It’s an economics topic, so we’ll start with the prime economics clichÃ©:
On the one hand: No. Per Graham and Dodd, the fathers of rigorous financial and systemic evaluation of stocks, the macroeconomic environment isn’t a big factor. “All cars are racing on the same track,” and the better companies will perform better than the worse companies. The analyst’s job is to figure out who is who.
Furthermore, anyone who believes even somewhat strongly in the Efficient Market Hypothesis believes that all publicly knowable news is already reflected in the price. Thus, good economy or gloomy, they argue, it doesn’t much matter what you think because the market has already adjusted to the prognosis.
On the other hand: Yes. “Buy straw hats in winter and parkas in summer.” “Sell when the streets run with champagne; buy when the streets run with blood.” The latter advice is paraphrased from Baron Rothschild. Real-world investors and the public can suffer from shortsightedness, and from excessively emotional reaction to events. An investor with a clearer eye and mind can find unusually good deals from time to time.
Famous investors from this school include hedge fund managers such as George Soros, but also more mainstream investors such as Bill Gross of the PIMCO bond funds.
And I? Both. For stock picking, there’s no substitute for looking closely at the company as an operating organization, to decide if they know how to do what they do profitably. For this fund, the stock-picking process will be mostly fundamental, careful study of individual stocks. That’s what I’ll most often discuss here in the blog. At the same time, sometimes you can see changes coming, if you take a moment to think about it. I enjoy thinking about it, so that’s the material that finds its way into my (nearly) monthly newsletters.