r/valueinvesting
Investments aligned to the economy
The author asks if macro regime-based investing, like favoring value stocks in weak growth per Fama-French, is a useful methodology.
Hello everyone,
Just wondering what people think on investing aligned to the economic situation based on high inflation, weak growth e.t.c. What i mean by this is first conducting an analysis of what regime we are in, and then optimising your portfolio for this for instance Value Stocks performing best in say weak growth according to academic research models like Fama French.
I dont know if this is useful or just false signals before investing and also curious: would people actually carry out this methodology and how useful is it?
Value O&G is still underrated. Somehow...
Not my style. Generally just do broad market indexes or due diligence on individual stocks, generally small caps, and plan to hold for the long term. Do you have the time to keep up with different sectors and move quickly?
Yes true especially on the long term bit. I agree it can be time consuming but I find it useful to find investment ideas as well because we can engineer the model to find the best stocks utilizing filtering and querying then conducting due diligence.
What do you think on that? How do u normally come up with investment ideas cause I agree that it can seem short term if you align it to the economy but it depends on how you do it
Try to find companies that fit into my competency and then check out fundamentals. I do write ups for each one to track. Have to fit all/most of my criteria to be considered a buy and hold long term.
weak growth
Oh look, it's the same bullshit claim since 2023.
It will never end, will it?
Betting on macro is very romantic and engaging and fun because it incentivizes you to keep up with dynamic news and refresh all kinds of indicators often
It is a huge distraction from effective investing.
Do you not think it reduces the risk of the portfolio especially if the economy is in turbulent conditions. E.g investing in housing or inflation protected ETFS if the economy is experiencing inflation.
And also what if there was a tool to keep track of all the noise so you can make a good decision instead of you taking time looking at indicators
Lol k bud trade around headlines then gl hf
"Do you not think it reduces the risk of the portfolio especially if the economy is in turbulent conditions."
The problem with this is that you will most likely not be able to predict macro reliably and even if you somehow did, the markets do not always react to it as you would expect, as market is not rational. Both Graham and Zweig point this out in the The Intelligent Investor book, specifically in the chapter regarding inflation. You might have some sort of idea of what the average inflation rate is, but it is hard to predict subsequent years with certainty. Moreover, even if you knew there is going to be high inflation next year, you don't have an effective short term hedge. Gold and Bitcoin are too volatile short term, housing might do okay, but rising interest rates will screw you over if you are buying it with a mortgage. Stocks are miserable in double digit inflation. Bonds might be the best option, but still not perfect. The point from the book is that you should not rely on one asset only to protect you from macro events (and probably market events as well) instead of diversifying.
"And also what if there was a tool to keep track of all the noise so you can make a good decision instead of you taking time looking at indicators"
We have too many indicators and information to follow and some are even contradicting others. Moreover, your thesis can be right and you can still lose money, or your thesis can be completely wrong and you might still be lucky enough to gain money.