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Trading apps, GameStop & co - do we still need equity funds?

By Thomas Meier and Alexander Dominicus

"Share trading in your pocket: the best trading app for everyone", "Fast share trading for small investors: new brokers make it possible" - once again we are seeing these and similar headlines more frequently in the media. Many long-term investors are scratching their heads in amazement and asking themselves, is it that time of year again or is this really the beginning of a new equity culture? Many things point to the latter: the number of brokerage accounts being opened is growing rapidly and private savers are rediscovering the capital market.

According to the German Federal Bank (Deutsche Bundesbank), German private households alone invested 20 billion euros in equities and investment funds in the third quarter of 2020. According to the Federal Bank, this corresponds to three times the average purchases over the past 10 years. Online brokers are also increasingly reporting euphoric data on new brokerage account openings, particularly by the younger generation. This suggests that there are justified hopes regarding an improved investment culture. However, this hope is countered by the wave of short-term speculation by private investors in single stocks that we have seen on the other side of the Atlantic. This trend is being supported by the use of mobile devices, internet forums, such as #WallStreetBets, and the elimination of fees or the possibility of leverage. If we take a look at the discussions between investors on these internet forums, we can ask ourselves: do we still need equity funds? If we delve deeper into the psychology of these so-called "investors", however, we can recognise the following pattern: people buy what others buy, what has already done well or what is considered a "hot stock". Combined with frequent use of mobile devices or tablets, as well as a shortened attention span on the part of the user, this leads to the fast-moving nature of an "investment". However, this approach contradicts all the fundamental aspects of long-term wealth accumulation: detailed analysis, long-term investment and diversification to minimise risk. It is not relevant how one invests, whether by mouse click or not, but what one buys!

It quickly becomes evident to any objective observer that the advantages of an equity fund for the main part of an investment remain: diversification, investing in different business models and, above all, the benefit of expertise. Professional experts with a wealth of long-term experience and a proven track record search day in, day out for interesting business models, whether structural trends, hidden champions or promising dividend stocks. They spend a lot of time talking to companies, analysing valuations and observing the market.

Even if investors prefer to invest directly, they should not only rely on tips from investment forums, but also intensively study business models, valuations and management quality. As this requires a lot of time, experience and know-how, in times of trading apps & co, a distinction should be made between long-term capital investment through funds and hobby investments.

Authors: Thomas Meier, Portfolio Manager of the MainFirst Global Dividend Stars & the MainFirst Euro Value Stars und Alexander Domincus, Portfolio Manager of the MainFirst Top European Ideas Fund & the MainFirst Germany Fund

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