The German Dax at 10.000 – looking back

Following Mr. Draghi’s speach on Thursday, the German Stock Index DAX hit the 10.000 mark for the first time in history soon thereafter. Many major publications directly came out with headlines along the line “DAX 10000 – what’s next” and speculated where the DAX might go.

In contrast to that and only for reasons of personal entertainment, I want to take a look back into the DAX history. The DAX was introduced 26 years ago in July 1988 by the German Stock Exchange in order to introduce a modern, performance based stock index. The linked Wikipedia site gives a great overview on the history of the DAX and the change in constituents. Mathematically, the DAX times series was based on 31.12.1987 with a starting value of 1.000 although there exist some “Virtual” time series going back much further.

Just a few interesting facts about the DAX:

– only 15 of the original constituents are still in the DAX
– 3 (or 10% of the original 30) actually went bankrupt
– the best years since 1987 have been 1993 with +46,71% and 1997 with +47,11%
– the worst year were 2002 with -43,94% and 2008 with -40,37%
– the biggest cummulative loss was the 2001-2003 period with a cumulative loss -58,9%
– the Dax rarely ends up pruducing single digit returns over a full calender year. Only 5 out of the last 26 years produced “single digit” returns. So yes, long term stock returns might be single digits but short term single digit returns are an exception

Neverthess, the 10.000 level represents an annual return of ~9,02% over 26,5 years (from December 1987 until May 2014). This compares with around 10,1% for the S&P 500 (in EUR).

For me personally, the implementation of the Dax coincidently equals almost exactly when I bought my first stock. The first Stock I bought was a company called Hoesch in September 1987. I remember this so well because just a few weeks later, the “Black october of 1987” hit me with full force. I had used half of my earnings from a vacation job. As I wanted to increase my position after the crash, the people at the bank refused to take my order because they said that stocks are only for gamblers. As I was not yet of legal age back then, I had to come again with written permission of my parents to buy stocks.

This leads to another question:

Was this huge 26 year rally predictable or not ?

3 years ago I had reviewed the original “Market Wizards” from Jack Schwager which contains interviews with many then famous traders and hedge fund managers. Overall, one year after th 1987 crash, the sentiment was very very negative.

As I did not find historical P/Es for the Dax in 1987/1988, let’s look at this table of historic P/Es for the S&P 500:

31.12.1973 12,3
31.12.1974 7,3
31.12.1975 11,7
31.12.1976 11,0
30.12.1977 8,8
29.12.1978 8,3
31.12.1979 7,4
31.12.1980 9,1
31.12.1981 8,1
31.12.1982 10,2
30.12.1983 12,4
31.12.1984 9,9
31.12.1985 13,5
31.12.1986 16,3
31.12.1987 15,6
avg 10,8

Someone like John Hussmann might have said that stocks have nowhere to go as the P/E even after the 1987 crash was ~50% higher than the preceeding 15 year average. At the and of 1987, 10 30 year US Treasuries were yielding around 9%, another argument why stocks didn’t look that “apetizing” at that point in time. Why bother with stocks if you can earn double digits with corporate bonds any time ?

What followed

Looking back, it is easy to point out some of the events which led to this remarkable run especially for the DAX over the last 26 years:

– Communism broke down (“Peace dividend”)
– the Eurozone was created, stimulating cross border trading, increasing competition
– technology change (PC, Internet, Mobile)
– Corporate taxes in Germany went down form >50% to ~30%
– interest rates declined for now 25 years in a row
– old crossholding structure (“Deutschland AG”) dissolved, more professional management, foreign investors
– the BRIC story unfolded, further possibilities to export “core competency” goods like machinery and cars

In 1987/1988, few market pundits did even predict a single one of those factors. That’s why I think that just looking into the rearview (valuation) mirror should not be the only tool in the investing toolbox. Past P/Es will not predict future seismic shifts. On the other hand, one should not rely on such evcents happening over and over again and boosting share prices further. Clearly, interest rates and taxes will not fall that much lower and the effect of the end of Communism will not repeat itself.

