Portfolio 034 – The Three Pillars of Macro Investing

This is the second in a series of posts that first appeared at Exante Data’s Money: Inside and Out.

Why are some countries better than others at creating wealth (and investment returns)?

  • Why did Thomas Edison thrive in America while his poor-country equivalent did not?
  • What are the ultimate macro factors that make a country successful and investable in the long run? We consider three pillars of long-term macro equity investing.
  • Will America’s historic drivers of prosperity remain strong in the future?

There is no limit to the ingenuity of man if it is properly and vigorously applied under conditions of peace and justice.” ___ Winston Churchill

OUR FIRST POST on the return of macro argued that recent events have re-inserted macro into the investment process of money managers, including equity managers that had tried to avoid thinking about macro since the Global Financial Crisis.

Now we turn to the question of macro context. Specifically, what kind of macro context is most likely to generate strong returns for investors? Why was America a better investment destination for many decades? And how likely is it to retain this enviable position?

To start, consider this brief thought experiment. America has had its Thomas Edison, its Henry Ford, its Steve Jobs. But what about other countries or continents? Are there any equivalents to these innovator-entrepreneurs in other countries? How many Thomas Edisons have there been or are there now in Central or South Asia? How many Henry Fords in sub-Saharan Africa, or Steve Jobses in Latin America? How many are in Ukraine or Russia right now? Or in Yemen or Syria?

It is fair to assume that there are such talents walking around on every continent. But of course, we will never know how many or who they are. As importantly, they will never know about themselves. In most cases, they will never know their own full ability, will lead lives that are dictated and often stunted by their immediate surroundings, and will eventually pass without having contributed their immense talent to the betterment of life or mankind.

MACRO BEYOND ECONOMICS

Most Americans are conversant in at least some of the factors that have allowed a Thomas Edison to flourish in America while his (for example) African counterpart has not. If we list those factors, we cannot just say that it is only America’s laissez-faire economy because there is some form of laissez-faire in many African countries. Nor can we say that it is only literacy because there is high literacy in many non-rich countries. Nor can we say that it is only US demographics because other countries have had similar or more favorable demographics.

But we could say that it is all of these things, and a few more, combined. >>> Continue reading at Exante Data (paywall) or read a summary in this Twitter thread. >>>

Please Note: Portfolio is not investment advice. Please do your own work and discuss with professional advisors before committing capital.

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