Over the years, I can’t count how many times people have asked me how I protect my capital and how I use economics to make money, or at least, to see things before the crowd and use this insight to keep away from financial disasters which everyone is involved in – such as the great Irish housing bubble.
As a result, I have decided to write you a daily update on how I manage my money day to day, what I watch, who I listen to and how, after absorbing all this, I act. The note is for your information as a supporter who has been reading my writing for years. It is not advice; rather it explains my thought process.
The reason I spend time thinking about how money works, is not to be a rich person but to be a sovereign and independent individual who can look after himself and his family. For me, this is very important and, as traditional employment and traditional pension schemes become more and more unreliable, I believe all of us have to rely on ourselves that bit more.
Relying on yourself, means taking time to figure stuff out for yourself rather than leaving it to so-called experts.
As regular readers will know I am skeptical about experts in large investment banks, maybe because I started working in one of them in 1994, almost twenty years ago, and saw what happens to people’s money from the inside!
In the first three months of 1994, I experienced my first financial market crisis, when consensus views were exposed as being far too optimistic. The resulting crash in far-away Mexico, quickly spread throughout many asset classes and wiped out billions.
This experience stayed with me and has always informed my view as to how the crowd can be quite wrong and how crises can spread like a virus from one asset to another and from one country to another. If you find yourself on the wrong side of this, your money will be wiped out.
So the first thing to make sure is where not to be.
As someone who is self employed, I know how hard it is to make a few bob after tax and how easy it is to lose money. I also understand how essential it is to have enough accurate, well-researched information.
Luckily over the years I have worked all around the world, with some of the savviest investors and I still pick up the phone to these guys from New York to Sydney, Hong Kong and London to see what they are up to. So on top of my own ideas, I tend to get them second guessed by people whose opinions I trust and whose experience I value.
Staying ahead of the crowd in any business is difficult. If you think successful investing is easy, I think you shouldn’t start. But if you are prepared to be patient and courageous – sticking to your views and position even when things are going wrong – you can build a profitable portfolio.
The most important thing to appreciate is that everything goes in cycles and because we humans are highly emotional creatures, the investing herd swings from heights of dizzy optimism to lows of depressive pessimism and back again. In addition, credit cycles move rapidly from periods where there is so much credit that it’s almost impossible not to buy to barren periods where there is so little credit that it is impossible to sell. But these moments bring opportunity.
At the core of value investing is always price. Always try to buy cheap.
You may say that is obvious but because people tend to follow each other, in fact most of us do the opposite, which is how bubbles occur. People buy when prices rise mainly because everyone else is doing so and sell when prices fall because again everyone else is doing that.
Typically I try to keep most of my capital in assets which are not too risky and deploy what I term “attack capital” to opportunities where I believe consensus might have things wrong and there is an anomaly that I think I can avail of.
The daily note called Global Macro 360° will be a morning newsletter published at 11am GMT, detailing what is going on every day in the global economy and where there may be opportunities. I will also keep you updated on Twitter throughout the day. It will be written from Dublin, which is ideally positioned in this global marketplace between Asian and American time zones.
As a subscriber, you will get the first week’s subscriptions free and you can see what you think of it. Thereafter, the note, the information and all the ideas will set you back less than the price of three pints a week! If you think your financial security is worth that, welcome to www.globalmacro360.com