“I don’t think about the macro stuff. What you really want to do with investments, is think about what’s important and what’s knowable. Understanding Coke or Wrigley is knowable… but we have never bought a business or not bought a business because of any macro feeling of any kind… We don’t want to pass up the chance to do something intelligent because of some prediction about something that we’re no good at anyway.” – Warren Buffett, 1998 at the University of Florida
I just had a few thoughts this morning. There has been a tremendous amount of banter back and forth lately about the market, the Fed, the possibility of a bubble, etc… I’ve had numerous conversations with clients and some friends of mine (non-value investor friends) who believe that the Fed is propping up the market… that seems to be the consensus view.
In these conversations with non-investor friends, I occasionally voice my opinion on my investment philosophy (which is usually greeted by yawns). Value investing is boring. Who wants to read 10-K’s and analyze pages of numbers on financial statements? It’s much more fun to engage in the game theory aspect of Fed policy (i.e. which quarter of 2015 will Yellen decide to raise rates and when will stocks react?)
Debating Fed policy is fun… it’s like debating where LeBron James or Carmelo Anthony are going to end up. It gets great ratings… ESPN is setting records for ratings this July (partly because of the World Cup, but some of the highest rated Sports Centers ever in the month of July have been the shows that have been focused on the various pieces of the current NBA free agency puzzle.)
Here is ESPN’s home page this afternoon:
So this NBA drama is getting great ratings. Similarly, whenever there is a big macro event, CNBC and the other cable news channels always get a boost in their ratings. 2008-09 was a great time to be in the business of news. I love reading the paper, and I enjoy the news probably more than the average person. I find the macroeconomic landscape intriguing, but I personally don’t think that this intrigue–or analyzing it and making decisions based on that analysis–is a productive way to manage capital. There are too many uncertainties in the world to handicap all of the various probabilities. Of course, there are countless possible outcomes with each investment—macro or not—but I try to reduce the amount of variables that I need to understand and consider.
The NBA free agency is great theatre. That’s how I think of the Fed policy and other macro things… great theatre, but it’s really difficult to predict. Wherever LeBron James ends up is important (that’s an understatement—he’s single-handedly probably worth 20 wins to Miami and 30 to Cleveland). So obviously, where he goes will have a huge impact on the various teams involved. It’s important… but, in advance, his decision isn’t knowable.
That’s how I feel about the Fed, commodity prices, the economy, the stock market, and many other aspects of the great web that is macroeconomics. It’s all fascinating, it’s all important, but it’s not knowable.
There are lots of opinions out there on many things that are important, but not knowable. Buffett’s wisdom always keeps things in perspective. I’ll wrap up these brief thoughts the same way I started them–with another Buffett quote, this one from his 1994 shareholder letter:
Have a great weekend.
(Hopefully for Chris Bosh’s sake, LeBron drops the curtain on this theatre and chooses a team… if you’re a Disney shareholder, hope that he waits until August to decide)…
Here is the video I referenced above (it’s one of Buffett’s best in my opinion):