Macro Investing: Immunity To Company Performance

Macro investing is a style of investing that is most closely associated with the hedge fund world. When hedge funds first started, it was difficult to execute an investment strategy based upon a worldview of economic events.  That’s not the case today though. A macro investor could take an overall view that interest rates were rising, the economy is heating up, inflation was on the rise, and cost pressure would be great for companies. So in that case an investor might want to short treasury futures in anticipation of rising rates, short the S&P 500 as stocks might fall due to rising cost pressures, and they might want to buy commodity plays based on rising costs. These kinds of macro investment strategies are much easier to do today. There are exchange-traded funds (ETFs) that can mimic just about any kind of worldview that you might have.

Pros: If you are right about the fundamentals shifts in macro events you don’t have to sweat the details of any individual company’s performance.  You are not hitching your fate with any one company but are playing big and broad trends. For example if you are bullish on the market, you might buy one of the S&P 500 ETFs such as SPY and avoid the risk of an earnings miss or an analyst downgrade.

Cons: They often use leverage and derivatives to accentuate the impact of market moves.   It may be hard or unfeasible to execute a macro strategy.

An excerpt of “The Investment Survival Guide”