Expert in Beleggen - Goud_Bitcoin_editie.pdf

# Overview of investment asset classes and strategies This section summarizes the historical returns and risks of various asset classes, alongside investment psychology and strategies. ### 1.1 Understanding asset classes: historical returns and risks The study of investment asset classes and their historical performance is crucial for understanding modern economic thought, dating back to the 18th century. Fundamental questions revolve around the aggregate real rate of return in the economy, its relationship to economic growth, and which assets offer the highest long-run returns. A comprehensive dataset covering equity, housing, bonds, and bills across 16 advanced economies from 1870 to 2015 has revealed significant insights [11](#page=11). Key findings indicate that over the long term, returns on risky assets and risk premiums have been substantial and stable, with opportunities for diversification across asset classes and countries. Notably, long-run returns on housing and equity have shown remarkable similarity, though residential real estate is typically less volatile on a national level [24](#page=24). A significant observation from research is the relationship between $r$, the rate of return on wealth, and $g$, the growth rate of the economy. Globally, and across most countries, the weighted rate of return on capital has been approximately twice as high as the economic growth rate over the past 150 years ($r >> g$) [25](#page=25). #### 1.1.1 Historical return data (USA examples) Historical data provides insights into average real returns, extreme outcomes, and the risk of loss for different asset classes over various time horizons [26](#page=26) [27](#page=27) [28](#page=28). **1928-2022 (Damodaran)** [26](#page=26). * **1-year Real Returns:** * Cash: Average 0.44%, Extreme -, Risk of loss 41% * Bonds: Average 2.13%, Extreme -15%, Risk of loss 43% * Stocks: Average 8.15%, Extreme -14%, Risk of loss 33% * 50% Bonds/50% Stocks: Average 5.14%, Extreme -38%, Risk of loss 29% * **5-year Real Returns:** * Cash: Average 2.34%, Extreme -, Risk of loss 43% * Bonds: Average 11.61%, Extreme -27%, Risk of loss 38% * Stocks: Average 46.46%, Extreme -34%, Risk of loss 25% * 50% Bonds/50% Stocks: Average 28.61%, Extreme -42%, Risk of loss 17% * **10-year Real Returns:** * Cash: Average 3.87%, Extreme -, Risk of loss 44% * Bonds: Average 23.55%, Extreme -40%, Risk of loss 35% * Stocks: Average 112.93%, Extreme -39%, Risk of loss 13% * 50% Bonds/50% Stocks: Average 64.43%, P25 27.06%, Extreme -32%, Risk of loss 12% **1980-2022 (Damodaran)** [27](#page=27). * **1-year Real Returns:** * Cash: Average 1.18%, Extreme -, Risk of loss 36% * Bonds: Average 4.61%, Extreme -3%, Risk of loss 36% * Stocks: Average 9.13%, Extreme -14%, Risk of loss 23% * 50% Bonds/50% Stocks: Average 6.87%, Extreme -8%,% Risk of loss 21% * **5-year Real Returns:** * Cash: Average 5.87%, Extreme -, Risk of loss 32% * Bonds: Average 27.84%, Extreme -9%, Risk of loss 9% * Stocks: Average 57.31%, Extreme -6%, Risk of loss 24% * 50% Bonds/50% Stocks: Average 42.58%, Extreme -21%, Risk of loss 0% * **10-year Real Returns:** * Cash: Average 12.57%, Extreme -, Risk of loss 30% * Bonds: Average 60.52%, Extreme -12%, Risk of loss 0% * Stocks: Average 130.05%, P25 63.86%, Extreme -32%, Risk of loss 10% * 50% Bonds/50% Stocks: Average 97.25%, P25 60.04%, Extreme 11%, Risk of loss 0% **1960-1979 (Damodaran)** [28](#page=28). * **1-year Real Returns:** * Cash: Average 0.19%, Extreme -, Risk of loss 30% * Bonds: Average -0.74%, Extreme -4%, Risk of loss 60% * Stocks: Average 3.22%, Extreme -11%, Risk of loss 45% * 50% Bonds/50% Stocks: Average 1.24%, Extreme -34%, Risk of loss 40% * **5-year Real Returns:** * Cash: Average 1.65%, Extreme -, Risk of loss 38% * Bonds: Average -3.87%, Extreme -8%, Risk of loss 69% * Stocks: Average 12.26%, Extreme -18%, Risk of loss 44% * 50% Bonds/50% Stocks: Average 4.69%, Extreme -35%, Risk of loss 50% * **10-year Real Returns:** * Cash: Average 3.97%, Extreme -, Risk of loss 45% * Bonds: Average -7.93%, Extreme -10%, Risk of loss 91% * Stocks: Average 15.04%, P25 -21.25%, Extreme -32%, Risk of loss 45% * 50% Bonds/50% Stocks: Average 5.01%, P25 -14.35%, Extreme -22%, Risk of loss 45% ### 1.2 Asset allocation examples Asset allocation strategies are often visualized with target percentages for different asset classes. A sample portfolio might include: * Global Equities: 40% [33](#page=33) [3](#page=3). * Global Mid- & Small Caps: 15% [33](#page=33) [3](#page=3). * Technology Equities: 10% [33](#page=33) [3](#page=3). * Bitcoin: 