For me the major conclusion is the following: Do not rely on any one system which tries to predict the future and/or future returns. Keep an open eye on everything, from valuations to macro economic factors and political shifts. Be prepared for surprises. Inthe long term, many surprises turned out to be positive for the economy and stock return.

Some musings on the Dax constituents

Just for fun, I created a table with the long term performance of the 15 “surviving” Dax constituents. Unfortunately I only got performance numbers back to 1992, but the p.a. Performance of the DAX was quite similar. lets look at those 15:

1987 Still in DAX Comment LT Perf (08/1992) p.a.
DAX     545,14% 8,95%
Allianz * 1   177,55% 4,80%
BASF * 1   3650,23% 18,12%
Bayer * 1   1598,15% 13,90%
BMW * 1   1723,82% 14,28%
Commerzbank * 1   -70,14% -5,40%
Continental 1   1962,28% 14,92%
Daimler-Benz (*) 1   90,50% 4,22%
Deutsche Bank * 1   89,57% 2,98%
Deutsche Lufthansa * 1   615,84% 9,47%
Henkel * 1   1200,08% 12,51%
Linde * 1   699,66% 10,03%
RWE * 1   308,71% 6,68%
Siemens * 1   742,92% 10,29%
Thyssen (*) 1   89,98% 4,32%
Volkswagen * 1   1690,10% 14,18%

Not surprisingly, financial stocks do not look good here. Overall, companies which are considered “well managed” did quite well such as Henkel, Bayer, BMW, Linde. Surprising for me is the fact that Lufthansa actually outperformed the DAX as well as Siemens.

Now let’s take a quick look at the new stocks. If I didn’t have returns from 1992, I made a comment:

    Total p.a. Perf. Since
Adidas 1   896,84% 13,23% 1995
Beiersdorf 1   1658,99% 14,09%  
Deutsche Börse 1   335,79% 11,74% 2001
Deutsche Post 1   103,80% 5,41% 2000
Deutsche Telekom 1   62,22% 2,80% 1996
EON 1   485,63% 8,46%  
Fresenius 1   4651,42% 19,42%  
Fresenius Medical Care 1   174,05% 5,90% 1996
HeidelCement 1   242,80% 5,83%  
Infineon 1   -80,66% -10,95% 2000
K&S 1   3084,30% 17,24%  
Lanxess 1   302,98% 16,11%  
Merck 1   555,53% 10,64% 1995
Munich Re 1   300,42% 7,24% 1994
SAP 1   3502,32% 19,98%

Not surprisingly, the best “newcomers” also lead the total Dax performance. Smaller companies which grow big are always the best investments, although it is often hard to identify them before.

Finally one other table. Let’s look at some of the best performers and their historical P/Es:

31.12.1992 28,6 24,4 19,6 18,9 11,4
31.12.1993 35,2 25,8 25,7 22,8 28,0
30.12.1994 19,4 36,7 15,0 20,6 14,6
29.12.1995 33,0 55,2 18,4 18,9 7,8
31.12.1996 64,4 52,1 25,9 28,7 14,4
30.12.1997 49,2 61,1 29,5 46,8 12,0
30.12.1998 30,8 71,5 32,8 30,4 11,8
30.12.1999 27,1 83,7 26,2 32,5 25,3
29.12.2000 37,7 60,0 21,7 41,9 23,6
28.12.2001 183,3 78,5 18,3 38,1 20,7
30.12.2002 10,8 46,3 20,0 31,3 13,9
30.12.2003 23,0 38,1 17,1 27,3 27,5
30.12.2004 18,2 30,9 5,3 21,9 14,5
30.12.2005 20,1 31,5 16,2 23,7 11,3
29.12.2006 23,5 26,2 18,9 16,7 11,6
28.12.2007 21,5 22,3 18,1 27,2 12,1
30.12.2008 21,2 15,5 54,7 16,8 8,9
30.12.2009 14,2 22,3 26,4 27,8 28,2
30.12.2010 16,3 24,9 18,1 29,7 12,0
30.12.2011 16,9 14,0 16,7 39,8 8,0
28.12.2012 16,3 25,8 18,3 31,6 13,6
30.12.2013 19,7 22,3 23,1 31,3 14,7

