Macro Minute
I love Warren Buffett’s quote about people (i.e. economists, market commentators, etc.) who try to predict the future – you tend to learn more about the person than you do about the future. (hint: you learn the person making the prediction cannot predict the future - I have been asked many times to explain this quote hence I am providing the interpretation)
In investing, I am 100% focused on micro, not macro. I try to focus my time and attention on things that are important and knowable. Macroeconomic factors are very important but unknowable. I want to own businesses with enduring long-term prospects that will more than survive and perhaps even thrive in times of economic uncertainty.
Howard Marks wrote a memo to Oaktree Capital Management, LP clients titled “What Really Matters?” on November 22, 2022. In that memo he discusses what really matters in investing. As it relates to macro events, he wrote:
Macro events and the ups and downs of companies’ near-term fortunes are unpredictable and not necessarily indicative of – or relevant to – companies’ long-term prospects. So little attention should be paid to them.
He continues:
It’s clear from observation that security prices fluctuate more than economic output or company profits. What accounts for this? It must be the fact that, in the short term, the ups and downs are influenced far more by swings in investor psychology than by changes in companies’ long-term prospects. Because swings in psychology matter more in the near term than changes in fundamentals – and are so hard to predict – most short-term trading is a waste of time…or worse.
I heard another quote regarding short-term, speculative trading that said more money is lost preparing for a recession than actually in the recession. Macro events are very important and seem to always hang a dark cloud over owning shares for one reason or another. I have often thought that macro storm clouds tend to prevent people from investing as they “wait it out.” I believe there is always something scary in the macro environment for which you could make a case for sitting on the sidelines. Owners of businesses do not have the option to sit it out when a recession is “brewing” (the stock market equivalent of selling their shares) and then to attempt to get back in when things are better. Business owners find ways to adjust and manage knowing that the sun will come up again tomorrow and this too shall pass. In investing, I try to think like a business owner because I am and I spend about a minute a year on macro.
