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MAGGIE LAKE: So far, we talked about the unwritten rules of markets, understanding the game you're playing, understanding and navigating market regimes across different time horizons, and being able to visualize all of that using charts. In this part, we'll talk about the main asset classes you'll be playing with to express the views you've generated using the tools we've discussed so far.
In terms of the opportunity set, equities, bonds, currencies, and commodities represent the majority of what will be available to you as a non institutional investor. We'll also add digital assets to that universe. Before we begin, if you're new to the four core asset classes, or what we call the building blocks of finance, you should go watch the miniseries we did on them to warm up. You can find the series linked in the Resources section of this video.
So when we think about selecting the right asset to express your view, there are really two key approaches you need to understand before going into all the other varieties. As it will become clear from the discussion, Jamie spent his career as a bottom up relative value investor covering the insurance industry, which is part of the financial sector. What that meant is that he was entirely focused on companies in that industry, understood their business inside and out, and the comparative advantages and disadvantages of each one.
He listened to earnings calls, read financial reports, spoke directly to management, and pretty much had access to all available information. That allowed him to find value in certain insurance companies compared to the entire industry or specific insurers. His colleagues were doing the same but in banking, health care, technology, and other sectors and industries within them. As he says, oftentimes you valued a company relative to its peers in the sector, which meant that they were not taking much market or sector risk.
In other words, if the market fell, or the market regime was not favorable to that industry, it didn't really matter because he was not expressing strong directional views but relative valuation ones, like for example, MetLife outperforming its peers. Now contrast this with Roger and his top down, or global macro approach, which tries to understand the different market drivers and regimes, and select the right investments across asset classes that will be most affected by said drivers.
Macro investors won't necessarily be the experts on every sector or every commodity. But they will know the relationships running across the entire opportunity set and look to select the right mix of assets that will allow them to profit from their view. There are a million ways to express the same view through a different mix of assets. And it all depends on your appetite for risk and understanding of the different assets. Let me give you an example.
If you thought we are headed into a period of higher commodity prices, the obvious thing would be to think about buying commodities. But what if I told you that buying the Australian dollar versus the Japanese yen is a very similar trade? Why? Well, one reason is that Australia is one of the biggest commodity producers and exporters in the world. And Japan is a close trade partner and a big commodity importer.
Alternatively, you might want to look at shorting businesses that consume commodities while buying companies that produce them. For an example, in an environment of rising oil prices, you might want to be leaning positive on the energy sector while developing a short thesis on airlines.
In this part, we'll focus on top down investing and consider our entire asset universe so you can have a clear understanding of how the broader market looks and how to exploit cross asset relationships. During the discussion, you'll hear the guys talk about how both a macro and a microlens can be used to determine which assets you might want to take a position on. Then you and I will gain some major insights into how the pros leverage the asset classes in their strategies.
Finally, Roger will guide you through a deep dive into asset class fundamentals, and how to apply that information in your own investing. Let's get to it.