Many fundamental “bottom-up” investors often denounce macroeconomic forecasts. What may be less clear, is that this does not imply they are oblivious to macroeconomic developments. Count us in the camp with Third Avenue’s International Team who recently shared some insights regarding the role of macroeconomic information in the investment process:
Macro has two primary roles in our investment process. The first one is as a tool to determine the sensitivity of our investment theses to a variety of macroeconomic environments. This allows us to reject investment opportunities for which our thesis playing out would require a very specific set of conditions.
The second one is as a frequent source of investment opportunities. Dire economic outlooks have indeed been one of our team’s most fruitful hunting grounds over the years. Troubling macroeconomic situations can easily shake investors (speculators) focused on the near-term outlook and paralyze those who require a high level of confidence in their ability to forecast the macroeconomic future. Truth be told, our habit of seizing opportunity in the face of dire macroeconomic circumstances has occasionally appeared foolhardy in the short-term. Yet, the Fund has made many profitable investments in this way in the past.
We couldn’t have said it better ourselves. See also LatAm. See also Scotland. See also Mel Gibson, Braveheart.