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How to interpret macroeconomic data for better investment decisions

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Ever wondered how you can quickly, efficiently, cash in on the work of global institutions?

Why should Blackrock and Vanguard have all the fun?

Interpreting macroeconomic data for better investment decisions can add ballast to an investment strategy, solidifying the pursuit of outperforming investment returns.

And it’s not as painful as you think.

It may also lead to new investment opportunities from discovering and analysing the work of some exceptionally talented and smart people who have done a ton of work and published it for free.

Investment research isn’t about creating massive reports for someone else to read.

It’s about finding evidence that a growth trend is backed by trustworthy statistical data.

What is macroeconomic data?

Macroeconomic data refers to the statistical information banks, governments, and statistical agencies collect about the economy’s health.

You may have heard of GDP, inflation, employment numbers and the like.

Stock market prices, house prices, and bond yields also form part of the mix.

Rather than specific industries or individual companies, macroeconomic data looks at the broad economic statistics that help assess the performance, structure, and behaviour of an entire economy.

One key component of macroeconomic data is business investment.

It reflects what corporations are spending on now and what their spending plans are for the future.

Which is why it’s a goldmine.

The latest macroeconomic data is in: artificial intelligence WILL take your job

We’re far from a pre-apocalyptic world where Sarah Connor is trying desperately to convince an unbelieving populace that we’re about to get wiped out by time-travelling robots.

What we do have is the World Economic Forum’s biannual recent ‘Future Of Jobs’ report.

The globalist conglomerate surveyed over 1000 firms worldwide with a combined workforce of over 14 million workers.

40% of employers anticipate reducing their workforce where AI can automate tasks.

The report is huge in its scope and interpretations.

From a global tech equity investing perspective, the ‘big 3’ key findings are:

  • Technology roles are the fastest-growing in terms of percentage, including big data specialists, fintech engineers, AI/ML specialists, and software developers. Green jobs like autonomous and electric vehicle specialists, environmental, and renewable energy engineers are also on the rise.

  • Fastest-growing skills include AI/big data, cybersecurity, and technological literacy, while creative thinking and lifelong learning are also on the rise. Manual skills are seeing a decline.

  • AI influence is significant, with businesses planning to reorient their operations, hire for AI-specific skills, and potentially reduce workforce where AI can automate tasks.

Begin from the premise that employers invest in job roles that will bring the greatest economic benefit to their businesses and you begin to understand where global growth is headed.

How to use macroeconomic data: front-running the globalists

Front-running

noun

  1. STOCK MARKET – the practice by stockbrokers of dealing on advance information before their clients have been given the same information.

In other words, when a broker buys shares of a stock before placing a customer’s order for the same stock and then sells their shares after the customer’s order is placed.

The broker profits from the difference in price between when they bought and sold their shares.

You know nothing about the transaction, or the reasons for it but are likely paying a higher price for the same shares resulting purely from the broker’s actions.

Front running is illegal in most jurisdictions around the world: it’s an unfair advantage at the expense of investors.

Front-running globalists?

Yeah, we can do that.

If the penny hasn’t dropped yet then here it is:

  • The advance information: the WEF just told us that over the next five years, artificial intelligence automation will take jobs that people are doing now.

  • The front-run: the tech trade has a huge multiyear tailwind ahead as firms seek to incorporate more tech and artificial intelligence into their daily operations.

Okay, so it’s not exactly front-running because the information has been made public.

What the WEF’s information can do for you is position your investment theme around the fact that the tech trade looks to have legs way beyond this year and possibly into 2030.

Global business hiring, specifically for tech and AI-related roles is the theme.

The tech trade. It still matters.

Global technological innovation has been in plain sight for decades.

What is not so obvious is how to know, with compelling evidence, where the next phase of technological growth is coming from.

The World Economic Forum’s full report paints a picture of a rapidly evolving job market driven by technology, environmental considerations, and demographic shifts, necessitating a strong focus on continuous learning, skill adaptation, and inclusive hiring practices to meet future labour demands.

Skilful prospecting for ‘growth drivers’ uncovers a future based around an explosion of tech roles and the automation of tasks using artificial intelligence.

Start interpreting macroeconomic data as an efficient way of accessing the direction of global growth.

Your portfolio deserves it.

Why mega-cap tech stocks outperform the market

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It’s no secret that mega-cap tech stocks have been outperforming the rest of the stock market by a significant margin over recent decades.

Apple, Nvidia, and the rest of mega-cap tech rarely escape the headlines.

Their towering increases in value and the money-making opportunities provided to investors have been breathtaking.

