After witnessing a few macro trends in the last couple of years including…..
1) The Rise of India(and related rise in stock market and real estate prices)
2) Real estate boom and following disaster in the subprime market in US
3) Green energy boom relating to the depleting fossil fuel reserves, global warming and fast developing technologies for alternative fuels
4) US economy in 2008 (looking at market reaction since November)
I am realizing that there some interesting things to learn and conclude. Here are some thoughts. Feel free to argue for or against them.
1. When it comes to investments the predictability of an expected outcome is pretty important (though I agree that its a little bit of art but for the most part i think its science). Predictability typically goes lower and lower as we go from predicting macro to micro trends. Micro trends include individual stocks for example. So its much more difficult to predict how a given company might do in say 6months to 1 year compared to a given industry in the same time frame. Same is true when comparing a given industry and the economy as a whole. Ofcourse there are always exceptions. So its no surprise that statistically day traders cannot make money in the long run compared to medium and longer term investors.
2. Though markets are supposed to be very smart, based on my observations of the above 4 trends, its evident that markets are slow to react to macro trends even though it seems that the predictability of their outcome was higher.
3. Does it conceptually make sense or its seeming to be obvious only in hindsight and therefore untappable? Though I know that there are certain investors whose strategy is trend following and there are books on it. Ofcourse there is also a big difference in theory and practice when it comes to actual investing.
4. What are the macro trends that you guys see in the next 6 months to 1 year time frame? (More than 1 year time frame is quite a boring investment ). One of my friend was pointing to a trend of “rising cost of certain agricultrual produce†(I haven’t investigated that yet)
I feel that here is a corollary to the above conclusions…….
“One shouldn’t be very surprised if the consensus estimate of the Stock Analysts turns out to be absolute BS however one should be surprised if the consensus estimate of “real” (having a phd and working as an economist :)) Economists turns out to be wrong”
Apart from the greed and fear aspect of it, I think the above is generally true also because of the fact that predictability of the outcomes of macro trends that economists generally with, is lot higher.
Putting it also in another way…..
“consensus estimate of stock analysts for a given industry should be more reliable than the consensus estimate of stock analysts for a given stock”
Or take advice of one of the astrologers
http://economictimes.indiatimes.com/Street_horoscope_Buy_before_mkts_recover/articleshow/2722511.cms