Despite the certain direction, 25,000 points in the DAX or 30,000 points in the Nasdaq look like a warning signal to many investors on the huge stock market screen – not technically, but in their heads. Those who are not yet invested could be too late, and those who are already invested are considering whether to slowly hedge their profits and sell them. The same happens on the stock market lots of bad decisions: not out of ignorance, but out of a bad feeling at the wrong moment. A record high sounds like the end of the line, the prices are simply far too expensive. On the stock market, however, this is often just another interim situation.
That’s what makes the DAX at 25,000 points so interesting. Not because this results in a forecast for the next few weeks, but because this number shows how difficult it is for many investors Thinking about the stock market in the long term. An index intended to build wealth over decades must reach new highs, otherwise it would not be a good place for long-term capital. Nevertheless, the feeling of uncertainty remains. Nobody likes to buy at expensive prices and certainly nobody wants to have to say later that they bought in at the highest price. But it is precisely this thought that leads to the trap. Because you can only see “up” when you look back; in the current snapshot it is just the price level.
A record high is not a summit cross
A mountain has a peak and then it goes downhill. Many investors treat stock markets the same way. The DAX is high, so it has to fall soon. The logic sounds simple, but it is too simple. A stock index is not a mountain. It is a basket of companies, earnings, expectations, dividends, inflation, interest rates and index rules. When companies earn more in the long term, prices rise, dividends are reinvested and weaker companies are replaced in the index, then new highs are no exception.
That doesn’t mean that there can’t be a setback after 25,000 points. Of course he can come. Maybe even very quickly. But a setback is not a refutation of the long-term principle. Stock markets don’t rise because every day is good. They rise in the long term because productive capital can create value over many years.
The DAX is not the German economy
There is another error in thinking: the DAX is often treated like a mood barometer for Germany, which it actually isn’t. The DAX does not show the craft business in the small town, not the baker around the corner and not the condition of every German household. It shows large listed companies. Many of them earn significant portions of their sales abroad. The DAX is therefore more of an export, currency and global economic index. In addition, the most important German stock market barometer is often viewed as a performance index and dividends are mathematically reinvested. This is a big difference to pure price indices, which exclude distributions. Anyone who compares DAX levels with other indices without knowing this logic is quickly comparing apples with half apples.
A DAX record does not mean: Germany is booming. It also doesn’t mean: everything is expensive. First of all, it only means that this index has reached a new (high) level according to its methodology.
Savings plans take the power away from the peak
A record high is particularly difficult for anyone who still wants to invest money. The mind then looks for the perfect entry point. Just a setback. First some rest. Just a few bad days. Caution turns into waiting. And waiting feels reasonable until it turns into years. Meanwhile it says: “Yesterday was the best day to start!“.
Savings plans are therefore less exciting than many stock market comments, but more robust. They take away the weight of the individual entry day: sometimes expensive purchases are made, sometimes cheaper, sometimes in euphoria, sometimes in a bad mood. It is precisely this automatism that takes away the emotions. But that doesn’t mean that every one-time investment is wrong. If you have enough time, reserves and nerves, you can also invest larger amounts. However, many people fail not because of the theory, but because of the implementation. At 25,000 points they are waiting for 23,000. At 23,000 they are waiting for 20,000. At 20,000 the world feels so bad that they go back to doing nothing.
What really follows from 25,000 points
The DAX at 25,000 points is not an instruction for action. It is a test of your own plan. Who no emergency fund has, should Don’t invest because of a headline. If you need money for a property in three years, you shouldn’t act as if you have 30 years. If you panic every time you see a decline, you no longer need fantasy returns, but rather a more suitable equity allocation. But if you want to build wealth in the long term, you shouldn’t treat record levels like a prohibition sign. In the end, the record isn’t the problem. The problem is a plan that only works if the market feels perfect first. This moment rarely comes. And when he comes, you usually only recognize him later…