10% [33](#page=33) [3](#page=3). * Gold: 5% [33](#page=33) [3](#page=3). * Infrastructure: 5% [33](#page=33) [3](#page=3). * Global Real Estate: 5% [33](#page=33) [3](#page=3). * High Yield Bonds: 5% [33](#page=33) [3](#page=3). * Corporate Bonds 2029: 5% [33](#page=33) [3](#page=3). ### 1.3 Specific asset classes #### 1.3.1 Equities Equities (stocks) are a major asset class with historical returns that have been high and stable over long periods [24](#page=24). #### 1.3.2 Bonds Bonds represent another significant asset class with varying historical return and risk profiles depending on the type and economic period [26](#page=26) [27](#page=27) [28](#page=28). #### 1.3.3 Real Estate Both physical and listed real estate are considered asset classes. Research suggests that long-run returns on housing can be remarkably similar to equities, though residential real estate is generally less volatile at a national level [24](#page=24). #### 1.3.4 Exchange-Traded Funds (ETFs) ETFs are an investment instrument discussed within the broader context of asset analysis [10](#page=10) [2](#page=2) [34](#page=34) [5](#page=5) [76](#page=76). #### 1.3.5 Gold Gold is considered an asset class, often viewed as a hedge against fiscal-monetary chaos [10](#page=10) [2](#page=2) [33](#page=33) [34](#page=34) [3](#page=3) [5](#page=5) [76](#page=76). #### 1.3.6 Bitcoin Bitcoin is presented as "digital gold" and is analyzed as an investment asset class, particularly in the context of inflation protection [10](#page=10) [2](#page=2) [33](#page=33) [34](#page=34) [3](#page=3) [5](#page=5) [76](#page=76). ### 1.4 Investment psychology and strategies The document also covers the psychology of investing as a key component of investment strategy. This implies that understanding investor behavior and cognitive biases is essential for effective investment decision-making [10](#page=10) [2](#page=2) [34](#page=34) [5](#page=5) [76](#page=76). * * * # Belgian wealth and the impact of inflation This section explores the net worth of Belgian households, the primary components of their assets, and how inflation erodes purchasing power over time. ### 2.1 Net worth of Belgian households A significant portion of Belgian households possess substantial net worth. Approximately 1 percent of families, equating to 50,000 households, have a net worth of at least 3 million euros. Furthermore, about 5 percent of families, or 250,000 households, hold a net worth of at least 1 million euros. Net worth is defined as the value of all savings, financial investments, and real estate, minus any debts [6](#page=6). ### 2.2 Composition of Belgian assets Real estate and cash are the most significant components of wealth held by Belgians. This trend is expected to continue, with income contributing less to new savings in financial assets in the coming years. Specifically, 33 percent of Belgians' financial assets are held in savings accounts, checking accounts, or as physical cash [7](#page=7) [8](#page=8). ### 2.3 The impact of inflation on purchasing power Inflation significantly erodes the purchasing power of money over time. For instance, with an annual price increase of 3 percent, the purchasing power of the euro declines by 45 percent over a 20-year period [9](#page=9). > **Tip:** Understanding the composition of assets and the long-term effects of inflation is crucial for effective financial planning and wealth preservation. * * * # Stock investment styles and value investing principles This topic delves into the evolution of stock investment styles, with a particular focus on the foundational principles of value investing and its contemporary relevance, including the emerging concept of intangible value investing. ### 3.1 Historical perspective on security analysis The roots of modern security analysis are traced back to Benjamin Graham and David Dodd's seminal work, "Security Analysis" and Graham's subsequent publication, "The Intelligent Investor". A core tenet emphasized by Graham and Dodd is that investment decisions must always consider both the price and the quality of a security. Graham further distilled sound investment strategy into the motto "MARGIN OF SAFETY". He observed that the most significant losses for investors often stem from purchasing low-quality securities during periods of favorable business conditions. During such times, obscure companies' common stocks might be issued at prices far exceeding their tangible investment value [35](#page=35) [38](#page=38) [39](#page=39) [43](#page=43) [61](#page=61) [64](#page=64) [72](#page=72) [75](#page=75). ### 3.2 