Consider the last twelve months’ results (at the time of publication) of the Roundhill Magnificent Seven ETF which tracks just seven of the largest tech stocks, compared to the S&P 500:

  • Roundhill: 65.73%
  • S&P 500: 23.74%

Despite the occasional tech sell-off, owning just seven stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) would have your portfolio trouncing the rest of the market.

But did you know that your gateway to wealth creation through mega-cap tech stocks is as simple as being better than average?

That may not sound inspirational or exciting until you realise that the vast majority of investors fail to keep up with the average.

According to recent research, up to 75% of retail investors lose money.

In today’s post, you’ll discover why tech stocks outperform the market and how to avoid being in the dreaded 75% club.

Why tech stocks outperform the market

Why do tech stocks squeeze out the rest of the market?

Innovation → global mass adoption →supersized earnings growth.

The iPhone is one of the best-selling consumer products of all time; 50 million units were sold in 2011, and by 2015, Apple sold over 200 million iPhone units yearly.

You are likely a direct or indirect consumer of at least two of the Mag 7 stocks (Apple, Microsoft, Google (Alphabet), Amazon.com, Nvidia, Meta, and Tesla).

Nvidia deserves a special mention because unless you own a tech company, shelling out $30 – $40,000 for one of Nvidia’s AI chips is off-limits.

The rest of the MAG 7 businesses can’t get their hands on enough of Nvidia’s chips as they race to develop their in-house AI expertise.

There’s a certain amount of cannibalising at the top of the mega-cap tech ecosystem.

Nonetheless, mega caps have the cash, talent, and infrastructure to continue innovating and offering on-trend products and services to keep them in high demand.

It only makes sense to ensure your portfolio has significant exposure to mega-cap tech stocks.

How to create wealth with mega-cap tech stocks (and reduce risk)

Buying and holding mega-cap tech stocks over long periods is the number one way to create wealth from financial markets.

Concentration rather than diversification is your hidden superpower.

When you buy and hold instead of trading in and out of stocks, you reduce costs by avoiding commissions and fees, and you’ll sleep better at night knowing that you won’t get ‘stopped out’.

Add in the fact that you’re concentrated in tech – you have a winning formula.

A powerful tactic to reduce your overall risk amid such concentration is to avoid using leveraged products such as CFD’s, spread bets, options or margin accounts.

These can expose you to the risk of losing more money than you have in your brokerage account.

The concept of losing more money that sits in your trading is a shocking fact seldom understood by inexperienced investors.

That is until a life-changing call from their broker demands money owed.

Alternatively purchasing stocks and equity index funds and holding them long-term eliminates these risks of exponential losses.

This approach is why the greatest stock market investor of all time has always advised individual investors to buy and hold (and keep buying) a low-cost S&P 500 index tracker for long periods.

Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years

Warren Buffett

Increased liquidity in the global financial system

Liquidity is a key measure of how well financial markets are working. It refers to how easily assets can be bought or sold—and when it dries up, it can be disruptive.

Fabio Cortes, Glenn Gottselig, Shoko Ikarashi, Aki Yokoyama, International Monetary Fund

In plain English when the supply of money across the globe is increased through lower interest rates, government stimuli, or quantitative easing, asset prices (stocks/property/Bitcoin) go up.

They go up because people have easier and more access to cash at lower borrowing rates.

Investors will use this ‘extra cash’ to invest in public and private markets which tends to push up the prices of assets when everyone is buying them.

Increased liquidity in the global financial system is the secret behind why tech stocks have had a superb run over recent years.

Earnings, return on invested capital, talented CEOs, and all the usual suspects of fundamental analysis are still relevant today, it’s just that their influence on tech stock prices is diminished due to the magnitude and unprecedented financial interventions central banks have deployed in the recent past.

Additionally, if you employ skilful portfolio management in your investment operations, you have a better-than-average chance of outperforming the market.

Get better at mega-cap tech stock investing

Whatever your investment time horizons are and what your portfolio looks like today, ensuring you have mega-cap tech stock exposure in your portfolio optimizes for outperformance.

With an active buy-and-hold strategy, you’ll drive down costs, reduce time commitments managing your portfolio, and spend less time worrying about sensationalist headlines designed to poison the positive mindset and psychology required to maintain a market-beating investment approach.

Need help diving deeper into outperforming the market with mega-cap tech investing?

In the free newsletter, you’ll learn how to harness the power of the global tech ecosystem for even greater returns without taking on additional risk.

Subscribe today.

A simple guide to the North Tech Capital investment approach

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To obtain better than average investment results over the long pull requires a policy of selection or operation possessing a twofold merit: 1) it must meet objective or rational tests of underlying soundness; and 2) it must be different from the policy followed by most investors or speculators

Benjamin Graham, The Intelligent Investor

North Tech Capital’s investment approach draws heavily from the father of value investing, Benjamin Graham.

