Let us save you time and free you from anxiety.
Investors like you spend countless hours reading every headline posted on major financial websites… looking at charts and deciphering what the Federal Reserve said or meant to say.
This constant attachment to random movements in the stock market… loud opinions… headlines… makes you a worse investor, not a better one.
Let’s see how some of the best minds treat this deluge of information…
…and how you could handle it better.
Buffett Doesn’t Care About Macroeconomics
As a reminder, macroeconomic (or “macro”) analysis is trying to look at general economic trends to understand where the stock market could go next.
When news about unemployment, inflation, GDP growth, or industrial output gets published, a whole army of “experts” starts weighing in on where things stand and what it means for the market.
Here’s what Warren Buffett, one of the most acclaimed investors of all times, thinks about it:
Forming macro-opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important.
Mr. Buffett’s point is critical.
People don’t invest in “inflation” or “GDP.” They hold ETFs or individual stocks.
This is what they should be paying attention to, not some “big picture,” distorted by expert opinions and plagued with uncertainty.
Most Investors Have It Backwards
Studies have shown that the stock market tends to predict where the economy is going, not the other way round.
So, when you look at inflation data, for example, and think about what it means for the stock market, it’s already too late to form an opinion that would give you an edge.
This inflation… has already worked its way through the economy. It shows in the prices you see.
Guess what… It means that the company selling you these more expensive products has already earned this extra income.
So, paying close attention to the company itself or its products is arguably more important.
When it can raise its prices, customers will pay more. This will show in higher revenue, net income, and eventually in the macro indicators.
Instead of following economy-wide indicators like GDP growth, it’s a better idea, in our view, to see what the market thinks about a company’s future earnings.
If the consensus is for the earnings to go up, the company’s share price could also reflect that.
Macro analysis has almost no role here…
…and investors’ time is better used thinking about what’s next for the company as opposed to the economy as a whole.
Let’s Drive Mr. Buffett’s Point Even Further
The stock market isn’t an indivisible whole, either.
True, you can invest in a broad-market ETF. Then you’ll be invested in “the market.”
But under the hood, you’re still making “active bets.” You are probably just not aware of them.
For example, even a broad-market index like the S&P 500 doesn’t include most stocks.
In fact, just five stocks were responsible for almost 25% of the index’s composition.
Apple, Microsoft, Amazon, Alphabet, and Tesla represented 23% of the S&P 500 at the end of December.
You might know it and be fine with it… or get alarmed. Tech, after all, is one of the more volatile sectors.
So, when you think about “the market,” you’re really considering just a few high-profile stocks in this case.
If you want to understand where the S&P 500 might be headed next, look into these five.
But also remember that diversification is critical for investors.
It helps spread their bets and not lose too much if one sector goes out of favor.
Focusing on a Few Stocks Is Key
It’s exciting to follow the market. We are just as passionate about it as you probably are.
But at the end of the day, the goal is to focus on the best opportunities out there.
Inflation isn’t one. Neither is “the market.”
After all, Mr. Buffett has a whole portfolio of companies operating in various industries.
This could provide a clue as to what successful investors do to get to the top.
A focused approach to a few explosive trends is key.
We discuss trends like “green investing,” the metaverse, plant-based foods, and clean energy…
These are unfolding right now.
And this, in our opinion, deserves your focus much more than the Fed’s latest minutes.
In our opinion, this due diligence is worth your time much more than watching people argue about the latest consumer price indexes on CNBC.
For our part, we will continue delivering you up-to-date research on the market’s hottest trends.
Thank you for your loyal readership,
The Financial Star team