The evolution of stock styles The document touches upon the development of stock investment styles over the period from 1994 to 2021. This evolution reflects shifts in market dynamics and analytical approaches. Key factors that investors consider across different styles include momentum, dividend payout, stability/low volatility, profitability, solvency, and value/growth [35](#page=35) [37](#page=37) [43](#page=43) [44](#page=44) [46](#page=46) [61](#page=61) [64](#page=64) [72](#page=72) [75](#page=75). ### 3.3 Value investing principles Value investing, as championed by Graham, involves paying a price for a stock that is justified by its underlying fundamentals. Graham suggested that an investor might be willing to pay up to twenty times estimated average future earnings for a growth stock, compared to fourteen times for an "ordinary" stock [40](#page=40). #### 3.3.1 Financial strength and capital structure A company's financial strength and capital structure are critical considerations in security analysis. A stock from a company with substantial surplus cash and no senior securities ahead of its common stock is considered a better purchase than another with similar per-share earnings but significant bank loans and senior securities. While a modest amount of bonds or preferred stock is not necessarily a disadvantage, and moderate use of seasonal bank credit can be acceptable, careful analysis of these factors by security analysts is crucial [41](#page=41). #### 3.3.2 Dividend record as a quality test An uninterrupted history of dividend payments over many years, crucially including periods of deep depression (e.g., 1931-1933), serves as a persuasive indicator of high quality. Companies meeting this standard are typically regarded as deserving a higher multiplier, or a lower "capitalization rate," than average enterprises, even if relative conditions have changed or are expected to change [42](#page=42). #### 3.3.3 The relevance of value investing The document discusses the "ir(relevance)" of value investing. Current market conditions, as of the document's writing, show unusually high value spreads, where "cheap" stocks are significantly cheaper than "expensive" stocks, to a degree not easily explained by profitability or leverage differences. Value is described as exceptionally cheap by most common quantitative methods, even when industry bets are neutralized. This unusually high value spread is suggested to be driven by high forward-looking returns for cheap stocks relative to expensive stocks, a phenomenon known as the value factor [35](#page=35) [37](#page=37) [43](#page=43) [44](#page=44) [46](#page=46) [55](#page=55) [56](#page=56) [59](#page=59) [61](#page=61) [64](#page=64) [72](#page=72) [75](#page=75). > **Tip:** The concept of "value spread" refers to the difference in valuation multiples between the cheapest and most expensive stocks. An unusually wide value spread suggests that value stocks are historically cheap relative to growth stocks. ### 3.4 Intangible value investing The investment landscape is shifting from an economy driven by tangible assets like factories and machinery to one where intangible capital, such as software, brands, and know-how, plays a dominant role. Expenditures on research and development (R&D), advertising, and workforce training are often treated as running costs, leading to understated earnings and book values, as these investments are designed to generate future cash flows [50](#page=50). #### 3.4.1 Challenges in an intangible economy Identifying successful investments in an intangible economy is challenging and requires paying prices commensurate with their chances of success. Some investments are bound to fail, and the costs incurred may not be recoverable. Furthermore, network effects can create winner-takes-all or winner-takes-most markets, where the second-best firm's value is a fraction of the leader's [50](#page=50). #### 3.4.2 Valuation metrics in the intangible era The document notes that price-to-book ratios, often a cornerstone of traditional value investing, do not appear to be a primary driver of recent difficulties for value investing strategies. Instead, metrics like price-to-sales are discussed, with the price-to-sales spread between expensive and cheap portfolios being a point of analysis. The analysis suggests that expensive stocks can be significantly more expensive than cheap stocks, with this premium widening considerably over time [52](#page=52) [53](#page=53) [54](#page=54). ### 3.5 Dividend strategies Selecting dividend-paying stocks is a key investment strategy discussed