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David Hay of Evergreen + Gavekal sounds a warning


giofranchi

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Gio, did you use a lot of macro around 2007 or so?

 

Not at all! In 2007 I got worried and I shifted my firm’s investment into 4 stocks: KO, PG, JNJ and XOM. In 2008 they performed better than the market, but they were down nonetheless. One of the lessons of 2008 for me is that “macro” (and I want to stress the fact that all I am trying to assess is the level of market risk to which my investments are exposed, nothing more), instead of being useless 100% of the time, is useless 90% of the time. The rest 10% of the time, and precisely during a secular bear market in stocks when general prices are artificially inflated, I prefer to be aware of market risk, than to ignore it altogether. I think the only problem with a lot of good value investors in 2008 (Mr. Bill Miller, Mr. Richard Pzena, etc.) was that they went on STUBBORNLY IGNORING market risk. Even Mr. Buffett made a mistake, investing in COP. As he has openly admitted! I don’t think some very deep knowledge of macro facts is needed. All is needed can be found in the Wall Street Journal or in the Financial Times. It is just that most people choose to completely ignore it! Imo, they are right 90% of the time, but wrong the rest 10%.

 

giofranchi

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Gio, did you use a lot of macro around 2007 or so?

 

It is just that most people choose to completely ignore it! Imo, they are right 90% of the time, but wrong the rest 10%.

 

giofranchi

 

Ben Graham pretty much said the same about Technical Analysis as well, though he did not specify it numerically and I think he would agree with you. I think at the extremes it does add value at least in terms of being able to recognize the risk that you are exposed to.

 

Vinod

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I agree....you may not be using macro to generate ideas, but I think if you're managing a portfolio....you must be aware of macro events, and be able to think defensively. Outperforming the benchmark by 4% in a 08-style crash is good, but I'd rather be the guy who avoids that alltogether...

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