Friday, October 3, 2014

Buffett: We Ignore the Macro Factors

Buffett on CNBC yesterday:

"We look at opportunities, as they come along, we try to figure whether we can understand the long term economic prospects of the business. A lot of times the answer is no, then we forget it. We are not making any judgment about where the market is going or we are not looking at any macro factors.

My partner Charlie Munger and I have been working together now 55 years. We've talked about every business you can imagine and stocks. We have never had one decision that involved a macro factor. It just doesn't come up."

He then added:

"We don't get into macro. It just doesn't make any difference. We do decide whether we think we know where that business will be in 10 years or 20 years, and we know what we'll pay in terms of valuation."

Video: We don't look at macro factors: Buffett

With the above in mind, just consider all the time and energy that seems to be spent by experts who are trying to understand and predict what's going to happen based upon macro factors.

Munger once said "there's too much emphasis on macroeconomics and not enough on microeconomics. I think this is wrong."

and

"...I don’t think macroeconomics people have all that much fun. For one thing they are often wrong because of extreme complexity in the system they wish to understand.

So the two people who've had the most long-term investment success essentially ignore macroeconomics and focus on things can be understood.

 That's hard enough to do reliably well.

Adam

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