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Day in and day out, investors are bombarded with information about the stock market, the economy, the Fed, the Greek debt crisis, and the alien invasion from Mars. The reason for all this nonsense is that content is king, and without content, none of the financial media would have any reason to exist.
So the media has to feed the beast, and offer analysis of everything in order to keep pace. Then it must make that analysis appear to be relevant to you, the investor, because otherwise nobody is going to consume that content.
That’s why you may be feeling “macro fatigue.” That’s the illness where all this information comes at you and begins playing with your emotions – and affecting your investments.
The problem is that, historically, very little of this nonsense has actually made any real difference as far as investment returns go.
Think about the most successful investors of all time: Warren Buffett, Peter Lynch, John Malone, Carl Icahn. What do these guys have in common? They’ve never paid attention to any of the noise, or any macroeconomic nonsense.
Buffett just looks for good businesses selling at a value price. Lynch bought stocks of companies whose earnings were expanding but whose prices didn’t reflect that expansion. Malone buys sector leaders with robust cash flow, then finds synergies among them in order to combine them. Icahn looks for companies that have great potential but lousy management.
My most successful investments – including great ideas I never executed on – came from my own assessment of the individual company itself and the sector it resided in.
That’s why I preach buying and owning a long-term, highly-diversified portfolio. If anything, my style is more akin to Lynch’s and Malone’s. I don’t perform insanely detailed calculations when I examine a potential stock candidate. The most important thing – and this comes directly from my time as a television writer/producer – is the same thing Lynch preached: What is the company’s story?
Can you tell its story in three sentences or less? Can you identify the main characters (management)? The antagonists (competition)? The audience (investors)? How does the story develop (financial statements)?
Focus on individual companies. Find companies that operate in a sector you understand. Drill down into that company. For areas where you aren’t up to speed, but know you need to have exposure, you can choose from a wide variety of exchange-traded funds.
Here’s a simple example. Back in 2000, Marvel Studios put out its first real superhero movie, “X-Men.” I knew one of the producers. It was a solid movie with a good story, and I saw that Marvel would take superhero movies seriously, and not as camp. Strong box office returns followed. I knew that the producer would be involved in all the Marvel films going forward.
I also knew there was a built-in fanboy audience, plus possible crossover audiences. I recognized that there were huge ancillary markets, especially merchandising, I also saw that the Marvel universe was enormous, and I expected the films to develop as the comics did – i.e., introduce the biggest heroes in their own movies, then start combining them into “The Avengers” and any other combination. Actors could be re-cast like James Bond when they got bored. It had the potential to be an empire.
The financials weren’t great at the time, but I knew they would improve quickly. So I bought stock, and bought again as the plan matured. It was one of my most successful investments, until The Walt Disney Co. (NYSE: DIS) bought the studio, thus adding to my Disney shares.
So stick to what you know and ignore the macro stuff. If you’re an advanced investor, you can listen to the macro stuff to make some advanced trades, but ultimately, it’s totally unnecessary.
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