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Power and reponsibility

It is apparently a trend of our times that people dislike to take the responsibility for their financial decisions. This leads to bizarre situations. Take this for example: People openly complain about stockholders and their interest in maximizing profits, but do not even know they do the same by investing in a stock fund. I think the responsibility to take direct holdings is getting smaller and smaller, while the indirect holdings grow and grow. Moreover the layers of indirect holdings keep growing as well, as many funds do not even invest directly but hand over the money to other fund managers, including Hedge Funds. Some of those funds are very popular and called Dachfonds in Germany. This trend has obvious consequences:

1.       The knowledge about financial markets and financial decisions within the population shrinks, as these decisions are outsourced to consultants and fund managers. Therefore the constant “Verdummung” of the population is now reaching the affluent and the elites.

2.       The profits are shrinking as well. This may not immediately be obvious, but this whole structure comes at a cost. 5% of closing costs here and 5% for the next fund manager do bite into the final profits. It will not be a big issue, if the returns are high enough, but as most funds do not outperform the market and as most of the market is driven by funds by now, the successful strategy cannot be guaranteed and the number of bad fund managers is as high as the number of good ones.

3.       The social impact is high as well. No obvious responsibility also means no interest. If people do not own the house, but instead (me included) invest in a REIT, they do not care about the house, the city and the people living there.

4.       People complain about the might of hedge fund managers and other fund managers, when it comes to the general assembly of stock holders for basically all German companies. This is a ridiculous situation, as the same people just hand over their very own voting rights by investing in funds to the same fund managers, they complain about.  The ignorance on this point is particular high within the population and sometimes hard to stand.

Politics in Germany has done a great job in discouraging people to be direct holders of their investments. They blame stock holders, whenever possible. They on the other hand encourange people to make private retirement plans, which should invest in funds. Then they blame fund managers for meddling in strategic decisions. At times, I wonder, whether our leaders have any plan or understanding, when it comes to deciding what the best structure for the financial security of the population is.



Disclosure: No positions