Fundamental analysis identifies where prices deviate from fundamental values. The second step in our process is to understand why these discrepancies exist to effectively pursue unexploited opportunities. Macro-thematic analysis, geopolitical analysis (game theory), and conventional wisdom all are brought to bear on this determination.
In our assessment of conventional wisdom, we examine what's influencing the mind of the market (e.g., economic growth, monetary policy, risk aversion) to push prices away from fundamental values. Next, we identify macro themes (e.g., China growth and commodity super cycle) that may be compelling prices either away from or towards fundamental values. In our geopoltical analysis, we identify game theaters, such as the euro zone, an election in Germany, a fiscal debate in the United States. We determine who the players are, what their objectives are and that helps us understand their motivations, actions, and communications. The players' actions and communications influence market prices and create opportunities.
These tools help us navigate macro risks.
For more information, download William Blair's Game Theory and Macro Investing Playbook (PDF)