Macro Market Investing: Following the Fish


Macro Market Investing is a style of investing in the stock market by evaluating and investing in specific industries and market segments within a certain region or on a global scale. This approach compares to micro focused investing which centers on individual companies and how they interact within a certain sector, region or the global market.

One of the best analogies for the focus of this style of investing is the activity of a school of fish. Throughout the great waters of the world (Global Market) there are varies subdivided oceans (Regions) and within those there are varies schools of fish (industry sectors) which of course are made up of individual fish (individual companies).

As one evaluates a school of fish one recognizes that the group acts as one synchronized unit. It moves in the same direction and stays together and moves at generally the same pace. One will also realize that there are leaders in the group as well as trailing members and those that remain right in the middle.

This analogy explains how industry sectors and market segments perform in relation to the overall global market. To look at a specific industry such as the global cellular telecommunications industry, we can find that there are a variety of companies that are a part of this global industry sector and they all follow each other to a close degree. At a basic level of evaluation; Apple, Samsung, Motorola, HTC, and Lenovo all develop very similar products while having slight variations. All of these companies are trying to get to the forefront of their industry sector, and in doing so; they all begin to follow the same path and thus begin to move in a synchronized manner. As one company develops a new edge or variation to their product, other competitors rush to catch up and imitate these new advancements. As sector leaders begin to shift directions, fellow competitors follow suit.

So how we utilize this market movement to our advantage in investing? We can hedge our risks by focusing on investing in entire sectors instead of individual companies. A sector as a whole can be strong and more stable because they are made up of a variety of companies. Therefore if one company fails, the sector is generally able to remain strong and often times, is strengthened due to a reduction in competition. However, if you were an investor who owned stock in the company that failed, then you have taken a large loss. That being said, not all sectors and markets are created equal. Sometimes one company’s failure can be lead to the subsequent failure of other companies within that sector, depending on the conditions of the market or its general direction. Each market segment has a large array of variables that can influence the performance of that market.

In order to utilize this strategy of investment, there are two main vehicles; Exchange Trade Funds (ETF’s) and Mutual Funds. Because Mutual Funds have a variety of disadvantages that often outweigh their benefits, we will only focus on ETF’s. To read more about why mutual funds are not very advantageous investments, especially for new investors, read Arber Doci’s GOOD BUSINESS article on Retiring Financial Free.

ETF’s are investments funds that are structured similarly to mutual funds, however,  they are highly liquid and are traded like stocks on an exchange. Also unlike mutual funds, they do not have maintenance fees or minimum dollar amounts to enter the fund, save for the standard brokerage commission that is subject to all stock trading when one buys or sells a company’s share(s).

Unlike day trading or the trading of specific individual companies, ETF’s allow for a low maintenance method of investing, where the vast majority of the market research has been completed by the fund’s management team. These funds also can be rated as being lower in risk as they often have low market price volatility due to fund diversity within a specific industry or market. To relate back to our original example, ETF’s are investment vehicles that follow markets or “schools of fish”. These funds try to predict and capitalize on the movements of the market or specific sectors and segments of regional markets and are great investment vehicles that allow for the building of a highly customizable portfolio and a great way to begin as a new investor.

To learn more about Index Funds which are a type of ETF, read Arber Doci’s GOOD BUSINESS article on Retiring Financial Free.

To Find and Read more about ETF’s, check out the following resources:

Should you have any comments or questions, please write to us here.

As always, remember the two golden rules of investing:

  1. Only invest money that you can afford to lose.                                        
  2. Make every investing decision your own. Do your research. 

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