He warns investors that in order to be successful (better than average), you must avoid mainstream investment approaches.

Being better than average may not seem like a high ideal, but according to the Financial Times, the average retail investor loses money in financial markets.

Following the herd is sub-optimal.

Even central bankers are guilty of herd-following mediocracy as noted by Dario Perkins:

independent monetary policy is where everybody waits for the Fed to give them permission to cut rates

Graham emphasizes that the achievement of above-average investment results over the long haul requires an alternative approach.

In today’s post, we will discuss how you can achieve superior investment results without increased risk by exploring how North Tech Capital employs a unique investment approach combined with skilful portfolio management.

The safety of large-cap stocks

“If we assume that it is the habit of the market to overvalue common stocks which have been showing excellent growth or are glamorous for some other reason, it is logical to expect that it will undervalue—relatively, at least—companies that are out of favor because of unsatisfactory developments of a temporary nature.”

Benjamin Graham, The Intelligent Investor

In the section “The Relatively Unpopular Large Company,” from his book ‘The Intelligent Investor’, Graham outlines an investment strategy for achieving above-average results from investing in large-cap stocks going through a period of temporary unpopularity.

Graham’s central thesis is that large-caps have the resources and intellectual capital to navigate through adversity and recover to a satisfactory earnings base.

He also points out that financial markets respond swiftly to improvements in large-caps, rather than small-caps because the smaller companies carry a higher risk of permanent value loss.

Investing in large caps is safer.

North Tech Capital: a focus on tech

If large-caps are better designed to bring about investment success, specialisation in tech stocks amplifies it.

Technological innovation is the key driver of global economic growth, a trend gathering momentum every week. It makes sense to concentrate on stocks in the global technological ecosystem.

Your odds of achieving above-average investing results increase when you focus on global tech because:

  • It becomes easier to develop deep domain knowledge and expertise in a narrow field
  • you refrain from spreading yourself thinly across all of the global financial markets
  • the NASDAQ 100 (tech) has outperformed the S&P 500 (the market) by a large margin

Global technological large-caps are our bread and butter here at North Tech Capital and we will not have it any other way.

Keep an eye out in the mainstream financial press also. Journalists can obsess about the products and services of tech businesses as well as the private lives and social media accounts of their CEO’s which makes the job of fundamental research straightforward.

Market-moving news in the small-cap space is not so easily ready to come by.

Top tip: never underestimate how the conduct of CEO’s on social media can influence share prices.

Tractors, television sets, the telephone, the mobile phone, social media companies, search engines, chip makers, data centres, PC manufacturers, artificial intelligence companies – they have all revolutionised the way we live and work.

Right now artificial intelligence is centre-stage.

Venture capitalists who invest at the embryonic stages of tech businesses seem to have a never-ending supply of capital and continue to invest in start-ups, especially teams that incorporate AI is a meaningful way.

Artificial intelligence represents 45% of all US venture capital deal-making year to date (2024) which benefits large-cap tech businesses according to Blackrock:

…the high costs associated with gathering large datasets and training sophisticated models pose challenges for startups with limited capital. As a result, technology mega-caps are leading in AI development, driving their valuations and public market performance even higher.

Portfolio management – the secret ingredient

If you scour the internet, you’ll soon learn that portfolio management can mean:

  • overseeing a group of investments to meet an investor’s financial goals and risk tolerance (Investopedia)
  • the process of creating and managing your investment account (Vanguard)
  • managing portfolios in accordance with mandates given by clients on a discretionary client-by-client basis where such portfolios include one or more financial instruments. (FCA)
  • devising and implementing investment strategies and processes to meet client goals and constraints, construct and manage portfolios, make decisions on what and when to buy and sell investments (CFA Institute)

That’s good copy to satisfy the legal department.

Here’s a more accessible definition of portfolio management:

Portfolio management is simply the stocks you buy, how many you buy, and how much of each stock you buy, to mitigate, as far as possible, potential declines in portfolio value.

In other words, be careful what you buy because you could end up losing money.

From my experience, global economic shocks are the most critical aspect of portfolio management.

I credit Jeff Cox’s article from CNBC in December 2021 for prompting me to sell a large part of my portfolio and hold a large cash position throughout 2022.

According to Slickcharts, the S&P 500 declined 18.11% in 2022.

The alarming nature of CNBC’s news headline had nothing to do with tech stocks per se, but everything to do with the state of the global economy and the impact it would have on the value of ALL stocks, not just large-cap tech.

