Implicit macro bets

So we’ve been hearing an awful lot from our managers lately about all the “compelling valuations” and “once-in-a-lifetime opportunity sets” the current market has provided, which is of course code for “we’ve been f-ing slaughtered”. Most of them take the opportunity to brag about how they are bottom-up stock pickers and condemn top-down macro investing. For example, back in mid-september, we met with a group that owned a number of oil and gas stocks. After they gave us the shpiel about being bottom-up investors, they went on to say that these companies will be fine as long as oil stays above $80 a barrel (with a dismissive wave as we asked what if it continues to drop). Am I way off for saying this is an implicit macro bet? I think this has been discussed before here, but I wonder if there are studies showing how much “bottom-up” investing is really driven by “top-down” macro events.

Bottom’s up investing is driven by catalysts to reveal value. The stronger the catalyst, the better the idea. Sometimes, just a stable no-growth economy, is used as a catalyst. I don’t think that is very strong but it works sometimes.

Bottom’s up investing? Is that where we drink and select stocks? Or is there a dartboard involved too? ok, jokes aside, you can construct a bottom’s up approach that is neutral to macro bets if you test for implicit macro bets in a portfolio. I know some portfolio managers (mostly quantitative) who do it, although I guess risk managers would be brought in to do this for more fundamental shops. The interest question is how many funds are actually doing this? I would assume many, because it seems like a smart thing to do, but I have no data to run on for this.

no those are not macro bets, these are just people saying that the securities are at the deepest discount to their intrinsic values (as determined by these managers). it also means that they are saying that these depressed macro conditions wont stay forever, they are not saying it’ll turn in 6 months, but that it’ll turn. Bull markets have known to climb a wall of worry… the guy who did oil and gas valuation with $80 oil was obviously a marginal player in the asset management field and is a bottom up pretender as opposed to an investor…