While many investors spend their time scrutinizing the financial statements of a single company (called micro or company-specific analysis), the macro investor looks up. They look at the entire forest instead of every single tree.
"To envision the good is to create it. Your imagination is your creative workshop."
— Florence Scovel Shinn
Macro investing (also called Global Macro) is about predicting how major national or global events will affect various asset classes such as stocks, currencies, commodities, and interest rates. You envision the big picture before placing your money.
What does a macro investor look for?
A macro investor closely monitors the big picture, including:
- Central bank policy: Are interest rates going up or down? (This affects the cost of money and thus stock prices).
- Inflation and unemployment: How much purchasing power do consumers have to buy goods and services?
- Geopolitics: Is there a war, trade war, or political unrest that could affect oil prices or supply chains?
- Currency fluctuations: How does the dollar perform against the euro or the Norwegian krone?
Top-down approach: Macro investing is often called a top-down strategy. You start with the global picture, then select countries or regions that look promising, before finally choosing specific funds or industries within that region.
Pros and cons
Advantages
- Gives you the opportunity to make money regardless of whether a single market goes up or down, by moving your capital globally.
- Protects your portfolio against major crises, since you are already watching the warning signs in the economy.
- You often invest broadly in indices and currencies, which reduces the risk of one bad company ruining everything.
Disadvantages
- Macroeconomics is extremely complex, and even the best experts are often wrong about interest rate paths and inflation.
- Requires you to understand how different markets, currencies, and commodities affect each other (correlation).
- Black swans (completely unforeseen events like a pandemic) can destroy even the best planned macro strategy.