for any risk, then it’s pretty simple: Stay out of it. Wait for things to clear and rely on information and quality data. This approach will always serve you as a better advisor in the long-run. Yes, you might miss the opportunity to profit from a potential quick gain in the share price when news brake and the stock jumps to new heights. But if a success story is confirmed and gets in place, then the shares will likely keep rising for some time to come. Long enough to generate substantial gains for you over the years to come.

And the last point to mention is that whenever you are looking for quality information, remember that professional newspapers still have the best value proposition in terms of actual research out there.

Internet research forums, blogs, people like I, we are not really professional researchers. We dig into numbers and reports which are available online. Journalists are the ones who do the real work. Like in the case of WireCard, they got on a plane to Dubai, only to find empty offices. They tried to find connections across Asia, only to return empty-handed and with more questions than answers.

This is much more than any of us regular writers do. And of course it is, it’s their job. So you won’t do badly in putting some trust in them every now and then. Especially when it comes to making decisions that might concern your financial future.

Disclosure: I am not affiliated with any of the companies mentioned in this post.

The next downturn is coming

The last few weeks have been pretty interesting. First the stock market crashed. Then it started to rise and became “the most hated rally” in history. And now it’s back to crash again.

What I did over the recent weeks was observing which shares were rising and falling faster than others, and I did make some purchases. For most parts I bought shares of companies in the tourism and real estate sector, which fell dramatically, but which also show the most promise of rising back up swiftly once the real recovery starts.

The real recovery might take time

But indeed, the real recovery might take much longer than people, and the market, are anticipating right now. Since I work in the hospitality sector, I know very well the projections, and the expectations we are facing in the real world. And the stock market will adjust to these realities at some point.

The swings up and down right now are really extreme and show that many trades are being executed on impulse, on emotions. But in a few weeks these sporadic reactions will reduce, and real data will take over. The crazy daily swings will become moderate, and we will get back into a more stable trend.

The big question is of course whether it will be a positive, or a negative trend. And it’s really hard to determine, but personally I still expect an overall market downturn, because the recovery will take time.

The service industry is crucial – and so are spending habits

The service industry includes hospitality of all kinds. Hotels, bars, restaurants. And these businesses form not only the largest employment sector on the planet. They are also based on the idea of bringing people together. Sitting together. Spending time together.

Given that the behaviour of people has been altered due to the current pandemic, and also that it won’t likely change significantly unless there is a vaccine or cure, it’s therefore probably realistic to assume that a real recovery can only begin when this problem is solved.

Now a workable vaccine may come sometime by the end of this year, more likely during the 1st or 2nd quarter of 2021. Also, there is a high chance that the first generation of the vaccine won’t be as successful as some investors might think. The reason is simple: The first generation of vaccines is usually not the best one.

Given all these details, I would rather see any meaningful recovery to begin around the 3rd quarter of 2021. And until then, people will keep losing jobs, spendings will be marginal, travel will be restricted, and cash-flows will remain on the lower levels. Less spendings means lower revenues, lower profits, lower investments, fewer jobs, … you get the picture.

Good time to start investing

But again, as mentioned in this previous article, it might be a great opportunity for many people to start investing. While the short- and medium-term might look insecure, the long-term prospects are still in favour of investors.