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Investing Specialists

Pondering Macroeconomic Risk

These three firms stand to perform well in good and bad global economies.

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This is a revised version of an article that appeared in the October issue of theMorningstar InternationalInvestornewsletter.

At the end of August and beginning of September, I spent two weeks out in the western United States, and I had some time to ponder one of the biggest lessons I've learned in investing: At certain times, the macro can overwhelm the micro. Even if you've done great bottom-up stock research, your thesis can be dead wrong because of some huge shift in the macroeconomic environment. In the September edition of InternationalInvestor I wrote about Russia bringing macro risk back into our consciousness. And as I originally wrote this on Sept. 15, the world markets were down significantly with the bankruptcy of Lehman Brothers.

Perhaps risk was also on my mind because of two personal events on my trip. First, I went tubing on the Portneuf River at Lava Hot Springs. I have whitewater kayaked for 30 years and I've never hit my head, but I went off about a four-foot waterfall, flipped off my tube, and hit my head on a rock. Second, I was hiking alone in the Wasatch Mountains. I was trying to go from Twin Lakes Pass to Catherine Pass. My guidebook talked of extreme exposure (meaning a very large cliff face the trail goes along) after you climbed Mt. Wolverine (elevation 10,794 feet). I was within about 400 feet of the top of Mt. Wolverine, but I had lost the trail. I knew I could boulder-hop to the peak and hope I found the trail again once I reached the top. However, with a strong wind blowing and after reading about the dangers of exposure, I decided safety was the better part of valor and turned around.

Allan C. Nichols has a position in the following securities mentioned above: ABB. Find out about Morningstar’s editorial policies.