Macro schmacro…you don’t know crapo

It’s fun to 2nd guess Bernake, Bush, Paulson, etc.  But guess what….you don’t know everything that they know…both in terms of the facts that they have on hand and the knowledge they have access to.  It’s more than you.  They even know when they’re lying and hyping better than you do.

Oh…and guess what, even if you are REALLY good at macro, you still don’t know as much as the assistant to the assistant global equities strategist at Goldman, who is controling somewhere around 1 million times as much money as you.

OK, so that’s one problem wih trying to invest/trade based on macroeconomic principles.

Another problem is that EVEN if you did know exactly what was going to happen to the overall economy, you STILL wouldn’t know what is going to happen to stock prices.  Typically, stocks lead the economy, because investors are paying for tomorrow’s cash flow….not today’s. 

Summary:  You’re not going to be right, you can’t out-think the guys that are going to be right, and even if you are right, that doesn’t make you profitable.

Solution:  Like Howard says, focus on price.  It’s the ONLY thing that matters.  Why dilute yourself into trying to predict what will happen with one of the many ingrediants that makes up price when you can focus on price itself?

It’s great to focus on individual companies that you know very well.  Focus on tells of shifting sentiment and over-hyped, reactionary pricing opportunities.  But mainly, focus on price again.  Watch the tape….the futures, your small basket of stocks and how they are performing vs. each other.   Get a FEEL for things on a very very narrow level.  It works.

Then, realize that directionally, you will often be wrong.  Probably more often than you are right.  So do the smart thing and enter trades that have a mathematical probability of profiting from the passage of time and that limit your risk.  Option spreads, paired trades, hedged positions, covered calls, etc. 

After all…what’s the point of being right that unemployment is going to 6.25% if the resulting trade you made loses money?  Smash the pride and enjoy the ride.