Over the past decade Ian Cassell has become a celebrity microcap investor not least because of his superb “Intelligent Fanatics” series of books on great entrepreneurs and CEOs. In this blog, he explains the uselessness of macro forecasting from the perspective of an equity investor. In specific, he helps you understand how even if you know exactly what will happen to GDP growth, interest rates and commodity prices, it does not help you make money at the stock-specific level:
“What if you knew the future and you could position yourself ahead of it?
What if you knew in early 2022 that the fed was going to raise rates 11 times in a row? The cost of capital was about to skyrocket.
What if you knew in early 2022 that the 30-year fixed mortgage rate was going to rise from 2.8% to 7.3%. 18 months ago 35% of US households could afford a $450,000 home. Today 20% of US households can afford a $450,000 home.
What if you knew in early 2022 that Russia was going to invade Ukraine and disrupt energy and fertilizer markets.
How would you position yourself?
Short builders, short tech, short consumer discretionary, long energy, long fertilizer.
What would have happened? The largest residential home builder in the United States, D.R. Horton, is up 5% in 18 months. Nasdaq down 12%. Consumer discretionary down 15%. Oil is down 18%. Fertilizer prices are down 25%. You got two out of the five right.
Even if you knew the future, you would still be mostly wrong.”
Mr Cassell goes on to give you several examples of how he got the macro call 100% right but could not get the stock-specific call right. So, what should investors do? Mr Cassell says that rather than indulging in armchair macroeconomics, investors should focus on understanding companies:
“The way you handle the macro is to handle the micro. Find companies that can grow, earn more money, and not dilute you. Buy them at good prices and wait. The returns will come to you. Don’t get distracted by macro conversation or trying to pivot your portfolio based on where you think things are going. Even if you knew the future, it wouldn’t help you.”
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