Finding the Magic in the Recipe

Crafting Your Investment Decision Approach & Formula

Sara J Wells
6 min readMay 27, 2021


Just as a New York cheesecake recipe is founded on the carefully sourced ingredients within it and crafted by the hands that bake it, an investment portfolio’s underlying holdings are the result of an investor’s recipe of market indicator and benchmark selection ingredients. Their process of analysis is finetuned in-house through repetition.

In crafting an approach, an investor will formulate a mixed fundamental and technical analysis of both macroeconomic and microeconomic factors as they examine the funnel of performance correlations and causations between the aggregate economy and individual target investment.


Macroeconomics is the study and analysis of the structure, performance, behavior, and decision-making of the economy as a whole. Macroeconomic factors include but are not limited to:

· geopolitics & current events
· seasonal changes & natural disasters
· inflation & interest rates
· unemployment & new jobs reports
· GDP, PPI, & CPI Reports

Source: (International Monetary Fund, 2021)

As a relevant example, let us turn to the International Monetary Fund’s (IMF) January 2021 World Economic Outlook (WEO) report on divergent recovery projections between global economies in a post(ish)-pandemic world. Figure 1 compares IMF Staff Projections for growth recovery year-over-year, breaking out China, advanced economies, and emerging market and developing (EMD) economies.

From a macroeconomic analysis perspective, an investor may be initially drawn to Chinese or EMD market opportunities as opposed to advanced economies given a presumed greater return potential (i.e. recovery delta). No one chart is sufficient though. Individual economies will recover at diverging production and consumption rates due to variable “medical interventions, the effectiveness of policy support, exposure to cross-country spillovers, and structural characteristics entering the crisis” (International Monetary Fund, 2021).


Microeconomics is the study and analysis of the influences on and choices made by individual actors in the economy. In generalized roles, actors include buyers, sellers, and business owners. Microeconomic factors include but are not limited to:

· Industry-specific regulations & taxation
· Product marketplace & transaction costs
· Dynamic supply & demand ratios
· Individual behavior (rational/irrational)

To put this concept in context, consider the NYC real estate market over the last year and change. For the first time in memory for many young residents, it has been a renter’s market. Manhattan, Brooklyn, and Queens saw their steepest year-over-year rent declines (15.5%, 8.6%, and 8.6% respectively) on record. Manhattan hit the lowest median asking rent ($2,750) since the Great Recession was triggered in March 2010.

Figure 2. Source: (Hoffower, 2021)

Consequently, NYC landlords have begun sitting on apartments because rent is simply getting too cheap for their economics to make sense. Hopeful for a Summer/Fall 2021 rebound, they would rather keep them empty now than lose out on locking in a higher rent at a later date (Hoffower, 2021).

While the global shadow of the pandemic is a glaring macroeconomic factor, the regional real estate reality of the Five Boroughs spills into microeconomic impacts for localized investments, stocks or bonds, in the municipalities.

Macro- and microeconomic factors persistently and consistently have causational influences on each other. However, their correlative relationships vary directly or conversely based on the idiosyncratic context of the who, what, where, when, why, & how. Consequently, an investor’s unique formula for success is tailored into a defined “in-house” approach through repetition and refinement.


“… [they] conducted laboratory-like experiments in the bakery… until they hit upon the magic formula. It’s the same recipe we use today. Only the finest of ingredients would do — premium cream cheese, fresh heavy cream, eggs, and a touch of vanilla. No water. No fillers. All hand-blended in small batches and mixed for over 40 minutes.… [Y]ou’ll taste the difference from Junior’s.” (Junior’s Cheesecake, 2021)

Investors and financial advisors craft their own recipes of economic analysis and investment selection over time through trial and error testing. Some recipes garner a creamy texture with a moist graham cracker crust that cracks just right. Others result in a bland cheesecake with a sloshy jiggle and soggy bottom that isn’t worth the calories.

As investors and advisors design their investment approach, their chosen analysis framework and the underlying macro and microeconomic factors powering their ultimate decisions will inevitably vary in terms of direction, priority, formula.


Designing your approach requires a mix of fundamental and technical analysis that is inclusive of both macro and micro-factors. The possible combinations of due diligence routes and analysis objectives are infinite. Your ultimate approach will include just a fraction of the available public information, economic indicators and benchmarks, and applied academic theory.

When constructing your portfolio of investments, the opportunity analysis and due diligence process that guides your ultimate investment selection is typically categorized into one of two decision-making frameworks: a top-down versus bottom-up approach to investment decisions.

Figure 3: Top-Down Analysis Approach

These varying approaches move along opposing logical progressions from the overarching macroeconomic factors to contextual microeconomic deep dives. An approach using a top-down analysis begins with the macro environment and moves to the micro-ecosystem. The opposite can generally be considered true with a bottom-up approach, which begins its thesis with a specific security and analyzes up the funnel to more broadly contextualize an investment conviction.

Along the way, an investor will employ principles from both fundamental and technical analysis frameworks with weights tailored according to their preferences, strengths, and objectives.

A fundamental analysis broadly considers the economy, industry, and company context under a comprehensive lens of accounting, finance, and economic knowledge and resources. This type of analysis heavily relies on public data, such as sector and industry databases and company historical earnings and financial statements, to project future growth or assign a valuation (Corporate Finance Institute, 2021).

Contrarily, technical analysis zeroes in on utilizing past quantitative company or market data to predict the probable price movement of a security on a future time horizon. It monitors the aggregate trading (i.e. buying and/or selling) volume of a security to continually reassess and reassign a fair market value to the investment. Technical indicators are significantly less familiar to the common retail investor. Next time you hear Fibonacci levels, moving averages, or doji candlesticks, you are wading into technical territory (Corporate Finance Institute, 2021).


Corporate Finance Institute. (2021, 04 15). Fundamental Analysis. Retrieved from Corporate Finance Institute:

Corporate Finance Institute. (2021, April 20). Technical Analysis — A Beginner’s Guide. Retrieved from Corporate Finance Institute:

Hoffower, H. (2021, March 10). NYC landlords are sitting on apartments because rent is getting too cheap. They’d rather keep them empty. Retrieved from Business Insider:

International Monetary Fund. (2021, January). World Economic Outlook Update. Retrieved from International Monetary Fund:

Junior’s Cheesecake. (2021, April 19). Our Cheesecake. Retrieved from Junior’s Cheesecake:



Sara J Wells

blockchain-enamored | wall street escapee | digging into puzzles that interest me