What is global macro? Before we look at how we trade its important to answer the question What is Global Macro? The best answer weve heard is that its simply looking for the best risk- to-reward opportunities in the world. That means that if the Singapore equities look cheap and we can see why they would go up significantly and they present us with a low risk entry, we buy them. If US Treasuries look grossly overvalued and present us with a low risk shorting opportunity, we short them. If US Investment Grade Bonds have the highest yield spread in 30 years and strong balance sheets, we look for a low risk entry and buy them. If the Euro/US Dollar looks relatively cheap and the interest rate differential is favorable, we look for a low risk entry to buy it. Hopefully you see the basic thought process: We are simply going wherever the best opportunities are.
Many investors get stuck looking at the same market over and over looking for opportunity. Global macro traders look at anything that may give the best return. They look for the biggest bang for their buck on a risk and absolute basis.
Pundits always speak of the benefits of spreading your bets but most of them do a poor job of dispensing advice. They think that 25% in small cap, 25% in mid caps, 25% in large caps, and 25% in bonds is diversifying. The truth is that you are 75% in US stocks and 25% in US bonds most of the time. That is not diversified. To top it off they use index funds which means you will only do as well and as bad as the overall market minus any fees.
Of course if you believe the school of Chicago thought that the markets can't be beat then you probably think that being in a US stock index fund such as the SP500 is a good bet and you will sit there. Of course while you may eventually make money doing this you also need a long holding period. What the indexers fail to tell you is that the markets have gone nowhere for 20 years at a time more then once. That means you may have to wait for year sot make any money at all.
To see the pitfalls in this approach let us first look at time horizons. If you ask the average investor what the long term is, they may say 10 years. If that is a long time to you, then you would likely expect to make money over that time period. You think to yourself that you are taking the long view and that a ten-year holding period is enough time for you to earn the supposed 10% a year that the market has made on average. Well if this is what you are thinking, then you are in for a rude awakening. If you make a chart that represents the rolling 10-year return if you are invested in the SP500. Each point on the chart is what you would have made if you had bought 10 years ago. As you can see the results are a lot worse than what the supposed experts told you. We highlighted the area below 50% because you can typically earn that much by holding virtually risk free Treasury securities over a 10 year period.
Hopefully by now you realize that this is not a sound investment plan and that you can't sit around forever in an index that is treading water or even drowning. If you had bought the SP500 20 years ago as of this writing you would only be up 235% total. That comes out to a meager 4.6% annual return. You could have done that in Treasury bonds with zero risk. Was it worth the ride? No, it was not.
Sitting for 10 and even 20 years on negative returns have you down on investing? If you are like most investors you are frustrated and need help. Look at different investment styles that are really different. A new stock picking strategy is not much different then buying an index of stocks. Instead open your eyes to different asset classes and countries and find the best risk to reward opportunities the world over. Global macro trading allows you to see it all. - 14915
Many investors get stuck looking at the same market over and over looking for opportunity. Global macro traders look at anything that may give the best return. They look for the biggest bang for their buck on a risk and absolute basis.
Pundits always speak of the benefits of spreading your bets but most of them do a poor job of dispensing advice. They think that 25% in small cap, 25% in mid caps, 25% in large caps, and 25% in bonds is diversifying. The truth is that you are 75% in US stocks and 25% in US bonds most of the time. That is not diversified. To top it off they use index funds which means you will only do as well and as bad as the overall market minus any fees.
Of course if you believe the school of Chicago thought that the markets can't be beat then you probably think that being in a US stock index fund such as the SP500 is a good bet and you will sit there. Of course while you may eventually make money doing this you also need a long holding period. What the indexers fail to tell you is that the markets have gone nowhere for 20 years at a time more then once. That means you may have to wait for year sot make any money at all.
To see the pitfalls in this approach let us first look at time horizons. If you ask the average investor what the long term is, they may say 10 years. If that is a long time to you, then you would likely expect to make money over that time period. You think to yourself that you are taking the long view and that a ten-year holding period is enough time for you to earn the supposed 10% a year that the market has made on average. Well if this is what you are thinking, then you are in for a rude awakening. If you make a chart that represents the rolling 10-year return if you are invested in the SP500. Each point on the chart is what you would have made if you had bought 10 years ago. As you can see the results are a lot worse than what the supposed experts told you. We highlighted the area below 50% because you can typically earn that much by holding virtually risk free Treasury securities over a 10 year period.
Hopefully by now you realize that this is not a sound investment plan and that you can't sit around forever in an index that is treading water or even drowning. If you had bought the SP500 20 years ago as of this writing you would only be up 235% total. That comes out to a meager 4.6% annual return. You could have done that in Treasury bonds with zero risk. Was it worth the ride? No, it was not.
Sitting for 10 and even 20 years on negative returns have you down on investing? If you are like most investors you are frustrated and need help. Look at different investment styles that are really different. A new stock picking strategy is not much different then buying an index of stocks. Instead open your eyes to different asset classes and countries and find the best risk to reward opportunities the world over. Global macro trading allows you to see it all. - 14915
About the Author:
Jesse helps people find different Global Macro Trading opportunities. The Macro Trader focuses on global macro trading using ETF's for the retail and institutional investor.
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