At 79, Karl-Friedrich Markwort is old enough to remember the postwar economic collapse that left German currency and equities all but worthless. So it might not seem surprising that Markwort, a retiree in the Frankfurt suburb of Bad Soden, steers clear of stocks.
He was lured into the market once, during the 1990s Internet boom, because he wanted to own "the businesses of the future," he says. By the time Deutsche Telekom, Germany's biggest phone company, spun off part of its T-Online unit in an April 2000 public offering, Markwort was eager to own 500 shares. "I was lucky because I was only allocated 35," he says. He later sold them for a 50 percent loss. "I don't trust the stock market now," he adds. "I wouldn't invest there anymore."
In Düsseldorf, 44-year-old Reinhard Strueven feels the same way. His retirement plan consists of a pension, a bank account, an investment apartment—and no equities. Max Ruehle, 30, a furniture store owner in Wiesbaden who lost €30,000 ($38,424) on stocks from 2001 to 2005, also stashes his cash in the bank. "If I want to play with money, then I go to a casino," he says.
When it comes to investing, many Germans are uncomfortable taking risks. Only 6 percent directly owned stocks in the first half of 2010, according to Deutsches Aktieninstitut (DAI), a shareholder lobby association, whereas stock ownership for the French is 15 percent and 10 percent for the Britons. Only 9.4 percent of the German population owned shares of mutual funds in the first half of 2010, vs. 44 percent of households in the U.S. in 2009. At the end of 2009 stock investments represented 3.9 percent of the financial assets of German households, the lowest level since at least 1991. Instead of stocks, Germans have 28 percent of their assets invested in life insurance products, 18 percent in cash and short-term deposits, and 20 percent in bank deposits.
Some of Germans' reluctance to sink their money into equities is a result of the structure of the retail banking system, which is dominated by locally owned savings banks and cooperative lenders. As a result, investment advice tends to be more conservative than in other Western economies. But it's the 2003 implosion of the Neuer Markt—a technology-focused exchange that had launched four years before—that truly frightened people away from the stock market. There was also a series of money-losing IPOs: In 1996 the Kohl government privatized Deutsche Telekom, and shares surged from €14.57 in the 1996 public offering to €102.9 in March 2000, before the dot-com bust shattered the price—and Germany's fragile investing confidence along with it. Today, Deutsche Telekom still trades below its IPO value. Shares of Deutsche Post, Europe's biggest mail carrier, followed a similar pattern, selling for €21 each in a 2000 IPO. They're now worth little more than half that.
Since German reunification in October 1990, the DAX has more than quadrupled in value, confounding skeptics who said the costs of subsidizing East Germany's crippled economy would cause years of stagnation. So far this year, German stocks have performed better than those in most developed nations. Still, the Germans aren't going for it. "The thinking of the broad population," says DAI director Franz-Josef Leven, "is that shares are here to lose money."