Economics and investment strategies.
The first in a series of three articles on our discussion with Abby Cohen, Partner and senior investment strategist at Goldman Sachs.
Dūcere Global Faculty Member, Abby Cohen is an American economist and financial analyst on Wall Street. She serves as a partner and senior U.S. investment strategist at Goldman Sachs. As a Dūcere Global Faculty Member, unique content with Abby Cohen is featured in the following MBA topic areas.
-Strategic Decision Making
Strategic investment takes in a broad range of macro-factors, such as the global economy. Yet as Ms. Cohens finds: “We must also dig deeper… to make sure that the data we see at the national and international level are consistent with what we’re seeing at the corporate level.”
The past decade has seen an unprecedented pace of change across economies and markets. Business and markets in the ‘New Economy’ are increasingly diverse, more dynamic. Businesses and supply chains are often distributed across countries, and thus more interdependent. As a result, economic forces have both greater impact and greater reach. Economic mechanisms and their effects are less clear. For example, some central banks are moving to negative interest rates in the hope of stimulating economies. Yet businesses and consumer spending remains restrained. Businesses prefer to hold cash reserves or buy-back shares, rather than investing, in turn stifling innovation and development.
We asked Abby Cohen, Partner and senior investment strategist at Goldman Sachs on her view on the role of economics in business. This article shares some of her valuable insights – and provides opportunity for readers to reflect on these in their own context.
Cohen on the application of economic fundamentals: “One of the least interesting things to me is the short-term view of this quarter’s earnings. I’m much more concerned about whether an economy has sustainable growth, whether it be able to generate jobs in the future, whether median incomes can continue to rise because what I know as an economist, is that the best long-term investment opportunities are always linked to the best long-term economic growth prospects for a nation. So looking at factors like education, quality of workforce and so on, really are essential to the investment process.”
Traditionally, an investment will focus on market behaviour, akin to how a business strategy will focus on a position within a given market or segment. Here the focus is on detailed, technical analyses of economic and industry data. Yet the system of markets, industries and society has become both closer, more interconnected, and thus more complex. Hence it is necessary to view historical data within a broader, more fundamental set of economic factors, trends and outlooks. Understanding how they have, and may interact in the future is key to understanding what assumptions need to be made and how to formulate and validate projections.
Cohen on economics and viability: “Our approach is very much fundamentally based, looking at the economy, looking at the performance of the underlying companies… all data show that the most important correlation between how markets ultimately perform intermediate to long-term is a link to the overall economy. And to us, that’s really the place to start. We always start with, “What’s happening?” in terms of economic growth, inflation, interest rates and very importantly, the employment picture. And from there, we get into details.
Different industries typically operate in distinct markets. This does not mean that economic forces follow this distinction.
Understanding how these forces apply both in general and specifically requires viewing broad sets of data through different frames.
As Cohen states: “We’re looking not just at the data but at the analysis and the forecasting done by experts. Our economist will look at the macro information… our industry analyst will look at it from the bottom up. We also break out the information by the sort of sector that is the industry. What are the underlying issues that are critical for those individual components – be it region of the economy, or a particular industry.”
‘We need to think about, what are the economic factors? What are the underlying issues that are critical?’
In summary: Sectors and markets are increasingly interdependent. Understanding economic factors, and the ability to derive appropriately fitting insights is increasingly important in understanding the links between economic outlook, industry trends and business and investment strategy.
Articles #2 and #3 provide more of Ms. Cohen’s valuable insights on time-frames of strategy, and the importance of diversity in organisations and perspectives.
Abby Cohen is a leading economist, Partner and senior investment strategist at Goldman Sachs, and President of the Global Markets Institute. Ms Cohen serves on the White House-appointed Innovation Advisory Board for economic competitiveness, as a presidential councillor at Cornell University, and on the boards of the Weill Cornell Medical College, the Brookings Institution and The Economic Club of New York.