We can easily see that quality and growth NEVER is cheap. I am not sure if that Henkel 2004 P/E of 5 is incorrect data, but the solid “quality stocks” always traded “richly” and nevertheless delivered outstanding long term performance. Only BASF, as a “quality cyclical” company has been available at single digit P/Es at some years.

So after all, this is wat Warren B. likes to tell us: In the long term, quality does seem to beat anything else, especially if you factor in taxes, trading costs etc.


So what does this all tell us ? I am afraid that I cannot come up with some “Magic Formula” to identify future winners. Nevertheless, I think the look back emphasizes three of Warren Buffet’s main points:

1) over the long term, stocks have been a unbeatable compounding machine. A return 10 times the original inevstment in 26 years despite several devasting crashes speaks for itself

2) over such a long time horizon, it seems that “quality buy and hold” seems to be at an advantage at least for large caps. Yes, introducing a backtested system (market timing, EV/anything) could generate fantastic returns as well, but just buying and holding well managed companies did produce spectacular returns

3) Just buying the index and sitting on one’s ass would have beaten almost all active strategies. To be fair although, the first DAX index funds were available mid/end 90ties…..

P.S.: To finish the story: What happend to my first stock, Hoesch AG ? Hoesch was taken over by steel company Krupp which itself merged with Thyssen. If I would held it all the time, it would have been a pretty weak investment……


  • The problem is that we know what the quality companies were in the past, but we do not necessarily know what the quality companies are going to be in the future.
    When I started investing in 1982, Deutsche Bank, Daimler and Allianz were considered quality and life insureres were considered growth stocks; and BASF and VW were a deep cyclicals. BMW was still somewhat of a recovery story. There were growth stocks like Computer 2000 and the like…

  • #MMI have you made the calculation to see what your development would have been if you would have only increased the positions in the company that you bought back in 2003 with buying more shares of them in 2009 instead of selling them and paying taxes on the earnings?

    #Roger I have not previously thought about that DAX is so cyclical but now that you mention it then it makes sense to me. When is then the best moment to buy these cyclical DAX companies? Any year when they are showing losses?

    • @ Fredrik: Give my a good working crystal ball and I will tell you the future. 😉
      We see several German DAX-Companies for low share prices, e.g. ThyssenKrupp, RWE, E.ON, Deutsche Bank, Commerzbank. But I really don`t know when and how much they can get bounce back in future. Will they behave as Karstadt, getting totally doomed, will they behave as Telekom, stabilizing on a quite low level, or will they behave as Volkswagen or BASF and returning to further records?
      There is no easy answer – otherwise there wouldn`t be chances for shares to double in short time.

      • Hahaha, unfortunately today I do not consider there to be a need for crystal ball because self-proclaimed financial experts in various finance newspapers as well as technical analysts already fulfil the function of the crystal ball. It is much harder to find people that do not proclaim to know the future and the development of specific stocks.

        I already own three of the five DAX companies that you mentioned and I do not know if that will be good in the future but as of yet it has not been very successful. :s

  • I think one should also remind the strong cyclicity of the DAX. As far as I know it is most cyclical among the big global indices of the developed countries.

    Mr. Market is maniac-depressive. The German Mr. Market perhaps even more than the American Mr. Market. 🙂
    Even the most solid and “boring” German Blue Chips, called “Witwen- und Waisenpapiere”, had to suffer extreme setbacks in regular repetitions, especially in the last 15 years. So in Germany the stock market retained the image as a playground of gamblers more than as a serious option for life-time-savings. That may be a reason why saving money in shares is less popular in Germany than in many other countries.

