VTI - About The Absurdity Of Attempting To Predict The Future - Part 2

2024-04-08 07:30:00 ET

Summary

• Macro investing contains the childish arrogance and intolerance that the own subjective view of the world is closer to the truth than the subjective view of everybody else combined.
• The stellar performance of passive investing during the last decade does not make it risk-free. On the contrary, the increasing popularity of ETFs lowers the expected risk premium.
• Specialization within an investment strategy is the key to long-term success, and each individual must form their own investment process based on their risk tolerance and prejudices.
• This is the second part of the two-part article about the Absurdity of attempting to predict the future.

The Absurdity of Macro Investing

Macro-themed investing combines parts of technical analysis and value investing into one holistic strategy. It is an attempt to use one’s own prejudices about the world against the median, the wisdom of the crowd, for investment returns – similar to value investing. However, it recognizes the market's efficiencies of pricing singular assets accurately – similar to technical analysis. Therefore, macro investing decreases the sharpness of its focus to only the biggest macroeconomic realities that have the most impact on the valuation of assets: global interest rates, GDP, consumer price inflation, demographics, etc. Macro investing is about capturing a distilled, low-resolution subjective worldview with a large time horizon, comparing it to what is already priced in, and making investment decisions accordingly....

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