Macro variables

Though we practice the idea of purchasing "good companies at good prices", we cannot ignore how the macro environment can affect the valaution of financial securities. We do this because:-

1. We are buying a minority interest in a company hence have little say in how the company should react in a difficult environment

2. We cannot expect clients are as patient as us in receiving results. Hence, we must be aware how the macro environment can affect portfolio performance in the medium term (next three years)

3. We are buying participation in companies via an auction based system that will react emotionally to changes in the macro environment. Opportunities to buy and sell should be expected to be created by rash decisions from investors who do not apply a long term time horizon


We focus on a few variables and compare them in different economies to get a general picture. We also add a TIME factor to appreciate how quickly they can change (1 weeks, 2 months, 3 years 4 decades) and whether the market or authorities most dominate their outcome:-

COST OF MONEY
Base interest rate TIME 2, AUTHORITIES
Libor rate TIME 1, MARKET
Government bonds (yield curve), TIME 1 MARKET

VALUE OF MONEY
Inflation TIME 2
Currency TIME 1
M1, M2, M3 supply, TIME 2, AUTHORITIES

ECONOMIC GROWTH & STRUCTURE (how money is used)
GDP breakdown (income and expenditure)
Profit/GDP
Wages/GDP
Savings/GDP
Consumer spending/GDP
Equity markets/GDP

TRADE & MANAGEMENT
Trade balance
Budget balance
Government and consumer debt

DEMOGRAPHICS & EDUCATION
Old/young
Pension liabilities
Do young people move abroad to get educated or get a good job and then come back?
How many graduates/Universities? % of population

POLITICAL FREEDOM