Explore. Discover. Invest.

The Goldilocks Zone of Macro Investing

June 29, 2018
goldilocks macro investing

Macro investing is one of the safest and easiest investment strategies out there. It’s also very popular because it’s easy to understand.

Basically, macro investing just means that you are betting on a bigger picture story.

For example, let’s pretend that you are invested in a variety of different cannabis companies. You may not consume cannabis or even know much about the plant, but you are noticing that public opinion and laws are changing. So, by investing in cannabis, you are investing in a bigger story – a macro story.

(I’ll admit that cannabis as a macro investment strategy is almost comical… but it fits!)

Back to macro investing…

One extremely clear macro story to understand is demographics. I’m talking about the actual human ages of certain economies.

In most Western and developed markets, demographics are not looking too good. In general, there are more people at the end of their working careers compared to those at their beginning.

Just look at Germany’s average age of 47 years old. Eventually there will be more people retired than there will be in the work force. That is not a sustainable economy.

A ‘normal’ economy needs more workers than retirees. This is especially apparent when we look at pension systems, which require a larger number of workers to supply a fund that is paying to a smaller number of retirees.

It’s exactly like a pyramid scheme… no, I mean, a Ponzi scheme… except it’s legal, because it’s a government sanctioned financial program. There needs to be more people paying into the system than there are taking from the system.

Back to macro investing…

Clearly, an economy with younger demographics is better than one with older demographics. So, we should just look for economies with lots of young people, right?

By investing in markets with a younger population, we are essentially putting our money to work where there are more people producing and consuming. You can just invest in the most simple of companies – food, toiletries, electronics, etc. – as this young demographic will continue to fuel a healthy economy.

That’s how it works in concept, but there is this other ‘thing’ that presents a problem. That ‘thing’ is called ‘immature testosterone’ which is often present in young demographics.

In order to fuel a healthy economy, you need robust infrastructure, an effective legal system, and a built out labor market. Without those structured systems, young populations can quickly spiral out of control.

Nearly every single country in the world with an average age less than 30 years old has had significant issues with social unrest, corruption, and economic failure.

From an investor’s standpoint, this is important to understand, as the right place to invest is often in the Goldilocks zone. Not too old, not too young, but just right…

There are obviously many variables that go into determining what economy is ripe for investment. That is why we go to these places to discover what is really going on.

We’ll be in China this August and we’re starting to plan our trips for 2019. Will you be joining us?