The Macro Noise
Frank Boland
August 09, 2011

As a wanna-be screen writer I know that drama is all about conflict.  Without conflict there is no drama.  It fascinates and entertains us.  Innately, we desire to learn from other people’s mistakes.

In the investment business there is always drama in the macro picture.  So Wall Street firms hire strategists who attempt to tell us the future.  It is presumed that if we know the future, we will then know which stocks to buy.  But strategists seldom get it right and even if one did …would it really help?  At the end of the day it comes down to this: “How well did your stocks do?” Your portfolio is never valued on, “How close was the second quarter GDP-reported number to your estimate?”

The stock market day-by-day, week-by-week, month-by-month is all about “noise.”  And the noise … because of media and its need to broadcast drama for ratings  …   can be very scary.  Intuitively we want and seek the perfect emotional moment to invest.  But, ironically, that moment occurs only at the very top of a bull market.  This is why it is so important, despite the emotional difficulty, to distance ourselves from the macro environment.  It is individual stock selection that makes one rich.   Yet on a typical morning I, like everyone else, will sit at my desk with a cup of coffee and read the Wall Street Journal and Financial Times.  And then too infrequently, I must admit, it eventually dawns on me that I am reading what everybody else now knows.  However, when everyone has the same knowledge  …  it has no investment value. It is already in the price of a stock.  THE STOCK MARKET IS A DISCOUNTING MECHANISM.  It is absolutely anticipatory ... even at times prescient. 

Our investment process is focused on the long-term.  Not the emotion of the moment. The result is that we do the opposite of conventional Wall Street wisdom which espouses: Buy low and sell high.  As anyone who bought Cisco Systems or Microsoft (both 11 years in a downtrend), will tell you … buying low is very hard to do.  Instead we buy high when an uptrend is well established off the bottom and sell low when a down-trend is established off the high.  We want to “take out” the middle.

The macro picture will always be charged with whatever current emotion exists in the market.  At the moment it is fear.  Investing with fear is not an investment strategy; it is a reaction strategy.  It is far better to live our lives in the moment then to make invest investment decisions in it.

Francis Patrick Boland


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