In today’s post, I want to share a few quotes from Howard Marks whom I’ve been reading a lot lately.
Howard is an American investor, thinker, and writer. He’s the chairman and cofounder of Oaktree Capital Management and is renowned for his insightful assessments of financial markets.
Superior performance in the market requires a superior way of thinking—one that is deeper and more insightful —and Howard Marks exemplifies that very well.
I hope you find these quotes insightful.
But above all, I hope that you integrate what you’re learning and learn to do your own thinking.
See, it’s not enough to just passively consume information. Implementation and integration, that’s what leads to a more sophisticated mode of thinking.
This is very important.
Soon, I’ll write a blog post with some actionable pieces of advice on that.
But for now, and without further ado, here are the quotes:
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The desire for more, the fear of missing out, the tendency to compare against others, the influence of the crowd and the dream of the sure thing—these factors are near universal. Thus they have a profound collective impact on most investors and most markets. This is especially true at the market extremes. The result is mistakes—frequent, widespread, recurring, expensive mistakes.
Not only should the lonely and uncomfortable position be tolerated, it should be celebrated.
Superior investors are people who have a better sense for what tickets are in the bowl, and thus for whether it’s worth participating in the lottery. In other words, while superior investors — like everyone else — don’t know exactly what the future holds, they do have an above-average understanding of future tendencies.
The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.
Return alone—and especially return over short periods of time—says very little about the quality of investment decisions.
Nothing goes in one direction forever … Cycles always prevail eventually … Just about everything is cyclical.
Several things go together for those who view the world as an uncertain place: healthy respect for risk; awareness that we don’t know what the future holds; an understanding that the best we can do is view the future as a probability distribution and invest accordingly; insistence on defensive investing; and emphasis on avoiding pitfalls. To me, that is what thoughtful investing is all about.
The bottom line is that even highly skilled investors can be guilty of mis-hits, and the overaggressive shot can easily lose them the match. Thus, defense — significant emphasis on keeping things from going wrong — is an important part of every investor’s game.
One of our mottos is ‘we don’t look for our investments; they find us.’
The power of psychological influences must never be underestimated. Greed, fear, suspension of disbelief, conformism, envy, ego and capitulation are all part of human nature, and their ability to compel action is profound, especially when they’re at extremes and shared by the herd. They’ll influence others, and the thoughtful investor will feel them as well. None of us should expect to be immune and insulated from them. Although we feel them, we must not succumb; rather we must recognize them for what they are and stand against them. Reason must overcome emotion.
It’s impossible to know when an overheated market will turn down, or when a downturn will cease and appreciation will take it’s place. But while we never know where we’re going, we ought to know where we are. We can infer where markets stand in their cycle from the behavior of those around us. When other investors are unworried, we should be cautious; when investors are panicked, we should turn aggressive.
Howard Marks’ books:
Mastering The Market Cycle: Getting The Odds on Your Side
The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor