“I spend about 15 minutes a year on economic analysis. The way you lose money in the stock market is to start off with an economic picture. I also spend 15 minutes a year on where the stock market is going” – Peter Lynch

Wish I was as astute as Peter Lynch to stay focussed on the companies in my portfolio. All I’ve been doing the last few weeks is trying to gauge the rapidly deterioting macro-economic conditions and their possible impact on our stock markets. At least Big Ben paused giving our markets a respite for a few weeks. It’s confusing following economic forecasts since invariably all the possible scenarios seem to be so well argued. The pessimistic view has a lot going for it at this stage I guess. Business cycles rarely last more than 4 years and we have had such strong world economic growth since 2003. Also with the US so dependent on a few sectors for their growth, that at transition times like now it gets a bit scary to think of the consequencies of their economy toppling over one day.

But on the other hand a lot has changed in the composition of the world economy even though US is still the dominant force driving it. The emergence of China and the rest of the emerging countries has made inflation less of a worry for developed nations. And so far the productivity gains from outsourcing and the bombardment of cheap exports from China seems to have offset the effect of rising commodity prices and a weak geopolitical climate to a large extent. Maybe then there exists a case for a soft landing with growth moderating rather than dramatically slowing down in the next 2 years.

FII’s meanwhile seem to have it all figured out in their reports with their pretty graphs and all kinds of zany statistics supporting their viewpoint. I do get all mesmerized with their rationale for a while but then their advocated strategies have not worked so well in our stock markets in the recent past. The data they use for their impressive graphs is probably not as reliable as in the West, with too many parts of our economy not captured in the official statistics. So to devise top down strategies based on macro-economic data is bound to falter more times than not. Far easier to concentrate one’s energy on individual companies that one has followed for years. And this quarter it has been a splendid show by almost every company in my portfolio. No margin pressures, lots of solid sales growth and strong guidance for the year ahead. Guess it’s time for me to go back to following Mr Peter Lynch’s advice…