Macro vs Micro Investing

I have noticed the macro-investors are being seen and talked about more recently. Their approach is context. Maybe that is the difference when compared to micro-investors.

Compare

Macro is about big pictures. whether the world economy, a country’s economy, or an industry.

Micro is about a particular company. Things like profit margin, cash flow, debt coverage, growth, volatility, and price /earnings ratio.

If you are skilled and patient micro can work very well, thank you.

Macro can have bigger advantages but it’s harder to be right.

It is a style thing where a person prefers one over the other. The highly skilled investors are good at both but emphasize one over the other.

The context of successful macro investors.

Anything can be an opportunity. They’re curious. They have a strategic overview that aims to be in the right place, at the right time, with the right tools and financing to exploit what they find. They are patient because opportunities within their preparation skills do not appear whenever they want them.

They value simplicity because their context is so very complicated. Most look for “pure play” within a situation. A complex company like Berkshire Hathaway is hard to buy as a macro investor because it has so many businesses within it.

They make decisions. They know how to execute on what they find and do so with enthusiasm. In the same way, they know when it is time to leave

We see more macro-talk lately because inflation is a macro subject. How would you identify opportunities assuming inflation turns out to be higher than we are accustomed to and persistent? Robert Kiyosaki uses leverage and high supporting cash flow. Even if it just carries itself, the win will be in the depreciating value of the debt owed. 10% inflation would cut the value of debt in half in seven years. Others are more passive and look at precious metals and crypto. Still others look at sectors that may benefit from rising prices. These tend to be ones with high fixed costs creating the ability to produce. Look for companies with low variable costs to produce and high fixed costs to enter the business. Chip makers, the oil sands in Alberta, railroads, and fracking. With chipmakers, the first chip will cost several billion dollars and every one after that nearly nothing. Rising prices are profoundly profitable because your cost of entry doesn’t change with inflation.

The context of successful micro investors.

Look at Rennaisance Technologies. They are far and away the most successful hedge fund. Do they know a lot about the companies in which they invest? Not often. They use technical algorithms to identify anomalies in the market and trade on those. Many of their investments are not stock. Commodities, bonds, currencies, whatever provides an exploitable position.

Their business statement of purpose, “Renaissance Technologies is a quantitative investment management company trading in global financial markets, dedicated to producing exceptional returns for its investors by strictly adhering to mathematical and statistical methods.”

Berkshire Hathaway has a different set of rules or guidelines. They look for pricing power, strong management, and a competitive “moat.”

Most micro investors look for opportunities based on the relative price of what they believe a company is worth and how the market values it. Most want to buy low and keep it.

The bits to take away

All investments exist in a macro environment, but you could be successful with just a sense of that. For most of us, a macro overview and tactical tools to decide particular purchases work fine.

When you ignore the macro part, and it creates confusion as inflation does, you must reevaluate your micro buying ideas.

One of the reevaluations is how will the governments respond. Another might be to look for places where they are not experiencing the malaise or may react differently.

Investing is not easy no matter how you do it.


I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.

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