[DDIntel] The Sustainable, Critical-Thinking Investor

Mar 5

As we approach the end of Q1, 2023, it is clear that the world around us is still experiencing significant difficulties. The pandemic continues to have an impact on our lives in a variety of ways, including inflation, supply chain disruptions, and geopolitical crises.

In light of these difficulties, it only makes sense to consider ways in which we can make a positive change in the world. Consuming less is the most straightforward and effective strategy to do so. There are numerous reasons to believe that this is an essential step in the development of a more sustainable future, despite the fact that it may appear to be a lofty goal.

One of the main issues we face today is that the growth rates of our technological advancements and labor productivity cannot support our current consumption rate (our age of consumerism). This has been noted by numerous international organizations, academic journals, and popular science magazines. Since the 1970s, labor productivity growth has slowed significantly, despite the exponential rise in computing power.

People and businesses have been able to borrow money more easily since the 1980s, maintaining our current consumption level. Financialization also got underway. The effects of financialization are still evident today, despite the fact that the severe phase of the global financial crisis occurred more than a decade ago.

It’s evident that each one of us is responsible to reduce our consumption levels. This is necessary for both improving our own financial situation and making the future more sustainable. By reducing our consumption we can save money, which we can then invest in our own innovative businesses, projects, or in companies that aim to improve the world (some of which are even led by visionary leaders).

Human Progress Manifesto

And, of course, while we invest in companies that make a positive impact on the world, we are also interested in growing the funds that we invest. That’s why we must always keep an eye out for the macroeconomic events that are happening in the world. No one wants to invest in the stock of a company - no matter how much positive impact it has in the world - just before it does a sky-dive without a parachute, due to various macroeconomic and geopolitical events that are underway.

A strategy for investing in stocks, bonds, commodities, real estate, and cryptocurrencies can be developed once an investor has a basic understanding of how macroeconomics affects various asset classes. Changes in central bank interest rates are one of the most significant macroeconomic events that can have an effect on investment returns. The stock market, investments in cryptocurrencies, and real estate purchases can all suffer when interest rates rise because borrowing money becomes more expensive.

During times when interest rates rise, bonds also tend to lose value. Contrarily, as their prices rise, commodities and currencies can benefit from rising rates.

An investment strategy can also be disrupted by high inflation, which can cause tangible assets like commodities and housing to appreciate while assets like bonds and US dollars fall due to lower yields. Overall, investors can maximize their returns and make informed decisions about their investment portfolios by comprehending how asset classes and macroeconomic events relate to each other. If an investor understands the macroeconomic news, he will understand where to put his money.

Macroeconomic Impact

Even though having an understanding of macroeconomic events is essential for making sound investment decisions, you should also be aware of a few very important common practices before making any investments. Your investing plan and investment returns will be influenced by how well you understand these rules.

First and foremost, regardless of the amount of money being invested, it is essential to approach investment decisions at the same level of thought and consideration. You can avoid making rash and risky decisions that could cost them in the long run by treating every dollar as if it were a million dollars.

Having a long-term investment strategy is also essential. You can avoid making rash decisions based on market fluctuations or hype by investing over a 30-year period - and build an outstanding long-term portfolio. Naturally, you should also look out for major macroeconomic events and base your decisions on them.

The fundamentals of an investment should always be your primary focus, not just the performance of the market recently. Instead of just trying to ride the wave of a recent market surge, you can make more informed decisions about what to buy based on your goals and risk tolerance by developing a percentage - or time-based strategy. You are a data-driven investor, not a surfer!

Also, decide if investing is preferable to just keeping cash. You can make better decisions about where to put your money if you think about an asset's long-term potential and whether it matches your financial goals.

Last but certainly not least, steer clear of dishonest investment schemes that frequently make the promise of high returns with little effort or risk. You can avoid losing a lot of money to con artists by doing your research and staying away from investments that seem too good to be true.

5 Crucial Rules for Investing

On another order of ideas, it’s always important to keep a sound mind and use your best critical thinking. This is true for your personal life, investments, and most importantly, business.

Toward that goal, individuals or even groups can use the "How do I?" (HDI) method of problem-solving to approach difficult issues in a methodical and effective manner. When dealing with issues that necessitate a clear comprehension of the steps required to achieve a particular objective, this simple strategy is especially useful.

The first thing you need to do is to find the issue or issues that need to be resolved. In business this may imply gathering data, speaking with stakeholders, or conducting research to gain a deeper understanding of the problem are all examples of this. In you personal life, this may imply sitting down and communication effectively, to find as much information about the issue at hand.

The next step is to divide the issue into smaller, easier-to-manage pieces, in a “divide-et-impera” manner. Asking questions like, "What aspects of this problem are most important?" is one strategy for achieving this objective.

The final step is to devise a strategy for dealing with each component of the problem after it has been broken down into its component parts. Setting goals, delegating responsibilities to team members, and identifying specific actions that must be taken are all examples of this.

Anyone attempting to resolve challenging issues may find the HDI method to be of great assistance. Individuals or groups can achieve their objectives more quickly and effectively by coming up with a precise plan and breaking down complicated issues into smaller, easier-to-manage chunks.

Analysing Problems

These were the most important articles of this week from DataDrivenInvestor and its popular DDI Medium Publication. Hopefully, you picked up a few great ideas that help you become a better investor, and, most probably, a better human. Be sure to check out the rest of our editors’ picks below, and share your thoughts with us.