A carefully cultivated news inflow will help you spot these potentially seismic events that influence the direction of the market.

As for how many stocks to buy in a portfolio and how much, North Tech Capital concentrates its portfolio on 15 of the largest stocks in the NASDAQ 100 and uses its discretion to take larger position sizes in the most promising stocks.

As of this post, the NASDAQ 100’s top 10 constituents and their respective position sizes are as follows:

  1. Apple (AAPL) 8.69%
  2. NVIDIA (NVDA) 8.22%
  3. Microsoft (MSFT) 7.76%
  4. Amazon.com (AMZN) 5.61%
  5. Meta (META) 5.10%
  6. Broadcom (AVGO) 5.06%
  7. Tesla (TSLA) 4.43%
  8. Costco (COST) 2.67%
  9. Netflix (NFLX) 2.44%
  10. Alphabet (GOOGL) 2.41%

If by your careful analysis, you decide that Nvidia, Microsoft, and Amazon have the greatest potential to outperform all other large-cap tech stocks, you can increase their position size to reflect your conclusions about their potential:

  1. Nvidia (NVDA) 15%
  2. Microsoft (MSFT) 15%
  3. Amazon.com (AMZN) 15%

The rest of the stocks can be equally distributed in your portfolio.

Portfolio protection from global shocks and analysis-driven position sizing are the two main ways North Tech Capital achieves market outperformance.

Copy this technique to pursue above-average results and avoid being an average retail investor.

How to profit from the global technology ecosystem today

The investing techniques in this post are some of the ways in which you can start to differentiate yourself from the average investor.

If you’d like deeper insight into profitable tech stock investing, consider joining Tech Friends, an online private community bringing together large-cap tech investors and enthusiasts to outperform Wall Street.

In the Tech Friends community, you can become part of a private community, receive real-time trade alerts (buys or sells) via text, email, or in-app notifications, and ask me questions about specific transactions.

There’s also complete access to the portfolio constituents.

How to obtain deep domain knowledge in large-cap tech stocks

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Deep domain knowledge in global large-cap tech stocks is one of the two main reasons the North Tech Capital Global Technology Growth Index outperforms the market.

A high-quality portfolio management strategy is another reason – how much stock to buy, when to buy, and when to sell.

In today’s post, you will learn how to obtain deep domain knowledge in the global large-cap tech space as a precursor to outperforming the market.

1. Create your own tech-stock algorithm

As a global human species, we are not short of information.

According to Earthweb.com, 7.5 million blog posts were published every single day in 2024.

Press Gazette tracked the content published to the RSS feeds of eight major UK news sites over a week between 13 and 19 September to get a snapshot of their content.

It found that Mail Online published nearly 1,500 articles per day.

Its closest competitor was the Mirror, which published an average of 898 articles over the entire week.

It makes control over the quality and quantity of financial market news inflow a necessity.

For one thing, you will escape the mindless, often AI-generated content from Wall Street.

For example, I use the app Feedly to create my own large-cap tech stock-related news feed from the best finance reporters and news sites on the internet.

I call this first-stage pruning.

Without control over news inflow, you will get overwhelmed by conflicting arguments, data, and sentiment as to why the market is going in one direction or the other.

A free news aggregator like Feedly solves this problem by allowing you to choose dozens of news feeds to present you in their app.

Any feeds that don’t cut it, simply delete them.

2. Second stage pruning

Once you have pruned your feed for the most accurate tech stock news sources from the web, it will be time to do the work of consuming the content from your personalised algorithm.

If you are new to financial markets, the jargon, data, acronyms, charts, and commentary will at first seem like learning a foreign language.

The good news is that once again, careful pruning is your friend if you spend time putting it into practice.

For example, I’m a tech stock guy, so news articles about bonds and their value as investments is not as important as what the CEO of Nvidia, Jensen Huang, is indicating about the firm’s current and future earnings.

Bond yields, interest rates, and the price of debt does have an impact on financial markets so I will read about these related topics, but large-cap tech is my chosen area of expertise.

Second-stage pruning involves narrowing your news inflow to concentrate your attention to where it matters.

Commodities, small-caps, bonds, futures – they all form part of the global financial markets, but to achieve deep domain knowledge, you should choose just one area of the market.

Trying to be everywhere will get you nowhere.

I still read the odd article outside large-cap tech stocks if it has a direct effect on the direction of the NASDAQ 100 or S&P 500, but 90% of my attention is in large-cap tech.

3. Be a fearless jargon buster

This is the third and final stage of pruning.

Instead of news inflow, your efforts will now focus on dispensing with jargon.

Return on invested capital?

Google it (ROIC).

Compound annual growth rate?

Google it (CAGR).

