Macroeconomics
I don’t think about macroeconomic events while thinking about investments- the direction of markets, interest rates, wars etc. There are 2 reasons for that :
One, I focus on inherently strong businesses that should be able to handle external macroeconomic challenges. a la Buffett : focus on the swimmer, not the current.
And two because there are so many moving parts in the external environment that it’s impossible to make a decision with a good probability of being right. Thinking about macros also contaminates thinking about the businesses where with the right effort and practice, I can make better decisions.
In that spirit, please find below what Buffett and Munger had to say about macroeconomics with respect to their investing thinking.
We never try to predict the stock market. We do try to price businesses.
Price and value. Focus all the time. No attention to beta
So much about predicting the future price of oil. Practically, all the oilmen got it wrong
What do you think about the market today ?
We don’t want to be thinking about the wrong things when we’re buying businesses
Thank you for this Ankur Sir. I still continue to make this mistake of timing the market because
when the market overall is overvalued it impacts the stock prices of the businesses that you own (collateral damage) and if you are not a buy and hold investors, the wind going against the market, impact the stock prices of the businesses that you own.
So, as a individual capital allocator, remaining invested in a business, trading way above the intrinsic value, can be seen as a opportunity loss if some other asset class or business yields higher value for you.
Example: Havells, Astral, HUL are all quality businesses but remaining invested in them would have resulted in opportunity loss of capital. I know this is all hindsight bias and analysis but yet..Having understand that it's fundamentals(earnings) + liquidity+ sentiment (reratin) that drives the return for investors, a view on where the capital is moving often becom important.
If I'm not wrong, charlie and Buffet cash call is indirectly a macro call on markets where you do not find the capital accretive businesses at your desired valuations.
I frequently has this question of timing in mind because of the small capital base and if as a businessman you hold a inventory of a stock which is not getting cleared for say next 5 years, I'm a capital destroyer.
Thoughts?