Why Should Stock Investors Care About Interest Rates?

There are some cases in which macroeconomic variables can dramatically impact the cash flow a firm can produce

Jim Sinegal 9 September, 2016 | 10:56AM

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Morningstar’s investment philosophy rests on evaluating a company’s economic moat—its ability to sustain returns above its cost of capital for an extended period of time—and the price of its stock in relation to our estimate of fair value. As a result, macroeconomic forecasts are generally a secondary concern.

However, there are some cases in which macroeconomic variables can dramatically impact the cash flow a firm can produce. Indeed, most companies are price-takers to some extent, producing commodity products for sale at the prevailing market rate. Warren Buffett described these firms as “businesses”—contrasted with more attractive “franchises”—in his 1991 letter to Berkshire Hathaway shareholders:

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Jim Sinegal  Jim Sinegal is the associate director of the financial team at Morningstar.

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