When I broke into Wall Street more than four decades ago, the concept of macroeconomic investing was unknown. Even today, the term will cause many alleged investors to scratch their heads in wonder. The term may be unknown to them but in truth, they are slaves to an investment concept that will play havoc with their chances to be long-term successful investors.
When I broke into Wall Street investing was a very simple concept. You concentrated like a laser on one simple concept. It was called picking winners. You did not concern yourself with what was going on in Greece, Europe, or Washington because you knew that it did not matter. What mattered was picking winning stocks.
Today the slaves to the concept of macroeconomic investing dominate Wall Street like a goliath. Macroeconomic investing goes like this:
First, you try to figure out the status of current debt crisis in Greece. Then you try to figure out what is going on in Euro land. Then you try to figure out what is going on in Washington. Then you try to figure out how the economy is doing. Then you try to figure out what is going on in Wall Street. If in your analysis all systems are go then you conclude that today is a risk-off day. This means that for today but for today only it is safe to invest in the market. After all tomorrow could very well be a risk-on day. The horror of it all.
Having spent 90% of your time and effort to ascertaining if it is safe to invest. You now spend the remaining ten percent of your time trying to pick winning stocks. Or do you?
The truth of the matter is that picking-winning stocks, which in my day was the core of all successful investing, is becoming a lost art. To an ever-increasing degree investors are uncomfortable about picking individual stocks. They are vastly more comfortable in picking an index fund or an ETF that will do the picking for them.
In my day the name of the game was beating the market. Only a loser would have been content to duplicate market performance. The problem with trying to beat the market is that you have to be willing to research and then invest in individual stocks. For reasons that I do not pretend to understand people appear to be more and more fearful of doing this. I have never seen such passion for stampeding with the herd. Groupthink is in. In today’s world, everyone seems more comfortable if they are stampeding with the herd. Even if the herd is stampeding off a cliff.
Not the least of the problems with macroeconomic investing is that in my humble opinion it is harder to figure out what the market is going to do, than it is to pick winning stocks. It is truly amazing how hard it is for people to even figure out if we are in a bull or bear market. Then they compound the problem by constantly second-guessing their own opinion. Often with disastrous results. Just take a gander at the gurus on CNBC as they try to tap dance around the issue of whether we are in a bull or bear market. Have you ever seen such hemming and hawing?
Why bother? Why bother playing this stupid and ignorant game? It may amaze you to know that in my own investing I regard trying to figure out what the market is going to do as an exercise in stupidity. If I spend fifteen minutes a year trying to figure out what the market is going to do. I have wasted ten minutes of my time. I spend even less time trying to figure out what the economy is going to do. Another exercise in futility.
The rewards go to the stock picker. Consider this:
There are 10,000 stocks that are traded daily in this country. Every year there are thousands of stocks that outperform the averages. That is why they call it an average. Why not try to find these stocks that outperform the averages. After all in a typical year somewhere around 5,000 stocks are going to outperform the averages. How difficult can it be?
Consider the Dow’s 2011 performance. Though in truth I must tell you that I would not invest in a Dow stock with your money. The returns on these dinosaurs are beneath my dignity. I only invest in small caps because that is where the performance is, but I digress.
In 2011, the Dow was up 5.6% for the year. The top two performers in the Dow in 2011 were MacDonald’s up 30% and IBM up 25%. The worse two performers for the year were Bank of America down 58% for the year and Alcoa down 44% for the year.
How hard do you think it would have been in 2011 to figure out that Macdonald’s and IBM might outperform the Dow? Not exactly mission impossible was it? You got to admit it sure beats 5.6%.
Stop playing the losers game of macroeconomic investing and start playing the winners game of microeconomic investing. It is called picking stocks.
When I broke into Wall Street investing was a very simple concept. You concentrated like a laser on one simple concept. It was called picking winners. You did not concern yourself with what was going on in Greece, Europe, or Washington because you knew that it did not matter. What mattered was picking winning stocks.
Today the slaves to the concept of macroeconomic investing dominate Wall Street like a goliath. Macroeconomic investing goes like this:
First, you try to figure out the status of current debt crisis in Greece. Then you try to figure out what is going on in Euro land. Then you try to figure out what is going on in Washington. Then you try to figure out how the economy is doing. Then you try to figure out what is going on in Wall Street. If in your analysis all systems are go then you conclude that today is a risk-off day. This means that for today but for today only it is safe to invest in the market. After all tomorrow could very well be a risk-on day. The horror of it all.
Having spent 90% of your time and effort to ascertaining if it is safe to invest. You now spend the remaining ten percent of your time trying to pick winning stocks. Or do you?
The truth of the matter is that picking-winning stocks, which in my day was the core of all successful investing, is becoming a lost art. To an ever-increasing degree investors are uncomfortable about picking individual stocks. They are vastly more comfortable in picking an index fund or an ETF that will do the picking for them.
In my day the name of the game was beating the market. Only a loser would have been content to duplicate market performance. The problem with trying to beat the market is that you have to be willing to research and then invest in individual stocks. For reasons that I do not pretend to understand people appear to be more and more fearful of doing this. I have never seen such passion for stampeding with the herd. Groupthink is in. In today’s world, everyone seems more comfortable if they are stampeding with the herd. Even if the herd is stampeding off a cliff.
Not the least of the problems with macroeconomic investing is that in my humble opinion it is harder to figure out what the market is going to do, than it is to pick winning stocks. It is truly amazing how hard it is for people to even figure out if we are in a bull or bear market. Then they compound the problem by constantly second-guessing their own opinion. Often with disastrous results. Just take a gander at the gurus on CNBC as they try to tap dance around the issue of whether we are in a bull or bear market. Have you ever seen such hemming and hawing?
Why bother? Why bother playing this stupid and ignorant game? It may amaze you to know that in my own investing I regard trying to figure out what the market is going to do as an exercise in stupidity. If I spend fifteen minutes a year trying to figure out what the market is going to do. I have wasted ten minutes of my time. I spend even less time trying to figure out what the economy is going to do. Another exercise in futility.
The rewards go to the stock picker. Consider this:
There are 10,000 stocks that are traded daily in this country. Every year there are thousands of stocks that outperform the averages. That is why they call it an average. Why not try to find these stocks that outperform the averages. After all in a typical year somewhere around 5,000 stocks are going to outperform the averages. How difficult can it be?
Consider the Dow’s 2011 performance. Though in truth I must tell you that I would not invest in a Dow stock with your money. The returns on these dinosaurs are beneath my dignity. I only invest in small caps because that is where the performance is, but I digress.
In 2011, the Dow was up 5.6% for the year. The top two performers in the Dow in 2011 were MacDonald’s up 30% and IBM up 25%. The worse two performers for the year were Bank of America down 58% for the year and Alcoa down 44% for the year.
How hard do you think it would have been in 2011 to figure out that Macdonald’s and IBM might outperform the Dow? Not exactly mission impossible was it? You got to admit it sure beats 5.6%.
Stop playing the losers game of macroeconomic investing and start playing the winners game of microeconomic investing. It is called picking stocks.
Forty Years a Speculator
Fred Carach
Oakland Park, FL 33309
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