How to Invest in Stocks Using Macro Themes

When you see a big trend affecting the world, like natural gas development, or $4.8 trillion in airplane orders over the next 16 years, how can you take advantage of that? Go all in on a single company, or spread your money around a bit? Blake Bos sits down with Stock Advisor senior analyst Jim Mueller to discuss how to invest to best take advantage of these big, sweeping themes.

Blake Bos: Blake Bos here, folks. Today, I'm here with Jim Mueller. He's a Senior Analyst on the Stock Advisor newsletter, here at Motley Fool. Today we're going to be looking at macro themes in investing.

Jim, my question to you is, as an investor, sometimes psychologically I find myself, when I see a good macro theme -- there's a lot of them out there right now. You have the natural gas boom, you have commercial aviation with $4.8 trillion of new airplanes on order going into 2032.

I see a theme like that, and I get so obsessed with the macro theme that I force myself into investments that I shouldn't be. How do you approach investing in macro themes, where you're not forcing yourself into companies just to get exposure to a macro theme that might not be the best thing to have exposure to, at today's prices, for example?

Jim Mueller: Right. The big thing to remember is that the macro theme is going to take a while to play out. A natural gas boom is going to take several years to maybe a couple of decades to play out. You said 2032 for this $4.8 trillion in airplane orders. I wouldn't expect returns in the next year or the next six months.

The other way I would approach it is maybe try to pick the three or four good companies in a variety of supporting roles, as well as the big, central players -- like Boeing (BA -2.87%), for instance, in airplane. But Boeing's not the only manufacturer of airplanes. There's also Embraer (ERJ 0.74%) out of Brazil, and there's a Chinese company that's coming up. They all are manufacturing different types of airplanes, so you can play the big macro theme several different ways.

Then you can also look at some of the suppliers that come into the companies, like Precision Castparts (PCP.DL). They make connections and fasteners for the airplanes that help hold the things together. They also make the titanium -- once they acquired Titanium Metals -- they make the titanium that goes into these new airplanes, so you can invest in there.

But also be aware of how the macro theme is playing out over the long term, and whether there are signs of it beginning to fade away, like as we approach 2032. Keep looking to see, are there lots of orders still coming in to these airplane manufacturers, or is that fading away?

Bos: Look at the backlog.

Mueller: Look at the backlog, for instance, and see. The theme might be... time to get over, and time to move on.

Bos: Do you check in every quarter on that?

Mueller: No, I wouldn't check... that's way too much.

Bos: Way too often.

Mueller: Especially for how long these things tend to last.

Bos: So, once a year, investors can check up on their companies, look at the backlog, look at the trends, see if they see something going on.

Mueller: Right.

Bos: Is this something you think the average retail investor should be doing, maybe? These macro themes are pretty complex. I'm around investing a lot, and day to day it takes a lot of time to keep up on them. Is this something my Mom, who would invest, should go out and try to do on her own?

Mueller: Well, if she's trying to find a single company to invest in, as the best of the best, then maybe not. That would require a deeper dive into the company, that she might not have time to do. But if you're comfortable with getting a basket of companies -- like when the Macondo well blew up in the Gulf of Mexico, you could have invested in several different companies that all saw their prices beat down, and then done well not worrying too much about ...

Bos: The macro.

Mueller: But letting the macro and the recovery of that bring your prices back up.

Bos: I got you.

Mueller: Spread your bets out a little bit in four or five different companies in the industry, and don't forget the supporting roles of other companies. One or two might not play out, but three or four might.

Bos: Maybe it's better, as a newer investor that's not super experienced, to focus on events that are one-time extreme -- like the Deep Horizon blowing up -- and invest in companies that get beaten down.

Mueller: That's one way to approach it, yes.

Bos: Then maybe stay away from, "I'm going to play the $4.8 trillion. I'm going to try to keep up on it every year."

Mueller: Well, yeah. It won't be a quick turnaround like the oil companies was a quick turnaround. It took about a year for many of the prices to recover.

But if you're going into a big macro theme like the natural gas development, or those big aerospace orders in commercial airplanes, expect it to take some time, and let it play out.

Bos: And lots of patience.

Mueller: And lots of patience.

Bos: OK. You heard it here, folks; lots of patience when you invest. Focus on the long term. Try to avoid those quarterly results -- you can look at them, but don't pay too much attention. You want to focus on yearly results. See how things are trending, and if a macro theme is too complex, it's probably too complex for you, and you shouldn't try to attack it.

That's all I have for you today, folks. Thanks for watching, and Fool on!