Payroll numbers lower than expected?

You get the idea.

This process of pruning the type of Wall Street jargon that makes you roll your eyes can last anywhere between a few weeks to a few months depending on your level of commitment and time constraints.

It is this last stage that most investors give up on because of the learning curve, which is not steep, simply time-consuming.

There is no other way to obtain deep domain knowledge without being in the trenches and becoming part of conversations about global financial markets.

The real kicker though is that when you reach a level of competence that gives you deep domain knowledge in your chosen area of the market, you will no longer care what Wall Street thinks.

You’ll simply rely on your own cultivated and developed deep domain knowledge.

The ask: make the conscious decision to commit to cultivating deep domain knowledge by choosing a financial market niche, setting up your news inflow, pruning, and jargon-busting.

At first, it will feel like trying to swallow a frog.

But once that greasy little sucker has been dealt with, you’ll be well on your way towards outperforming the market.

Why Nvidia is leader of the pack

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Nvidia is a high flyer making all-time highs.

The story of its brilliant CEO Jensen Huang and the birth of the most important tech business in decades has been told by the man himself in this excellent interview.

As a practical operating investor and index developer, choosing the very best businesses to include in the North Tech Capital Global Technology Growth Index is key to outperforming Wall Street.

After passing through an initial filter (phase 1), the analysis of a business’s earnings becomes the most important aspect of security analysis. Today’s post is a short-form introduction of how you can begin to:

  • understand the investment philosophy of North Tech Capital
  • understand how to assess a stock’s earnings

The Phase 1 filter

This is the easy part.

To be included for serious analysis and in-depth scrutiny, each stock must pass through the following filter:

  • it must be a large-cap tech stock

Nvidia’s earnings v the rest of the pack

The following figures are taken from Stockopedia, one of the components in my tech stack that provides the most accurate financial and statistical data on global stocks.

For expediency, I’ll simply list the compound average growth rates (CAGR) over the past seven years of reported annual earnings from the top twenty names in the NASDAQ 100.

If you’re a visual learner like me, this exercise will clearly show which stocks have ‘earning power’ as Warren Buffett describes it.

  • Nvidia: 51.2%
  • Netflix: 35.6%
  • Amazon: 23.9%
  • Broadcom: 23.2%
  • Alphabet: 22.2%
  • Microsoft: 18.4%
  • Adobe: 16.2%
  • Costco: 15.7%
  • T-Mobile: 15.5%
  • Apple: 15%
  • Meta: 14.8%
  • AMD: 9.82%
  • QUALCOMM: 5.51
  • Texas Instruments: 4.97%
  • Tesla: 1.80%
  • Linde: -1.70%
  • Cisco: -1.96%
  • PepsiCo: -5.62%

Graham and Dodd on earning power

Earning powers as a weapon of choice in security analysis can’t rely upon past-performance alone as noted as early a 1934:

It is not sufficient to know what the past earnings have averaged, or even that they disclose a definite line of growth or decline. There must be plausible grounds for believing that this average or this trend is a dependable guide to the future

Graham and Dodd, Security Analysis

Graham and Dodd raise an obvious question that needs answering in the present context.

How can you determine Nvidia’s (or any stocks’) future earnings as dependable?

But before this question can be answered, bear in mind what Graham and Dodd say further about earning power:

…the concept of “earning power”, expressed as a definite figure, and the derived concept of intrinsic value, as something equally definite and ascertainable, cannot be safely accepted as a general premise of security analysis

Their point is that intrinsic value need only be ‘adequate’ to justify the purchase of a stock or ‘that the value is considerably higher or lower than the market price.’

Nvidia’s earning power

Nvidia’s earning power comes from its competitive advantage as evidenced by the fact that all other global tech businesses are still scrambling for Nvidia’s chips.

Nvidia is the picks and shovels merchant in the global AI gold rush.

Their latest AI chip called Blackwell retails for $30,000 at the low end and up to $70,000 each at the high end depending on the model.

On a recent analyst call, Nvidia Chief Financial Officer Colette Kress said that 13,000 Blackwell chips have been shipped to customers.

CEO Jensen Huang commented that demand for the company’s Blackwell chip is “insane” in a recent TV interview.

CEOs have a habit of talking up their game, but when it is backed by exponential growth in earnings like Nvidia, the ‘trend dependability’ of earning power that Graham and Dodd argue for becomes easier to ascertain.

When appetite begins to cool for its tech, Nvidia’s earnings growth will slow, and so will its earning power.

Hint: we’re not there yet.

P.S. If you enjoy tech stock investing lessons like this one, check out the newsletter helping investors outperform Wall Street. Subscribe now.