When people speak about macro and micro, does economics come to mind? I do.
Macroeconomics, as Investopedia explains, “focuses on the national economy as a whole and provides a basic knowledge of how things work in the business world.” While “microeconomics looks at the smaller picture and focuses more on basic theories of supply and demand and how individual businesses decide how much of something to produce and how much to charge for it.”
If you are a macro investor, you would look at GDP, CPI, interest rate, etc to determine the state of the economy. You would probably invest in Forex, Government bonds, Index Futures, Commodities, etc.
If you are a micro investor, you look at a particular firm or industry, and assess its potential to make money through the product or service it produces. You would probably invest in individual stocks.
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Despite the differences, they are related to a certain extent. The health of the economy can affect the business operations in that country and in turn, influences the profits. Hence, there are some micro investors that also look at the macro level while making investment decisions. But it is rare for the macro investor looking into individual companies’ balance sheets.
A pure technical trader would not care whether it is macro or micro, as long as there is a price, he can trade. But as a fundamental investor, what is your edge then? Are you better as a macro or a micro guy?
I would believe most of us are micro investors, as we are not well-versed in economics and do not possess a trained eye to understand geopolitics and economic indicators. We simply stick to businesses that we understand. One good example is Warren Buffett, a micro investor in my opinion. He just look for great businesses that would make good money regardless of the macro conditions. He is not worried about bad news on the economy. His perspective is different. He FOCUSES on businesses.
My point is you need to find your own perspective in investing. If you do not have a firm approach, you will be easily swayed by rumors or bad news. You can be a micro investor, but if you are not sure what perspective you are taking, you can be influenced by some bad news at the macro level, which may not actually affect the business at all. Investors that do not have a firm approach tends to be fickle minded and would shift between macro and micro. There is no focus and hence, sometimes the investment worked out and sometimes it did not. Like what I mentioned earlier, a micro investor can take some cue from macro indicators, but I would like to emphasize that you should still focus most of your analysis at the micro level. For example, if you are assessing an oil company, pay attention to oil demand and supply and this is probably the only macro indicator you need. The rest of the analysis must focus on the particular company you are looking at. Oil price can be rising and oil companies making a lot of money. But if the company you look at has poor sales in the industry, its profits will pale away amongst the competitors.
You do not need to know or track everything in order to be successful in investing. Do not be paralysed by excessive analysis. Take a perspective, have an approach, know what to look out for and stick to it.