Curse of the Macro Tourist

The travels and travails of the macro tourist Add to list
Beware the money manager who chases the big headlines with your cash
Washington Post, July 18, 2015




How’s your macro?

Not too good? Terrible? Unsure what that even means?

Let’s start here: Macro refers to the large geopolitical moments, and the natural and man-made disasters, that some investors track as potential market moving events. Large economic trends or reversals, diplomatic breakthroughs, political crises and even war are all macro events. Think: a tsunami that knocks out a Japanese nuclear power plant; the Arab Spring; the systemic failure of the credit markets in 2008-09; Russia’s annexation of Crimea. The ongoing Greek saga that has Europe on edge is all too macro.

Hanging on every twist and turn of the headlines are a group of folks we call “macro tourists.” They are a terrific source of chatter at any cocktail party — such as “Tsipras may have just doomed the Greeks for the next decade.”

Why does this matter to investors? For two reasons: First, macro tourists are everywhere; and second, they seem to be terrible stewards of your capital.

They remind me of the visitors to New York in the 1980s who were fleeced on the streets by card sharps running the Three-card Monte con. Macro tourists lose money by making similarly ill-advised bets where the odds are decidedly not in their favor.

Consider the international news flow in recent weeks and what many people think it could mean for the global economy:

• China’s Shanghai Stock Exchange Composite had a boom and bust this year: up 115 percent from Jan. 1 to its peak in June; then a 40 percent crash in a month. Still, Chinese markets are still up 83 percent over one year ago. An extraordinary intervention by the Chinese government created a bounce; who knows how long it will last?

• The Sisyphean labors of Greek debt are next. Will they/won’t they leave the euro? Who knows? At this point, most of us are suffering from debt drama exhaustion.

• Then there’s Iran: After 13 years of sanctions over its nuclear ambitions, an impasse has been breached. With the help of other countries, notably Russia, an enormous, game-changing treaty has been reached.

• And let’s not forget Cuba and our newly reestablished diplomatic relations (even as U.S. relations with China are deteriorating).

Market-moving headlines would seem to present an opportunity to capi­tal­ize on the potential volatility that often follows.

But here’s the big risk for investors who try to game the headlines: Figuring out what just happened is hard enough; the macro investor must guess at what’s ahead — outcomes for the near and far future as well as the market reaction to those outcomes.

Psychologists would describe it as creating a “variant perception,” which requires you to imagine what the crowd thinks it knows, what it owns and where it is probably wrong. Determining when the crowd will figure out that it’s wrong, and what it is likely to do about it, is even more difficult. Oh, then you have to get the timing of it all precisely right.

You might imagine that these big headlines would make this process easy on the macro investors. Anticipate the next big story, position yourself against the wrong-leaning crowd ahead of time and boom! Easy money!

Only it is not so easy. Despite the headlines, markets have mostly ignored the macro. Sure, we have seen some strong moves up and down and next-day reversals — but more than halfway through the year, the market has been stuck in a surprisingly tight range. Consider this data point: It has been 645 days since the S&P 500 saw even a 10 percent drawdown.

What does this mean to the average investor? Before becoming a “macro tourist” foolishly trading on headlines, consider these truths:

• News is factored into stock prices by the time it’s on the front page. These stories all develop over time. The headlines tend not to come out of the blue but are the result of incremental events over months and years.

• Headlines don’t drive markets. Profits and valuations do. These geopolitical events make for big splashy headlines, but ultimately have little affect on what matters to stock prices: corporate profits. Earnings are a fundamental driver of company valuations and therefore equity returns.

• Guessing isn’t investing: Making big bets on outcomes that are binary — i.e., a 50-50 probability — is not investing, it’s speculation.

It’s no wonder the macro tourists, both professional manager and amateur investor alike, have been for the most part unsuccessful.

Birinyi Associates creates one of my favorite research pieces each year. Laszlo Birinyi and his staff collect mainstream news articles and compile them all in an annual review. Seeing these headlines, all ominous warnings of terrible things to come — with their dates, after the fact — is downright hilarious.

Add to that the fundamental misunderstanding of risk that is prevalent among you humans. As it turns out, you worry about all the wrong things. You stress over the fiscal cliff and the sequester and Greece — all things over which you have no control and no way to figure out how the chips may fall if they do or don’t occur. Talk about wasted effort.

Instead, why not think about what you can control? Such as having a plan, reducing your costs, lowering your turnover and paying less in short-term capital gains taxes? These are things you can do, and the impact will be much more meaningful to your long-term returns than whether the Greek currency is the euro or the drachma.


Ritholtz is Chairman and CIO of Ritholtz Wealth Management. He is the author of “Bailout Nation” and runs a finance blog, The Big Picture. On Twitter:@Ritholtz.


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  1. orsogrigio commented on Jul 25

    I will not praise Mr Ritholtz for this article, I’d just loved if I would have been able to write it. But I want to lift some of the blame from the poor tourist’s shoulders. Generally one assumes that guy practicing that game feel themselves able to outsmart others, and thus to understand what will happen better than others. Hubris. Well I came to an opposite conclusion. Fear. Simple fear for things that happen, and they don’t understand. A lot of this fear is purposedly made up by, in my personal opinion, bad commenters & achormen et such
    I am pretty sure thet they really not understand but a very limited part of the matter [or pacefully for their mind, none at all] and have [they get their checks every month] to explain. How to explain a thing you do not know ? simply make sensation, stir, add technical jargon, FRIGHTEN. This gives audience. So Ipad or iphone or whatver sell 5% less in North Basutoland this term ? That’s a drama, let you forecast that Apple will be in chapter 11,12,13,14, … in 6 months. Xgenics is thinking for a vaccine for callus ? Game changing, breakthru ! They are selling MREs as many starred gastronomy. And now comes the tourist : if I, me personally, know that I am not able, I have not knowledge and experience enough to really dig my path in these matters, that I am a guy as any other guy,what may I do ? Follow the gospel that came down from media. In programming we use to say that once you feed garbage in, you just get garbage out.

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