Every Stock Decision Is A Macro Call

“When David Swensen who allocates capital for the Yale endowment, comes in and says, “If you do macro, I will never give you a penny,” then you say you don’t do macro. But even Swensen is doing macro. When he’s X per cent of Yale’s portfolio in venture capital, he’s doing macro. When he’s got Y per cent in oil, gas and timber, he’s making macro calls. Recently, I was at a money round table dinner where everyone was talking about “my stocks this” and “my stocks that.” Their attitude was that it doesn’t matter what will happen in the world because their favourite stock is generating free cash flow, buying back shares, and doing XYZ. People always forget that 50 per cent of a stock’s move is the overall market, 30% per cent is the industry group, and then maybe 20 per cent is the extra alpha from stock picking. And stock picking is full of macro bets. When an equity guy is playing airlines, he's making an embedded macro call on oil. I honestly think that people forget what a macro trend is.” An excerpt from Inside the House of Money by Steven Drobny.

The world’s best stock picker is also a macro investor (by default). There is no choice. In Feb 2020, when COVID was just making its presence felt, Buffett for the second time in his career picked up stakes in four airlines. The second time also unlucky he dumped his $7-8 billion stake in a jiffy when he realised that covid was a black swan and would not be going in a hurry. This was a macro call on the airlines and travel and tourism sector. Recently he has again picked up a 13% stake worth $ 7bn in Occidental Petroleum, an energy company that conducts exploration and production activities and has an option to pick up another 9% in the company. He has taken out his “elephant hunting gun” and fired again saying he is bullish on oil prices. Again, a macro call. According to SEC filings, Berkshire Hathaway spent a considerable amount of money to increase its position in energy giant, Chevron. The investment is significant as it puts Chevron into the top four holdings in Berkshire’s portfolio. It also increases Buffett’s stake five times from where it stood at the end of 2021. The total amount of Chevron stock owned by Buffett is now over $25.9 billion.

Buffett has spoken a lot about macro in his letters in the 70s and 80s as well as in the recent past. Regarding QE, he warned in 2010, “We are following policies that unless changed will eventually lead to lots of inflation down the road.” Adding that, “We have started down a path you don’t want to go down.” At the 2013 Berkshire Hathaway annual meeting, Buffett warned, “QE is like watching a good movie because I don’t know how it will end. Anyone who owns stocks will re-evaluate his hand when it happens and that will happen very quickly.”?It took a while, but it seems to be happening now.

This year is going to be all about macro.

As Keynes, Soros, Jones, Druckenmiller, (Warren) Buffett, Simons, Burry, Paulson, and many others who have invested and had great success in times of big market dislocations show, it can be a huge opportunity if one can read the situation right. It can, however, also be very risky because, in markets, history doesn’t repeat but it may rhyme or, like jazz, may improvise as it did in 2000, 2008, and 2020.

My favourite Soros quote is,?“All of economic history is one lie and deceit after another. Your job as a speculator is to get on when the lie is being propagated and then get off before it is discovered.”

Regards,

Anish