Macroeconomics and Long-Term Equity

 Interest rates and inflation dont really matter much in long-term equity investing.

I am going to prove it to you with my personal experience of stock investing in last 16 yrs!


In the previous article, we discussed 2 key macroeconomic concepts such as interest rates and inflation.

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Most investors tend to overemphasize on these 2 concepts and use them for investing into direct equity. One thing to consider is that the equity market is a completely different beast to conquer. And that’s what we discuss in this article, in the long run, macroeconomics becomes completely irrelevant for an equity investor. Sounds contradictory, read more to find out.

In my 16-year-long investment journey, I’ve found that macroeconomics has absolutely no connection to investment returns.

In the short term, yes.

Let me tell you my own story.

My first stock that I had bought in 2006. Right after my 10th Board exams, I was asked by my family to work in the family business. If you’re a Gujarati or Marwari reading this, it’s normal. For others, it’s child labour and yes, I’m with you guys despite being a Gujarati.

Jokes apart.

I was asked to work on the shop floor of our family business. 12 long hours every single day. No social life. I was just meeting my friends on Saturday nights or Sunday evenings. It was tough back then, but now it’s a habit.

After 3 months, I got into the HR College of Commerce and Economics. As a gift, I was rewarded with my first paycheck after 3 months of bone-cracking work for a 16-year-old. And naturally, this money was the most important thing in my life at that time.

It could have gone 2 ways. I would have partied long and hard. But I chose the second option, I invested that money because it was hard for me to waste it over a weekend.

I invested at the high of the 2006 markets

It’s 2006, and the stock market is soaring to new highs every other day. And everyone is talking about how much money is being made. Plus, my family didn’t appreciate my thought of investing in some shares. So the rebellious child in me got an opportunity.

Since I was wiped out of my 3-month vacation, this money should at least give them some stress. A guilty pleasure indeed.

So I decided to open a demat account. But I was a minor back then. So I turned to my mother who accepted my decision because I had fulfilled my promise of securing admission into the top 3 colleges of Mumbai.

After a few days, I had my demat account.

Now came the decision to invest my money. Since everyone in the family was against it. No one helped. So I started watching CNBC TV. After a few days, it confused the life out of me. Plus, my college had started and I was still working at my family business in the first half of the day.

My schedule was:

  • 7 am to 9 am – Accounts and Maths classes
  • 9:30 am to 1 pm – Shop floor of family business
  • 2 pm to 6 pm – College (bunked most of the time and made some closest friends)
  • 7 pm to 8 pm – Learning some new course

The reason I’m telling you this is because it was in Indian Merchant Chambers where I was learning about stock markets, where I had a lucky break for my investments. It was a chance to attend a lecture by Mr Deepak Parekh of HDFC Ltd and Mr Aditya Puri of HDFC Bank on Indian Banking Outlook.

I don’t recollect the speech that day.

But it had a profound impact on the way I looked at investing my hard-earned money. As a result, I called up my broker and asked him to buy HDFC Bank with the money I had. It just made sense to me.


Because I could see HDFC Bank’s service to customers was superior, they had a friendlier staff when compared to other PSU Banks and its standards were equal to a foreign bank. These days, it’s a normal thing. Back in 2006, it was revolutionary.

Fast forward to 2023.

That investment is up 30x.

And yes, I’ve stayed invested.

It wasn’t a smooth journey, to be honest. There were times when I felt that the Bank would be shut the next day. That’s where my hard work in the family business paid off. Whether it’s a boom or a recession, good employers never let their employees go away.

2008 was particularly tough to digest. Because my investments were down by 50%. And there was bad news everywhere. Banks in the US were failing. Sensex was going into red every single day. There was panic all around.

So I did some research. I asked my college professors about my investment into HDFC Bank. One of them was pleasantly surprised and told me his secret.

She said,

“Whenever you feel like selling a banking stock, just keep a check on their non-performing loans. If they are going up more than the industry average, then sell the stock even if you have made a loss. But if the bank is able to provide for those non-performing loans, then be rest assured that it will tide through.”

I made my attempt and discussed it with her. Later on, I decided to hold the stock.

I didn’t buy more because it was my first rodeo and I was just turning 18. I had CA exams to prepare for, it would be my perfect escape from the family business in the later years. Fortunately, I don’t get sleepless nights or anxiety when the stock corrects by 50%, sleep is my superpower.

