Our Growing World

Photo Credit: Ejaz Asi

In general, I tend not to go in for macro themes. Why? I tend to get them wrong, and I think most investors also get them wrong, or at least, don’t get them right consistently.

I do have one macro theme, and it has served me well for a long time, though not over the past two years. I was using the theme as early as 2000, but finally articulated it in 2006.

At that time, I was running my equity strategy for my employer, as well as in my personal account. They used it for their profit sharing plan and endowment. They liked it because it was different from what the firm did to make money, which was mostly off of financial companies, both public and private. They didn’t want employees to worry that their accrued profit sharing bonuses would be in jeopardy if the firm’s ordinary businesses got into trouble. In general, a good idea.

At the end of the year, I needed to give a presentation to all of the employees on how I had been managing their money. Because my strategies had been working well, it would be an easy presentation to make… but as I looked at the prior year presentation, I felt that I needed to say more. It was at that moment that the macro theme that i had been working with became clear to me, and I called it: Our Growing World.

The idea is this: in a post-Cold War world where most economies have accepted the basic idea of Capitalism to varying degrees, there should be growth, and that growth should create a growing middle class globally. This middle class would be less well-off than what we presently see in America and Western Europe, at least not initially, but would manifest itself in a lot of demand for food, energy, and a variety of commodities and machinery as the middle class grew.

Now, I never committed everything to this theme, ever. Maybe one-third of the portfolio was influenced by it, on averaged. Most of what I do was and still is more influenced by my industry models, and by bottom-up stock-picking.