Recently we’ve started a new series taking a look at some of the worst blunders you can commit when dealing with Stock Market Investing. Be sure to check out last weeks edition of stock market investing mistakes part 2.
These are issues that aren’t quite so obvious, and which a lot of otherwise intelligent investors seem to commit over and over again. Therefore, it pays to know about them so that you can be careful to avoid them in your own career.
The Importance Of Macroeconomics
This time around, we’re going to talk about the importance of macroeconomics. As most of you know by now, macroeconomics refers to the viewpoint which encompasses the entire scope of the country’s economy all at once, instead of focusing in on anything in great detail. In other words, it’s taking a very broad view of the market as a whole, with all of its many forces at play.
We mentioned earlier the importance of qualitative analysis of stocks that you planned on investing in, but that still isn’t quite enough. Indeed, a stock might look totally excellent from both a quantitative and a qualitative point of view.
Everything might be laid out and ready for you to come out making tons of profit on your investments. And still, you might lose money on what seemed like a sure thing.
What happened? You failed to take the macroeconomic viewpoint into perspective. If a company were about to release a ton of new products that seemed sure to be a hit, and if they had solid strategies to carry them into the next decade, normally you’d want to invest right away, right?
But what about if the market is such that there are about to be a lot of layoffs? Or trade issues that will begin to interfere with the manufacture of those products? In that case, the investment is as good as dead.
If you pay attention to the wide, macroeconomic view at all times, you’ll never be taken by surprise like this.
See you next week for part 4 of Stock Market Investing mistakes.
Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 – 2009
{ 3 comments… read them below or add one }
This reinforces for me, not only how complex stock investment is, but how broad and deep one needs to do due diligence before spending a cent.
Hi Sean,
It makes complete sense to pay attention to what is happening with the economy and around the world. I guess it’s important to remember that there’s more to choosing stocks than just looking at the company in front of you.
I think I might start to look for someone who writes a regular financial column about the stock market. It’s good to have more than just my own point of view to consider.
Sound advice and yet there are times when no matter how good you have done your homework, there could be a company that falsified its profit statement, a human error that caused thousands of investors to withdraw funds in one day, a terrorist attack, a court case over patent
issues that the public weren’t told about.
What I have mentioned is not the normal every day occurrence but with any type of trading there is no sure thing and there is always an element of risk because the stock market is driven by people and their emotions.