Posts filed under “Apprenticed Investor”

Curse of the Macro Tourist

How’s your macro?

Not too good? Terrible? Unsure what that even means?

Let’s start here: Macro refers to the large geopolitical moments, and the natural and man-made disasters, that some investors track as potential market moving events. Large economic trends or reversals, diplomatic breakthroughs, political crises and even war are all macro events. Think: a tsunami that knocks out a Japanese nuclear power plant; the Arab Spring; the systemic failure of the credit markets in 2008-09; Russia’s annexation of Crimea. The ongoing Greek saga that has Europe on edge is all too macro.

Hanging on every twist and turn of the headlines are a group of folks we call “macro tourists.” They are a terrific source of chatter at any cocktail party — such as “Tsipras may have just doomed the Greeks for the next decade.”

Why does this matter to investors? For two reasons: First, macro tourists are everywhere; and second, they seem to be terrible stewards of your capital.

They remind me of the visitors to New York in the 1980s who were fleeced on the streets by card sharps running the Three-card Monte con. Macro tourists lose money by making similarly ill-advised bets where the odds are decidedly not in their favor.

Consider the international news flow in recent weeks and what many people think it could mean for the global economy:

• China’s Shanghai Stock Exchange Composite had a boom and bust this year: up 115 percent from Jan. 1 to its peak in June; then a 40 percent crash in a month. Still, Chinese markets are still up 83 percent over one year ago. An extraordinary intervention by the Chinese government created a bounce; who knows how long it will last?

• The Sisyphean labors of Greek debt are next. Will they/won’t they leave the euro? Who knows? At this point, most of us are suffering from debt drama exhaustion.

• Then there’s Iran: After 13 years of sanctions over its nuclear ambitions, an impasse has been breached. With the help of other countries, notably Russia, an enormous, game-changing treaty has been reached.

• And let’s not forget Cuba and our newly reestablished diplomatic relations (even as U.S. relations with China are deteriorating).

Market-moving headlines would seem to present an opportunity to capi­tal­ize on the potential volatility that often follows.

But here’s the big risk for investors who try to game the headlines: Figuring out what just happened is hard enough; the macro investor must guess at what’s ahead — outcomes for the near and far future as well as the market reaction to those outcomes.

Psychologists would describe it as creating a “variant perception,” which requires you to imagine what the crowd thinks it knows, what it owns and where it is probably wrong. Determining when the crowd will figure out that it’s wrong, and what it is likely to do about it, is even more difficult. Oh, then you have to get the timing of it all precisely right.

You might imagine that these big headlines would make this process easy on the macro investors. Anticipate the next big story, position yourself against the wrong-leaning crowd ahead of time and boom! Easy money!

Only it is not so easy. Despite the headlines, markets have mostly ignored the macro. Sure, we have seen some strong moves up and down and next-day reversals — but more than halfway through the year, the market has been stuck in a surprisingly tight range. Consider this data point: It has been 645 days since the S&P 500 saw even a 10 percent drawdown.

What does this mean to the average investor? Before becoming a “macro tourist” foolishly trading on headlines, consider these truths:

• News is factored into stock prices by the time it’s on the front page. These stories all develop over time. The headlines tend not to come out of the blue but are the result of incremental events over months and years.

• Headlines don’t drive markets. Profits and valuations do. These geopolitical events make for big splashy headlines, but ultimately have little affect on what matters to stock prices: corporate profits. Earnings are a fundamental driver of company valuations and therefore equity returns.

• Guessing isn’t investing: Making big bets on outcomes that are binary — i.e., a 50-50 probability — is not investing, it’s speculation.

It’s no wonder the macro tourists, both professional manager and amateur investor alike, have been for the most part unsuccessful.

Birinyi Associates creates one of my favorite research pieces each year. Laszlo Birinyi and his staff collect mainstream news articles and compile them all in an annual review. Seeing these headlines, all ominous warnings of terrible things to come — with their dates, after the fact — is downright hilarious.