  • Excellent summary! Thanks!

    When looking at this then it does indeed become very clear that one should go for the well-run companies and simply keep them forever.

    Personally I seem to have an over fear or maybe better put an extreme desire to buy the great companies when they are dirt cheap and when they are not then I decide to go for dirt cheap lesser companies instead. So obviously something is wrong with my head.

    I have not been an investor for a long time, I have already made several mistakes (biggest was to buy Asian Bamboo my first year of investing) and I am therefore also working on how to improve my investment strategy and I hope I will one day stop going for dirt cheap and start buying only quality.

    • #Fredrik,

      my problem was that I bought quality companies cheap both in 2003 and 2009 but sold them much too early…. Anyway, as the “master” said: Investing is simple but not easy……

    • But what are that really good, solid and well-run companies? If you would have asked me 15-20 years ago about the most high-quality companies, I would have namend Siemens and Daimler. Perhaps added by a solid, high quality financials like Allianz oder Deutsche Bank.
      Siemens is still under its level of 2000
      Daimler ist still under its level of 1999.
      Allianz is at around 30% of the level of 2000.
      Deutsche Bank is at less than 30% of the level of 2000.
      Quite disappointing.

      What is a german “Witwen- und Waisenpapier”?
      Today I would perhaps name BASF, SAP and VW as solid, stable and well managed companies.
      But seriously, I have no idea how they are going for the next 15 years.

      • Even before the Chrysler Fiasco, I would have considered Daimler as an extreme badly managed companies. AEG, Fokker etc. just to name a few incidents. The same for Siemens, although their performance was surprisingly good.

        BMW for instance in my opinion is very well managed, as the family owner has a strong and positive impact. But as I said, there is no clear cut way to predict this easily.

        Edit: Volkswagen in my opinion is rather badly managed……

  • mmi,

    Thank you for your interesting thoughts.

    It would be very profitable to discern quality companies and buy them at reasonable prices.
    Which companies worldwide do you view as quality companies available at reasonable prices now?

    You named several decisive factors for the economic developments of the past 26,5 years. The DAX 9,02% p.a. performance appears somewhat better than the 114 years historical results (5,2% p.a. + 3% inflation CREDIT SUISSE GLOBAL INVESTMENT RETURNS YEARBOOK 2014). Does this mean that due to mostly positive factors we experienced some “golden” years? Some of these factors may turn out to be negative in the end like the EURO and “cheap” credit. From an Austrian economic view (Ludwig von Mises) a depression may follow due to malinvesments. A single currency will only work in a single state, therefore the United States of Europe are necessary and it has to be seen whether the voters of the now independent states want this, a state where they would not understand the languages of most of their fellow citizens. Otherwise the EURO must be broken up, probably costly and disruptive.

    I did not foresee 26,5 years ago the factors you named; I do not know the decisive factors for the next 25 years, nor do I know which will be the quality companies for that time frame. And I do not know whether this year is comparable to and the markets will develop like 1929, 1970 or 1980. I will try to buy securities which I think cost less than their value and to take whatever happens with equanimity.


    O, wer weiß,
    Was in der Zeiten Hintergrunde schlummert?

    Don Carlos I, 1
    Friedrich von Schiller

    Und Schätze sind kein Eigentum des Menschen:
    Der Mensch verwaltet nur, was ihm die Götter
    Verliehn und, wenn sie wollen, wieder nehmen:
    Ein Tag macht den Begüterten zum Bettler.

    Szenen aus den Phönizierinnen des Euripides
    Friedrich von Schiller

    • Milud,

      thanks for the comment. What are those quality companies ? This is a good question. I think for instance that Koc from Turkey is actually a quality company, but of course everything is subjective. I will have a post with a new company soon, which I consider “quality”, but looks expensive…..


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