This is a fascinating subject being explained by the best financial writer in the game…
(click to embiggen)
When the cyclical bull market ended last decade, it was punctuated by the 9/11 attacks. Ever since, the risk has been coming not just from stocks and companies themselves – but from forces outside the stock market. Jason Zweig looks at this Age of Macro Investing and talks about the fact that these are the types of markets in which investors set themselves up for longer-term outperformance.
From the Wall Street Journal:
Sept. 11, 2001, had only a modest effect on the economy, but the shadows cast over the minds of investors still haven’t lifted. The terrorist attacks set the stage for a decade of setbacks that have led many people to regard the stock market as a lost cause.
Ever since, investment portfolios have seemed to be at the mercy of what professional investors call “macro” forces: natural disasters, geopolitical shocks and sudden, systemic failures of stock markets and national economies, from Hurricane Katrina and the financial crisis to the Japanese earthquake and, now, the unraveling of Europe.
“What was new about Sept. 11 was that you had risk come from outside the markets,” says Laurence Siegel, research director at the Research Foundation of the CFA Institute in Charlottesville, Va. In contrast, the stock-market crash in October 1987 and the Asian financial crisis were “endogenous” events, erupting from within specific markets, he says. “This was an enemy from outside that wanted to kill us and managed to do it.”