Add to that the fundamental misunderstanding of risk that is prevalent among you humans. As it turns out, you worry about all the wrong things. You stress over the fiscal cliff and the sequester and Greece — all things over which you have no control and no way to figure out how the chips may fall if they do or don’t occur. Talk about wasted effort.

Instead, why not think about what you can control? Such as having a plan, reducing your costs, lowering your turnover and paying less in short-term capital gains taxes? These are things you can do, and the impact will be much more meaningful to your long-term returns than whether the Greek currency is the euro or the drachma.


Ritholtz is Chairman and CIO of Ritholtz Wealth Management. He is the author of “Bailout Nation” and runs a finance blog, The Big Picture. On Twitter:@Ritholtz.


Category: Apprenticed Investor, Asset Allocation, Financial Press, Really, really bad calls

Travails of the Modern Macro Tourist

      My Sunday Washington Post Business Section column is out. This morning, we look at travels and travails of the macro tourist. That was the name of the online version; in print edition of the paper, it was Is your money subject to the travails of a macro tourist?. Here’s an excerpt from the…Read More

Category: Apprenticed Investor, Asset Allocation, Really, really bad calls

You’re Only Human: Here’s How it Hurts Your Portfolio

I recently had the privilege of sitting down for a chat with Richard Thaler, professor of the Booth School of Business at the University of Chicago. Thaler is widely recognized as the father of behavioral economics. He is perennially on the short list for a Nobel Prize in economics. His observations about how people behave in the…Read More

Category: Apprenticed Investor, Asset Allocation, Cognitive Foibles, Investing

Time for a Fire Drill

Your portfolio may be basking in the sun, but, as always, winter is coming Barry Ritholtz Washington Post, June 7, 2015         “The time to repair the roof is when the sun is shining.” — John F. Kennedy   Markets across the country have hit new all-time highs. The Nasdaq composite index,…Read More

Category: Apprenticed Investor, Asset Allocation, Contrary Indicators, Investing

Markets Are Up, So Prepare For the Next Storm

    My Sunday Washington Post Business Section column is out. This morning, we look at what you can do — right now — to get yourself prepared for stormy weather in the markets. The print version had the full headline The sun is shining on portfolios, but winter is coming, while the online version was Your portfolio may…Read More

Category: Apprenticed Investor, Asset Allocation, Contrary Indicators, Investing

How Is Your Personal Economic Recovery Going?

Are you not feeling the economic recovery? This could be why. Barry Ritholtz Washington Post, May 17 2015       “The future is already here — it’s just not evenly distributed.” —William Gibson   William Gibson’s observation about the future was a reference to the idea that people have different access to new technology…Read More

Category: Apprenticed Investor, Economy

Tren Griffin runs 25IQ, a blog about business models, investing, technology, and other aspects of life that he find interesting. He works for Microsoft; Previously he was a partner at Eagle River, a private equity firm established by Craig McCaw. ~~~ A Dozen Things I have Learned from Barry Ritholtz about Investing As part of my “A Dozen Things…Read More

Category: Apprenticed Investor, Investing, Markets

Paul Tudor Jones: 13 Insights

I love this collection of Paul Tudor Jones insights and rules by way of Ivanhoff Capital:   13 Insights From Paul Tudor Jones 1. Markets have consistently experienced “100-year events” every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am…Read More

Category: Apprenticed Investor, Investing, Rules

The Remarkable Life and Investing Lessons of Ronald Read

The remarkable life and lessons of Ronald Read, the $8 million janitor Barry Ritholtz Washington Post, April 26 2015       You may have read about the remarkable life and times of Ronald Read. He was the gas station attendant and lifelong resident of Windham County, Vt., who had quietly accumulated a portfolio worth…Read More

Category: Apprenticed Investor, Investing

The Remarkable Life & Lessons of Ronald Read

    My Sunday Washington Post Business Section column is out. This morning, we look at the remarkable life and lessons of Ronald Read. It is a fascinating tale. Here’s an excerpt from the column: “You may have read about the remarkable life and times of Ronald Read. He was the gas station attendant and…Read More

Category: Apprenticed Investor, Investing, Psychology