Interview #1: Read this before investing your money.

Jonathan v. Pfetten is a very good friend of mine. We met at an event I organized back in 2012. The night ended around 6 or 7 am and I probably shouldn’t write about the details but let’s just say we had a lot of fun. I think we got along very well because we’re both very hungry and at the same time we like to enjoy our lives. Some would say “Work hard, play hard”. So afterwards we met here and there and besides having fun, we usually exchanged our views on business in general and our businesses. I think we share one thing that I can’t say about everybody. I think that working smart can have the same effect on your wealth as working very hard. I mean it’s not that I’m lazy (or at least I don’t want to admit it) but what I’m trying to say is this: If you are able to make a smart move and earn a million and somebody else works very hard for years and earns a million – I don’t think the first guy is any inferior than the hard working guy. It’s an art and it’s something that most of the people are not able to do. I have the feeling that people don’t appreciate the smart one as much as they do the hard working guy just because society says so. And actually a lot of my friends, when I tell them stories about how some people made a lot of money (not involving hard work over a long period of time), often wonder and accuse that kind of people of not being honorable. They almost accuse them of being crooks. Because it just doesn’t make sense to them and therefore it just can’t be right. I have an example myself: At the bar I had in Munich, I didn’t work too much. That was because I knew the guy that owned the place before and when he told me that he wants to sell the place I knew that I can make a profit out of that. So I saved myself a deal with him that I could call on and then afterwards talked to partners. So I was in a very good position and I had something others wanted. I’m not sure right now how I ended up talking about my bar but let’s get back to Jonathan and investing your money: Jonathan and me had a lot of things in common. In both things business and private. We could talk about Warren Buffet, Apple or Lufthansa for hours or we could just go to the Lil Wayne Concert in Berlin (Both things of course happened). And however much I think I know about investing and companies, every time I talk to Jonathan I am impressed anew with his profound knowledge and wisdom. Of course there is a reason behind that: First of all his father was a New York broker in the 80ies and ended up having his own bank in Germany. So Jonathan grew up around a bank business. He was probably listening to a lot of things and seeing what being smart can do for you. Besides that, he himself was interested very much in investing and was the youngest European to make a Series 7 Exam and obtain his Stock Broking License (I’m not sure if you call it that way but I am sure you get the point – he was young 19 years old and made this license you need to be a broker). So every talk with him is very inspirational. The reason I am writing this post is that Jonathan launched a blog. It’s in German because most of his partners and people he works with are from Germany but I am pretty sure that he will start writing in English sooner or later (If not, I’m going to make a business out of translating his posts – but don’t tell him please) and besides that he answered me some questions I am sure you guys are interested in. Since most people reading my blog are German too, I am sure you can learn a lot and get inspired by taking a look at and I know that Jonathan would be happy to answer your questions if you have any. Enjoy his answers and his blog.


How much money should one have saved at least in order to start investing?


In my opinion, the amount doesn’t matter too much. The most important thing is to just start. It has never been cheaper and easier to invest than nowadays. Before an investor decides to raise his or her capital, he or she has to deal with the central question of whether to invest actively or passively.

Passive investing means that he does not make the investment decisions himself. The most cost-effective way of passively investing capital is to invest in an ETF (exchange traded fund). An ETF is usually a replica of an index such as the DAX. The investor buys all 30 DAX stocks ​​accordingly. The average annual return in past (including dividends) on the DAX is 11.9%. This is also the annual return minus the costs a DAX ETF investor would have earned. The cost of an ordinary ETF is negligible and can be equal to 0.05% of the total investment amount, which means an investor pays 5 cents annually for each 100 EUR he invests.

The other option is that an investor may decide to actively manage (or let somebody manage) his or her capital. This is a lot more time-intensive and difficult, but promises a much better return. The objective of an active investor should always be to achieve a return that is above the average return on the market as otherwise it would have been better to invest in an ETF without spending a lot of time.

I personally advise every newbie investor to an ETF. He should try to manage his capital actively only if he is willing to spend the required time and work involved.

In addition, you should be aware that a good investment plan is also a savings plan at the same time. The more you manage to save today, the more you benefit from the interest rate over the long term. It was not for nothing that Albert Einstein described the compound effect as the 8th wonder of the world.


If you would have to break down your knowledge to 3 tips, which ones would it be?


Obviously, it is not easy to summarize a complex topic such as investing into 3 tips. I am convinced that the right emotional attitude is the most important basis for every successful investor. The biggest enemy of the investor is usually himself. We are strongly influenced by our emotions – for our everyday lives this can be helpful, for example, to save us from dangers, but for a quality investor it’s crucial to have right emotional mindset.
Accordingly my 3 tips are as follows:

  1. Objectivity and rationality

Probably the most important feature that distinguishes a successful investor from an average investor is the objective and rational valuation of a particular situation. A lot of information is just a so called “disturbing noise”, which makes it difficult for the investor to make a rational decision. These disturbances often lead to price fluctuations, but have no effect on the long-term economic prospects of a company. Therefore it is advisable for the ambitious investor to judge these events rationally and objectively.

  1. Long-term

A long-term view is very important for two reasons. For one thing, most investors or rather speculators think and act on short-term information. This short-term orientation leads to unjustified price fluctuations. These price fluctuations are profitable opportunities for the long-term investor. And for another thing, frequent trading causes external costs such as (1) fees and (2) taxes. These external costs significantly reduce an investor’s return over the long-term.

  1. Patience

I am convinced that an above-average return can only be achieved by focusing capital on the best investment ideas. Good ideas are rare and usually occur in large time intervals. No decision is often the best decision. The implementation of this attitude is hard for many investors, as new information and recommendations are pushed to them every day. Only if an attractive investment opportunity can be identified, an ambitious investor should have the courage to make a major financial commitment.


Which 3 books would you recommend beginners?


In principle, newbie investors as well as ambitious investors should have read everything that Warren Buffett has written. His wisdom has characterized investing like no one else. Unfortunately, Buffett has never written a book himself, but he has been writing letters to his shareholders for more than 50 years, explaining his investment philosophy. The author Lawrence Cunningham has summarized his letters in his Book “The Essays of Warren Buffett: Lessons for Corporate America”. This collection is not only reserved or important for every ambitious investor, but also offers managers a lot of interesting aspects.

Another interesting book is the biography Buffett: The History of an American Capitalist by Roger Lowenstein. There are several biographies about Buffett, but in my opinion, this is the best one.

Finally, I would like to recommend the following two books by Morningstar:

The Five Rules for Successful Stock Investing: Morningstar’s Guide to Building Wedding in the Market

Why Moats Matter: The Morningstar Approach to Stock Investing

As in many things in life, it is almost more important what one doesn’t do than what one actually does. This is especially true for investing. You should avoid all books that use words as: fast, rich, effortless, dead easy etc. in the title. These books usually only make the author himself fast and dead easy rich, but not the investor.


What do you think of cryptocurrencies? Do you think it is the future of banking?


As for predictions, I stick to the words of Yogi Berra:

“It’s tough to make predictions, especially about the future.”

The only thing I can say about this topic is the following: People are usually skeptical about changes and therefore adapt to developments very slowly. Especially with regard to money, we hang (too) long on the Status quo. Take the payment card as an example. To date, 90% of payments worldwide are still paid in cash. This is true even though the card payment is cheaper, more environmentally friendly in production as well as more comfortable and faster for the consumer and last but not least, despite the contrary general opinion, even more secure. Even with these advantages, the transition of cash payments to electronic card payments is moving very slowly.