within the broader context of stock investment styles. The document references several ETFs focused on dividends, including the iShares STOXX Global Select Dividend 100 UCITS ETF (ISPA), iShares EM Dividend UCITS ETF (SEDY), and iShares MSCI World Quality Dividend ESG UCITS ETF (WQDV) [35](#page=35) [37](#page=37) [43](#page=43) [44](#page=44) [46](#page=46) [61](#page=61) [64](#page=64) [69](#page=69) [70](#page=70) [71](#page=71) [72](#page=72) [75](#page=75). ### 3.6 Investment products The topic includes a section on investment products, with specific mention of various iShares ETFs designed to track different investment factors. These include ETFs focused on value factors (IWVL), quality factors (IWQU), minimum volatility (MVOL), and multifactor strategies (IFSW) [65](#page=65) [66](#page=66) [67](#page=67) [68](#page=68) [69](#page=69) [70](#page=70) [71](#page=71). ### 3.7 Cash flow considerations in investing A diagram illustrates the flow of cash in an investment context, showing cash raised from investors, invested in the firm, generated by operations, reinvested back into the company, or returned to investors. This cycle highlights the operational activities of an enterprise and its interaction with financial markets [73](#page=73). ### 3.8 Origins of long-term capital losses The document lists "the origin of long-term capital losses" as a topic related to investment styles, suggesting an analysis of common pitfalls that lead to wealth erosion over extended periods [35](#page=35) [37](#page=37) [43](#page=43) [44](#page=44) [46](#page=46) [61](#page=61) [64](#page=64) [72](#page=72) [75](#page=75). * * * ## Common mistakes to avoid * Review all topics thoroughly before exams * Pay attention to formulas and key definitions * Practice with examples provided in each section * Don't memorize without understanding the underlying concepts

| Term | Definition | |------|------------| | Net worth | The total value of an individual's or entity's assets minus their liabilities. This includes savings, financial investments, and real estate. | | Asset class | A group of investments with similar characteristics and behaviors in the marketplace. Common examples include stocks, bonds, real estate, and commodities. | | Inflation | A general increase in prices and fall in the purchasing value of money. It signifies a decrease in the purchasing power of currency over time. | | Purchasing power | The amount of goods and services that can be bought with a unit of currency. Inflation reduces purchasing power as prices rise. | | Stock | A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. | | Bond | A fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). Bonds are used to raise capital. | | Real estate | Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature. | | ETF (Exchange Traded Fund) | An investment fund that is traded on stock exchanges, much like stocks. ETFs hold assets such as stocks, bonds, or commodities. | | Bitcoin | A decentralized digital currency, also referred to as a cryptocurrency, that operates on a peer-to-peer network and is not controlled by any central authority. | | Gold | A precious metal that is often seen as a safe-haven asset and a hedge against inflation and economic uncertainty due to its historical value and scarcity. | | Value investing | An investment strategy that involves picking individual stocks that appear to be trading for less than their intrinsic or book value. | | Momentum investing | An investment strategy that involves buying securities that have been moving upward in price and selling those that have been moving downward. | | Dividend | A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. | | Intangible assets | Non-physical assets that have value, such as patents, copyrights, trademarks, brand recognition, goodwill, and intellectual property like software. | | Margin of safety | A principle in value investing that involves buying securities only when their market price is significantly below their calculated intrinsic value, providing a buffer against errors in valuation or unforeseen events. | | Capitalization rate | A rate used in real estate and finance to indicate the rate of return that is expected to be generated on a real estate investment property. A lower capitalization rate generally implies a lower risk. | | Financial Strength | The ability of a company to meet its financial obligations, typically assessed by examining its balance sheet, cash flow, and profitability. | | Capital Structure | The specific mix of debt and equity a company uses to finance its operations and growth. |