Yield triangle: Formula for success in the stock market

The stock year 2022 will go down in history as one of losses.

Shortly before the end of the year, the Dax recorded a minus of twelve percent.

The hype surrounding the shares of the computer games provider Gamestop brought many new and young shareholders to the stock exchange in 2021.

The increasing number of Neobrokers Trade Republic savings plans is an example of how many have remained loyal to the stock exchange.

Daniel Mohr

Editor in Business.

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For them it is now the first test with losses.

Seasoned investors know that losing years happen all the time.

But they also know that they are the exception.

The yield triangle of Deutsches Aktieninstitut shows this clearly.

This is the 22nd year of losses since 1949, with 52 years in positive territory.

If you walk along the stepped side of the triangle, you will find the respective annual results of the Dax or its back calculation.

The first important finding: years of loss usually come alone.

Only twice in the 1960s was a year of losses followed by a second.

And only at the beginning of the millennium were there even three years of losses in a row, when the internet bubble burst after an unprecedented hype and then a tough recession followed.

Numbers with a blue background represent rising prices.

A quick glance at the triangle is enough to notice the blue dominance.

The second finding: the longer the investment horizon, the more uniform the blue becomes.

If you are patient, you have good prospects on the stock market for a return of around 8 percent per year - before taxes and nominally, i.e. without taking inflation into account.

This is a value that interest investments only very rarely reach and which is also the exception on the real estate market and not the rule as with shares.

An important condition, and that is the third finding: the yield triangle shows the Dax and its back calculation before 1988.

So it is the image of the 30 and now 40 most valuable listed companies in Germany.

If you look at the yield triangle for individual companies, they sometimes look a lot red-spotted.

The management consultancy HKP has developed such triangles for individual companies, supported by Deutsches Aktieninstitut and the Federal Association of Employee Participation - AGP.

You can find them at mab-renditedreieck.hkp.net.

Only when the capital is spread over several companies does the return average to a mostly positive level and significantly reduces the risk of ending up in the red with the share investment in the long term.

Significantly higher probability of success

This also applies to the American and European stock markets: Patience makes sense, diversification is absolutely necessary and then losses are rare.

Past knowledge is no guarantee for the future.

But they significantly increase the probability of successfully investing money in the stock market, so they can confidently be described as a formula for success in the stock markets.

If you need arguments for the diversification, you should only look at the year 2022.

Those who bet on a recovery in tech stocks lost 50 to 70 percent with stocks like Tesla, Amazon or Meta.

Those who bet widely on the American stock market, however, had winners such as the oil company Exxon Mobil or the construction machinery group Caterpillar and were thus able, including the dollar gains this year, to end the weak stock year almost without a loss.

It's similar in the Dax.

Anyone who relied on sporting goods manufacturers such as Adidas or Puma in the World Cup year saw price losses of around 50 percent.

Real estate stocks like Vonovia are in the red due to the turnaround in interest rates.

However, anyone who invested in a broad-based fund or a Dax index fund (ETF) also had winners such as Beiersdorf, Telekom, RWE or Deutsche Börse and was able to reduce the minus to 12 percent.

Of course, it would be best to only bet on the winners, but, so much humility is required in the stock market, nobody knows it in advance.

And they change regularly.

Anyone who has done well with tech values ​​for many years should have found the right time to exit in 2021 before the downturn began.

At best, this is possible with a lot of luck and then has little to do with rational investment.

When the stock market turbulence increased after Russia's attack on Ukraine, prices fell, inflation rose and the central banks raised interest rates, a big question was how German private investors, who were much more involved in the capital market at the beginning of Corona, would behave.

All of the banks, neo-brokers and fund companies surveyed were able to report that prudence prevails, that investors are more informed and clear-headed than they were in the days of the Neuer Markt.

That although hypes like Gamestop also lead to speculation in individual stocks, the core of the investment is in ETF and mutual fund savings plans.

The yield triangle proves such an investment strategy right.