The same scenario happened in 2013, when India was tagged as the fragile 5 economies of the world. I was in a similar situation of thinking of selling the stock. But again, it didn’t seem like the bank was unable to control the downside.

In the same way, I have taken this decision multiple times. And each time, I have decided to stay invested with the stock.

It’s never a buy-and-forget situation.

It’s a constant analysis.

As a result, I’ve realized how little interest rates and inflation really matter. As an investor, my job is to assess the company’s ability to tide over this crisis properly. Every single time, there’s a macroeconomic event, it’s best to go back to the roots and check the balance sheet of the company. If the business is happening as usual, then you shouldn’t worry so much about the stock price.

I will end my story here.

Leave the macroeconomics to the economists! We are investors!

Who is an investor?

An investor in simple terms is a person who commits capital with an intention to earn profit.

The key thing to understand here is that an investor is purely committing capital, not labour. There are 3 forms of commitments that a business requires, namely,

  1. Capital (money)
  2. Labour (human resource)
  3. Land.

As a result, when we commit capital, our primary objective is to understand whether that business or company has the capacity to efficiently use land, labour and capital. When there are good times, the company doesn’t splurge money or get into unnecessary projects and when there are bad times, the company doesn’t take on unnecessary debt.

A good investor looks for a balance in these 3 aspects of the business. Because both good times and bad times are a part of the economic cycle. It’s the very nature. Cannot be changed.

The banking industry for example went through deep trouble in 2008 and 2013. After RBI Governor Raghuram Rajan asked all the banks to recognise their NPAs and monitor their health closely, the system was shocked to see so many bad loans coming out.

An investor who put his money in good banks survived and thrived. Those who put their money and even averaged while the stock price was down in bad banks have lost a lot of money.

Think about it.

Even in bad times, good banks survived and thrived. Times such as high inflation and interest rates, saw these good banks gain market share from the bad banks.

A smart investor will take a cue from here that timing the market is not important at all. Infact, in the long run, it results in portfolio destruction. We will cover this topic in our next blog.

How timing the stock market is completely irrelevant to build a long-term portfolio.

To conclude, here’s a story of Jagoinvestor’s founder, Mr. Manish Chauhan who has a unique way of building his long-term portfolio.

A couple of months ago, I was sitting in our Pune office with Manish. I was sharing my journey of wealth creation with him.

The one I’ve written above.

While he acknowledged the passion that I have for equities, he gave me a unique perspective, something I’ve never really seen or heard before.

Manish very gently said that he doesn’t track the IRR of his portfolio and does not look at his portfolio performance.

He has a simple way.

  • Invest your savings every month.
  • Redeem money when you really need it
  • Make sure you have chosen the right portfolio
  • Review it once in 2-3 yrs

That’s it.

Constantly looking at any particular metric of return such as annual return, compounded return or any other math number is beyond him. This comes only when you have belief in what you do. This happens when you have done your homework correctly. This happens when you really understand what “high risk high return” means.

The first thought in my head was disbelief.

To me, it sounded like a chocolate seller doesn’t eat the chocolate at all. But after pondering a lot of my thoughts over it, I realized that Manish is exactly doing what we preach to everyone.

Don’t obsess over the short-term returns. In the long term, when the selection of the investment strategy is correct, massive wealth creation will happen.

For an investor, this is the guru mantra. Don’t obsess over the short-term bit of money-making.

Leave it to the professionals. If you have selected your professional such as an investment advisor correctly and believe in the process of choosing a mutual fund manager or a portfolio manager correctly, then you will be able to create wealth.

Most of us forget this simple bit.

So what you should do as an investor in the long term?

You shall choose the right portfolio which suits your needs and temperament. Create a strong equity portfolio of mutual funds, PMS, and real estate and cover the basics like life and health insurance along with a good emergency fund. Work on your income and just be disciplined in investing.

If you do things correctly, the short-term underperformance or overperformance will not make any significant difference to your life.

So there’s no point in looking at interest rates, inflation or the short-term performance of the investments for a long-term investor. What shall matter to you is your health, family, and working on your craft.

Think about it.

“In the end, what matters most is how well you lived, how well you loved, and how well you learned to let go.” ― Ziad K. Abdelnour