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Howard Marks is a billionaire American investor with a reputation for insightful analysis of markets and economies. He is the co-founder and co-chairman of Oaktree Capital Management, the largest investor in distressed securities worldwide. He wrote the well-received investment book, The Most Important Thing, Uncommon Sense for the Thoughtful Investor. For this newsletter I have collected some of his recent writings.
Investors tend to the extremes
“In the real world, things generally fluctuate between ‘pretty good’ and ‘not so hot.’ But in the world of investing, perception often swings from ‘flawless’ to ‘hopeless’. What I can say is that a month ago [February], most people thought the macro outlook was uniformly favourable, and they had trouble thinking of a possible negative catalyst with a serious likelihood of materializing. And now the unimaginable catalyst is here and terrifying.
(There are a few important lessons here. First, the catalyst for a recession or correction isn’t always foreseeable. Second, it can seemingly appear out of thin air, as this virus seems to have done. And third, the negative effect of an unforeseeable catalyst is likely greater when it collides with a market that reflects so much optimism that it is ‘priced for perfection’.)”
Bad news does not move share prices unless the bad news changes psychology
“Most investors seem to think in terms of a very simple relationship: bad news → price declines. And certainly we’ve seen some of that over the last week or so. But I’ve argued in the past that there’s more to the story. The real process is: bad news + decline in psychology → price declines.”
Price and value
“Intelligent investing has to be based – as always – on the relationship between price and value. In other words, not “will the collapse go further?” But rather ‘has the collapse to date caused securities to be priced right; or are they overpriced given the fundamentals; or have they become cheap?’
I have no doubt that assessing price relative to value remains the most reliable way to invest for the long term. I want to acknowledge up front that ascertaining intrinsic value is never a simple, cut-and-dried thing. Now – given the possibility that the virus will cause the world of the future to be very different from the world we knew – is value too unascertainable to be relied upon? In short, I don’t think so.”
Policy makers are not all powerful
“Market participants seem to think that (a) rate cuts and other stimulus are always a good thing and (b) they’ll work. Yet, given that the economic impact of the disease is unknowable, how ca………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
