We are increasingly living in a macro world. What I mean by that is that the world is becoming a smaller and smaller place due to technological change and the increasingly interconnectedness of globalization. The result is that the macro occurrences in other parts of the world influence the domestic economy like never before. And the investment world is being forced to adapt to this massive shift in the landscape. So what we’re seeing is less micro and more macro. We’re seeing the myth of stock picking lose momentum and we’re seeing investors veer increasingly towards investment products that are more broadly diversified in an attempt to reduce systematic risk and eliminate unsystematic risk. This is in large part why the ETF world is surging in growth and mutual funds and stock picking are becoming a thing of the past. I think this trend is likely to gather more and more momentum over the years and that the myth of Warren Buffett (the value buy and hold stock approach) will die out.
I think this chart from Goldman Sachs via Bondsquawk is quite telling with regards to macro trends going forward. It’s recent in nature, but will only become more pronounced in future decades:
“According to Goldman Sachs US Economics Analyst, equity markets have become increasingly responsive to macroeconomic news releases ever since the financial crisis took place in 2008. The bond markets on the other hand have always had a close eyes on the US macroeconomic news.”
It’s a macro world and you’re living in it. The funny thing is, I had a reader ask me today whether I could recommend a macro investment book…I looked at my bookshelf and rattled my small brain around in my head and came up with nothing. Someone better get on that….There’s gold in them thar hills.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.