How does politics affect the stock market?


Raimund Brichta

To person

Raimund Brichta has hosted TELE-BÖRSE, the oldest and most popular stock exchange broadcast on German television, since 1992. The economist also works as a freelance business journalist and video producer. In 1978 he gained his first journalistic experience at the VWD news agency. In the nineties, as head of the business editorial department, he built up the stock market and business reporting for the news channel n-tv. He then headed the investor relations agency bv medien as managing partner and got to know the other side of financial communication before he returned to journalism.

Compared to the USA or Great Britain, there is little interest in the stock exchange in this country. Stock trading is not just something for speculators and gamblers. Because the stock exchange reflects the most important economic and political currents.

When asked about the way to the toilet, a trader replied to a trader: "There are no toilets here.
There is already a grain of truth in this age-old stock market joke. Because in the centuries-old history of the stock exchange, many people have succumbed to the temptation to take advantage of others and to capitalize on them. That is why there are now a large number of provisions for investor protection that make such action more difficult. Of course, it cannot be prevented entirely.

The reluctance to take this risk may also explain why, compared to countries like the USA or Great Britain, equity investments are not yet as widespread in this country. Although the number of shareholders in Germany has doubled since 1997, only 7.3 percent of Germans invested in shares in 2005. In 2005, a total of 10.8 million Germans owned shares or shares in equity funds. That was around 2 million less than in the peak year 2001, shortly after the boom on the Neuer Markt.

Since then, many investors have turned their backs on the stock market out of disappointment at the price losses they have suffered. Now, however, more and more of them are coming back, as the prices are recovering and media such as n-tv are also reporting on them in detail. That leads to the questions:

How do share prices come about? And how does stock exchange trading actually work?

It all starts with a company that issues shares and gets money from investors to work with. Only at this moment does your own share price have direct significance for the company. The more expensive it sells the shares, the more money comes into its own coffers. After that, the shares will only be traded among investors on the stock exchange. The company itself has nothing to do with it and no longer receives any money for it. In principle, a stock corporation could not care whether its price rises or falls on the stock exchange. Because even if the shares crash, they will not suffer a loss. Only their shareholders will have to accept losses - the shareholders.

Nevertheless, the board members of the AGs are usually interested in a rising share price. Not only because they often own stocks themselves, but also because they like to see such price gains as confirmation of the success of their work. In addition, the company's own price level becomes interesting again for an AG at the latest as soon as it wants to sell new shares on the stock exchange in order to obtain fresh capital. Then it can ask for more money for the shares, the higher the current market price.

But what does it depend on whether stock exchange prices rise or fall? Quite simply about "whether there are more fools than papers or more papers than fools", stock market guru André Kostolany learned in his younger years. The real essence of this sentence: In all the facts and sober analyzes that are apparently behind the valuation of stocks, the psychology of the people who trade on the stock market plays the most important role. It can therefore happen that share prices double or halve without anything having changed in the companies concerned. At most, the number of "fools" who want to own shares in the company has changed.

Just a rumor, for example, can set the price of a share in motion. So if you are interested in a rising or falling price, you like to spread a suitable rumor. On the other hand, rumors often have a true background. Important events - such as company takeovers - are often announced as stock market rumors before they are officially announced. As a rule, so many people are involved in the preparation of such transactions that not all of them can "hold tight". But once information seeps through, it then spreads like wildfire.

This results in an important insight for the investor: On the stock exchange, it is not a question of being right, only of being right. Ultimately, the mass always determines which direction it goes. No matter how good you have arguments for a stock to go up. If it falls anyway, it should be accepted.

Are there also real people's shares?

As a rule, it is used to describe shares in large former state-owned companies, such as Deutsche Telekom or Deutsche Post, that have been sold to the "general public". The only question is whether it makes sense for "the people" to be involved in such individual companies. The bankruptcy risk of a giant like Deutsche Telekom may be lower than that of a small newcomer company. Nevertheless, Telekom remains a single company. Those who buy their stocks entrust their managers with their money. If they do well, the share can rise. If you make mistakes, you will not get the expected return. But you can never know in advance which company leaders will achieve something in the coming years and which will not. You only notice that afterwards. It doesn't matter whether the company is big or small, known or unknown.

So if you don't just want to speculate in the short term, but also want to invest sensibly over the long term, you should spread your money as widely as possible among many companies. This is the only way to make yourself independent of individual managers and their decisions. But if you only have small amounts available for this type of investment, investing in a single share is ruled out - no matter how large the company behind it is. Then only investment funds or index certificates come into consideration, with which one can participate in the development of many companies at the same time. In this sense, ALL shares are people's shares.

Is the stock market just something to speculate about or is it also for retirement provision?

In principle, everyone who invests money in the stock market is a speculator. Because all investors speculate that their shares will increase in value - some in the short term, others in the long term. Long-term profit speculation has by and large paid off over the past hundred years, although there have also been some long dry spells. In the 1960s and 1970s, for example, there was hardly any money to be made with long-term investments on the stock exchanges in Europe and the USA. On the other hand, the Japanese stock exchange did very well during this time. In the 1990s, on the other hand, stocks were cold in Tokyo while they were booming in Europe and America. This shows that in principle there are almost always stock markets somewhere in the world that are in a long-term upswing. You just have to recognize these upswings and then be flexible enough to invest there.

If you don't trust yourself to do this, you should entrust your money to professional asset managers or investment funds. But it is also worthwhile to deal with the stock market personally. Because in the stock exchange the most important economic and political currents of entire countries and regions are reflected. If you look in this mirror, you sometimes even see into the future. For example, the stock market anticipates an impending economic upswing many months in advance by means of rising share prices. And even the terrorist attacks of September 11, 2001 were announced on the stock exchange beforehand, admittedly for reasons that were not entirely understandable. The fact is, however, that in the weeks leading up to the attacks, stocks around the world were conspicuously and inexplicably weak - especially insurance stocks!

So the stock market also has some inexplicable phenomena ready. Nevertheless, those who deal with it learn to understand the world better. And you can hardly ignore the stock market when it comes to your own retirement provision. Because even if you don't buy stocks or investment funds directly, the insurance companies or pension funds you save with will do so. So stocks are definitely something for the people.