CIO Michael Strobaek: "My Investments Are Long-Term and Diversified"
Where are the current opportunities in the markets and where are there looming risks? In this interview, Michael Strobaek, Global CIO at Credit Suisse, talks about how to make successful investments and his own investment strategy.
You have over 20 years of experience in the financial markets. In your opinion, what strategy has proven to be most reliable?
Michael Strobaek*: It is important to define a long-term investment strategy that corresponds to your own risk profile and objectives. Most investors do not pay enough attention to their investment objectives and do not consider to what extent they can actually tolerate risk. This is a mistake. The main question to ask is: How much loss risk can I actually handle? Only a long-term strategy allows for the correct allocation of asset classes in accordance with individual requirements, investment objectives and the risk profile.
What are the three most important points for private investors to consider?
First, be disciplined. It is important to stick to the original strategy and not amass too much risk in good times—and not to panic-sell in bad times. Secondly, stay invested. Stock market lows can be used to purchase additional, non-cyclical securities. Thirdly, ensure diversification of your investments. If you purchase only three equities, for example, a significant company-specific risk will accumulate. Only a broadly diversified investment strategy is really worth pursuing. However, it is vital to stick to this strategy. Many private investors do not do this, selling at the wrong time or getting carried away in times of stock market euphoria.
What is your own investment strategy?
I have a clear objective for my assets to grow significantly in the long term. However, this requires that I also effectively invest part of my assets in the long term—meaning that I must not have any need to access those assets in the short term. As a result of the long-term investment horizon, I can take more risk and will be compensated for it in the long term with a greater return. However, many investors want to be able to access their money in the short-term and therefore have to be more risk-averse.
What does more risk mean for you, specifically?
I am passionate about investing in private equity and 60 to 70 percent of my assets are invested in private equity funds. The remainder I invest in conventional equity funds and hedge funds.
Prior to joining Credit Suisse, you worked for a family office. What experiences did you bring from there to this major bank?
I think that my experiences at the family office gave me a better understanding of the needs of clients. I sat with clients countless times for hours, discussing the financial markets. I learned to implement investment strategies specifically in line with client requirements.
Every hard-earned franc that is lost hurts. For a billionaire, however, the total loss is naturally much higher.
Global CIO Michael Strobaek
Does losing money hurt wealthy investors as much as it does simple private investors who see their hard-earned savings disappear?
Every hard-earned franc that is lost hurts. For a billionaire, however, the total loss is naturally much higher. One percent of CHF 100,000 is much less than one percent of CHF 1 billion. Even if a loss is emotionally painful, in my experience, this affects high net worth investors at least as much as less affluent investors.
The fact is, both groups want to see returns on their investments. In which asset classes do you see additional opportunities in the current climate?
There are still opportunities to be had in equity investments and non-traditional investments. Conversely, the opportunities offered by government bonds have largely been exhausted due to the current interest level. In contrast, investments in private equity and infrastructure should be purchased or kept in portfolios. This is where the best opportunities lie in the long term.
What new trends do you envisage in the medium term?
We see a global trend towards the renewal of infrastructure in the western world. Therefore, investing in companies that build bridges, roads, and ports or operate airports and railway networks, for example, is an attractive option. In this semi-public area, the suppliers are particularly interesting.
How do professionals find interesting securities?
Interesting securities have attractive valuations. Historically, this can be related to their growth expectations or comparisons with competitors. When selecting securities, other attractive aspects come into play, including infrastructure or innovations. Thirdly, with market corrections, it is important to keep a cool head and analyze the figures objectively. Usually, corrections open up long-term entry opportunities.
At present, what risks must investors be wary of?
In 2017, the biggest risk in Europe is posed by populist movements. Fixed-interest investors are also facing an increase in interest rates. This would lead to huge losses, as the low interest rate environment has strengthened the bond risk. If interest rates were to rise, today's bonds would suddenly be worth considerably less. There are also currency risks, with foreign exchange products fluctuating much more strongly at the moment.
Generally, I advise every investor to put their emotions aside and buy when there is a high degree of uncertainty on the markets.
Global CIO Michael Strobaek
By far, the most serious mistake made by investors is panic-selling when the markets are weak. In what situations should investors take action?
Generally, I advise every investor to put their emotions aside and buy when there is a high degree of uncertainty on the markets. For example, in the cases of Brexit, the election of Trump, and the weakening economy in China, this was good advice. As long as the global economy is doing well, it is advisable to make purchases during times of market turbulence. In truth, the worst thing to do is panic. Admittedly, there have been historical events that involved systemic risks, such as the economic and financial crisis of 2008/2009, when you would have been well-advised to sell in good time. For example, in the months following the financial difficulties faced by several banks in September 2008, the S&P 500 Index dropped much more strongly than immediately after the event.
Should we be afraid of this type of systemic risk in the current climate?
Such a historical event would occur if the euro fell apart, for example. Or, if a large country such as China experienced a crash that caused its financial sector to collapse. However, it is very difficult to predict this kind of event. Luckily, they are very rare. Despite everything, it can still be advantageous to remain invested, particularly in the case of long-term strategies – but only if the risks assumed are in line with the investment strategy. The biggest sin an investor can commit is assuming too much risk and having to sell at a low price.
Have you ever made a wrong investment or misjudged a situation?
Yes, mainly with individual equities. I regret not diversifying my investments more effectively at the time. I was impressed by the company's history, but I misjudged the risk.
It is not always easy to have broadly diversified investments. What types of investors are capable of managing their own assets?
Only those who can invest rationally and with discipline should make investments on their own. Personally, I would not advise anybody to do this. It would be like patients giving themselves medical treatment or individuals defending themselves in court without being well-informed of the law. For 99 percent of investors, a well-diversified wealth management fund is the best option.
Even though we have so many more options to learn about financial issues open to us now?
Extreme caution should be taken when using the internet in particular, as the flow of information can also significantly increase the possibility of becoming lost or scared. The quantity of data available has increased substantially, but not necessarily the truly informative content. The risk of investors panic-selling has therefore become even greater, since they receive too much information all at once or cannot organize this information properly.
And you? Do you use asset management services or do you manage your own assets?
As mentioned previously, I am a passionate private equity investor. I also choose diversified investment funds and hedge funds. Furthermore, I have a discretionary mandate for some of my assets – with Credit Suisse, of course.