Beach Muscles and Macroeconomic Study

“Stop wasting time on those beach muscles.”*

I heard that phrase too many times in the high school weight room. I couldn’t have foreseen how helpful this lesson would be for investing many years down the road.

Beach muscles (pecs and biceps) look good on the beach, but are rarely helpful on the actual sports field.  Sports muscles are mostly legs. Very few people like to do leg exercises.   They are hard–being the major reason, and secondarily, they don’t get noticed on the beach.

Macroeconomic study can be helpful, you will certainly get smarter, if you dig into the details, just as your beach muscles will grow if you exercise them. However, in the weight room, as in investing, time is limited and what usually gets shirked in the process is the company-specific analysis and that’s where the real results are found.

The key here is not that people can’t or shouldn’t do macro study, but what usually happens is that people end up spending their most useful time on macro study and little time is left over to study those areas that bring the best results.  

I thought I would post these thoughts as a certain young lady seems to be dominating the business press today.

The wit and wisdom of Galbraith provides a nice closing to this subject:

“The only function of economic forecasting is to make astrology look respectable.”

 

* This is the edited for family audiences version.

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Munger and The Cattle Rancher

Munger’s ability to find great businesses is directly related to his ability to consistently discard bad businesses. He is excellent at inverting, and discarding the bad businesses as quickly as possible.

The Abominable No-Man and Bad Management

Some investors think a business is good, but know that management is bad.  These investors justify the investment based on the idea that the great price of the business is worth the bad management. This is akin to marrying a supermodel who is going to yell at you all day.  Whatever pleasure your eyes may derive from the marriage, your ears will endure a greater amount of pain in the long run. The pocketbooks of those partnering with bad management are likely to see a similar 50%+ decline in their net worth.

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