By Tom Bradley
Recession? Depression? Recessionary depression? Who knows?
In the dark moments of an economic and market cycle, I find that everyone becomes an economist. Traders, analysts, portfolio managers, advisors and individual investors all amp up their contribution to the dismal science. Even if their skill-set if far removed from monetary policy, central bank stimulus, housing starts or trade flows, they feel compelled to give it a shot.
I’ve made a few ill-conceived attempts at economics (I hated micro and macro in university), but at least they were driven by a sense of dislocation or opportunity. It wasn’t a cyclical thing. For instance, after spending time in the U.S. in 2005, I took a special interest in their housing cycle (I proved to be right, but was too early). When oil got silly, I weighted in on supply and demand (again, right but early), although I admit to being over my head.
The point is that we all need to keep an eye on the context in which we’re investing (the big picture), but more importantly, we have to be careful that we don’t stray from what we do well into areas where we have no expertise or edge. In other words, portfolio managers shouldn’t forecast GDP and strategists shouldn’t pick stocks.
In the meantime, test my theory and keep an eye on the economist count. I guarantee that when the economy settles back into a more normal growth pattern, the fraternity will shrink considerably.