Investing is quite a technical process, and there are a lot of things that you have to focus on to get things right when it comes to investing. Of course, one need not have to say how the concepts of finance and investment go hand-in-hand. The process of investing cannot go successfully with investment and money didn’t coexist. But there is one common subject that links the two and helps us better understand them. It is nothing but economics. Irrespective of whether you are a student of economics or not, you simply can’t get over certain concepts if you wish to have a good feel for numbers.
So here is the question. How much of economics should you know to be good at investing? Let’s see it here in detail.
The branches of economics:
Though economics is quite a large platform it is widely divided into microeconomics and macroeconomics. While microeconomics deals with money and matter from the individual’s perspective, macroeconomics deals the same concept from the nation’s perspective. So no matter what stream of education you belonged to, if you are into investing, then you are expected to know a bit about both micro and macroeconomics. If there is one thing that you have to keep in mind, then it is that finance and investment will go obsolete without the interference of economics.
The economics that you should know:
The concept of ends and means:
In case if you are a student of economics, you will certainly know that the very first page of your economics book will carry the phrase, ‘ends and means’. For simple understanding, ends and means represent the relationship between the requirements that we have and the resources we have to satisfy them. From here we go into the concepts of demand and supply and also the other conditions like cause and effect of a particular act on the economy.
Just try relating all these things to finance and investment. Demand and supply are the two wheels of the investment bicycle, and unless you understand the cause and effect of something your investment decisions will be poor. Finally, the phrase ‘ends and means’ can simply be substituted by the phrase ‘investment and finance’. It is simply a vicious circle.
Politics and economics:
If you didn’t know politics and economics are intertwined and they coexist. We are certain, and this must have been the case since we forgot barter system and started monetary transactions. With every rule, government policies and investment practices change. Politics has the ability to influence global markets, and for the same reason, you are expected to be a little aware of the economy and thereby economics.
Economics will teach you to invest even in a falling market:
A lot of people out there who are in the field of investing aren’t graduates in economics, some of them are even illiterate but still, make a lot of money. So with economics where do you gain the advantage? When things are fine and the market has manageable ups and downs, things may not matter. But when the economy is falling, and markets are crashing, economics will teach you to survive and make money even in a bubble. Forget surviving crisis, you get better with forecasting and you are already 5 years ahead of time. That is the power of economics.