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T&V Commentary | Q4 2022

Unfortunately, our announcement regarding the generation change has led to misunderstandings among our customers. We would like to clarify that Remo Thalmann will continue to serve his customers as usual. He has only handed over his administrative tasks within the company.

2022, a year to forget

The season is gray and the headlines on the economy, war and politics make everything a little grayer. The mood is lousy because the markets were weak in 2022 in almost all assets. Historically, 2022 was also a real exception. In the last 100 years, it has only happened five times that the S&P 500 (largest 500 companies in America) and U.S. government bonds have fallen at the same time. This makes 2022 the worst year for a balanced portfolio of 60% stocks and 40% bonds since 1931. Tighter monetary policy by central banks around the world is the primary cause of this regime change, as rising interest rates take their toll on high valuations in various asset classes and market segments.

Today, the crash prophets are in full swing: A recession comparable to 2009 is said to be conceivable next year. Really? The central banks will continue to raise interest rates and this will cause pain for many companies but the prospect of a systemic crisis with GDP slumps of 5 to 10% is presumptuous. You can find enough bad news at the moment. So maybe it's time to take a different view.

Politics: The "Strongmen" movement is in retreat. Bolsonaro and Trump are fading into obscurity and the days of the aggressor Putin are counted. He may not fall in 2023 but the Russian "model" is recognizably broken. Putin has only death, destruction and Russian fascism to offer. The Soviet Union was more creative: The supposed communist savior posed as the savior of the oppressed masses worldwide. Even more important are the signals from China. Xi Jinping has recently made it clear that the (controlled) market in China is once again at the top of the agenda. China is not becoming North Korea. China needs growth. That requires a certain openness.

Markets: The situation of the global economy and the financial market may be serious but prices signal hopelessness. That's not appropriate. One can look on the bright side: The U.S. economy is so stable that the Fed is continuing to raise interest rates. There are good reasons to believe that a deep recession will not come in 2023 after all, because of the resilience of the U.S. economy. A positive surprise will give the markets a boost. Especially since valuations are now at their most attractive levels in many years. This is especially true for digital stocks. The future belongs to them. The only question is when the prices of these companies will set the pace again on the stock markets. Maybe in April, maybe in May, or even after that. The last two major crashes of this millennium ended in March 2003 and 2009. History does not repeat itself, but it often rhymes.

Self-reflection and focus of Thalmann & Verling Trust reg.

Our clients have suffered. We have not lived up to our expectations as the portfolios we manage have performed roughly in line with the broad market, which has been extremely unsatisfactory this year. For us to beat the global market again, we need markedly lower inflation rates. However, we are reluctant to make forecasts about the development of inflation because we believe that neither we nor anyone else can predict it. But the direction in recent months has been right.

Our approach to investing in an inflationary environment is derived from Buffett. He argues that in an inflationary environment, it is best to own companies that have high pricing power and require little capital. Unfortunately, the strategy didn't excel much last year as many of these high-quality companies enjoyed (justifiably) high valuations. The rapid rise in interest rates has brought the valuation levels down, although there has often been little operational change within these companies.

We see the criteria Buffett mentioned well implemented in our portfolios. The technology sector is very unpopular today but it seems to us to be one of the best places to park your money when inflation is the biggest concern.

A good example is Microsoft: it is difficult to imagine a company better positioned to cope with an inflationary environment. Microsoft 365 Business Standard (Outlook, Word, Excel, etc.) costs CHF 12.30 user/month, but is essential for almost every company. No company is going to cancel Microsoft Office or bother switching providers just to save a few francs per month. In fact, Microsoft announced in early 2022 that it would raise prices by 21% and still had little impact on churn.

Times are extremely difficult for everyone, agreed. One of the keys to investment success is to tune out the noise. As a long-term investor, you shouldn't let short-term market fluctuations distract you from your long-term financial plan.

As always, we thank you for the trust you have placed in us and we look forward to investing together in 2023!

Quarterly Report Q4 2022
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