Article on BusinessInsiders website with insights from hedge fund manager Barton Biggs:
"Macro investing is "simple, but never easy." You need good information and quick reactions
"It’s not just about wrestling with the global environment and getting your asset allocation positioned. Good information, thoughtful analysis, quick but not impulsive reactions, and knowledge of the historic interaction between companies, sectors, countries, and asset classes under similar circumstances in the past are all important ingredients in getting the legendary “it” right that we all strive so desperately for. "
"There are no relationships or equations that always work"
"Quantitatively based solutions and asset allocation equations invariably fail as they are designed to capture what would have worked in the previous cycle whereas the next one remains a riddle wrapped in an enigma."
Read, read, read...
"The successful macro investor must be some magical mixture of an acute analyst, an investment scholar, a listener, a historian, a river boat gambler, and be a voracious reader. Reading is crucial. Charlie Munger, a great investor and a very sagacious old guy, said it best:
I have said that in my whole life, I have known no wise person, over a broad subject matter who didn’t read all the time – none, zero. Now I know all kinds of shrewd people who by staying within a narrow area do very well without reading. But investment is a broad area. So if you think you’re going to be good at it and not read all the time you have a different idea than I do."
Being able to immunize yourself from the psychological effects ot the swings of markets is just as important
"But the investment process is only half the battle. The other weighty component is struggling with yourself, and immunizing yourself from the psychological effects of the swings of markets, career risk, the pressure of benchmarks, competition, and the loneliness of the long distance runner."
"A personal investment diary is a step in the right direction"
"Such a diary has to be written in the heat of the moment, in the fire and agony of the time, not retroactively or retrospectively. Its value comes from reading your thoughts and emotions later in the context of events and seeing where you were right and wrong."
Remember there is always a possibility of a "catastrophic outcome"
Jack Bogle, a veteran of many battles, said in a speech in 2009: “We must base our asset allocation not on the probabilities of choosing the right allocation but on the consequences of choosing the wrong allocation.” He is completely and absolutely right!"
"In the long run you want to be an owner, not a lender."
"The history of the world is one of progress, and as a congenital optimist, I believe in equities. Fundamentally, in the long run you want to be an owner, not a lender. However, you always have to bear in mind that this time truly may be different as Reinhart and Rogoff so eloquently preach."
Be wary of the "human tendency" to fight the last war
"As investors, we also always have to be aware of our innate and very human tendency to be fighting the last war. We forget that Mr. Market is an ingenious sadist, and that he delights in torturing us in different ways.
…Mr. Market is a manic depressive with huge mood swings, and you should bet against him, not with him, particularly when he is raving."
Buffett says it's as though you're in business with a partner who has a bi-polar disorder
"It’s as though you are in business with a partner who has a bi-polar personality. When your partner is deeply distressed, depressed, and in a dark mood and offers to sell his share of the business at a huge discount, you should buy it. When he is ebullient and optimistic and wants to buy your share from you at an exorbitant premium, you should oblige him. As usual, Buffett makes it sound easier than it is because measuring the level of intensity of the mood swings of your bipolar partner is far from an exact science."
Don't "sacrifice higher returns for lower volatility"
"Buffett put it best when he said he would always pick an investment strategy that over five years could give him a 12% compounded annual return, but that was volatile over one that promised a stable 8% return annually."
But mostly, "Know thyself and know thy foibles" and make sure your facts are right
"At the extreme moments of fear and greed, the power of the daily price momentum and the mood and passions of “the crowd” are tremendously important psychological influences on you. It takes a strong, self confident, emotionally mature person to stand firm against disdain, mockery, and repudiation when the market itself seems to be absolutely confirming that you are both mad and wrong. Also, be obsessive in making sure your facts are right and that you haven’t missed or misunderstood something. "