The Practical Way

Howard Marks Investing Ideas, part 4

The “know” and “don’t know” schools

The “I know” school people believe they can discern what the future holds, and in their world investing is a simple matter:

• First you decide what the economy is going to do in the period under consideration.
• Then you figure out what the impact will be on interest rates.
• From this you infer how the securities markets will perform.
• You choose the industries that will do best in that environment.
• You make judgments about how the industries’ companies will fare in terms of profits.
• Based on all of this information, you pick stocks that are bound to appreciate.[…]

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Howard Marks Investing Ideas, part 3

Performance

A bit above average performance is not that bad if you can consistently do it for many years. You do not need to swing for the fences in order to achieve long term gain. If you are willing to take huge bets on assets to gain the spectacular results you should be ready to fail some times and then have huge losses. That will give you an average return over the years, unless of course you can be right about the future most of the times. Not an easy task to accomplish.[…]

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Howard Marks Investing Ideas, part 2

Telling the future

Making market forecasts on a consistent basis is not an easy thing. Many people try and none succeed on it. If you are always crying ‘wolf’ then at some point you will be right, but that does not tell us about your ability to forecast market movements. A useful market forecast is only useful if it is in contrary to popular belief. If everyone predicts it then this is already reflected in the price of assets. […]

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Howard Marks Investing Ideas, part 1

When the world’s self-made billionaires speak it is good to listen. Then when you find out who they follow on a regular basis, maybe you should look at them too. This is how I learned about Howard Marks. Howard is the chairman of Oaktree since 1995. His approach to money management is based on a simple motto: “if we avoid the losers, the winners will take care of themselves”. His memos to clients are a must read for investors. Here are some pieces of advice taken directly from his memos.[…]

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The lessons of the 2007 crash

Howard Marks from Oaktree capital wrote in a memo the lessons that the market crash of 2007 should have thought us. A lot of these lessons are not new ones, but a repetition of old lessons that investors did not learn last time. Or maybe their memory is short term. Maybe more attention should be paid this time and learn these lessons to avoid repeating them next time. Because there will surely be a next time. Here are the lessons:[…]

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This time it is not different

Mark Howard of Oaktree Capital Management wrote in one of his memos about the times that are unchanged. Here is his notes:

Why do the mistakes repeat? That’s a good question, but not much of a mystery. First, few investors have been around long enough to recognize reoccurrence of the errors of twenty or forty years ago. And second, the greed that argues for ignoring “the old rules” easily trumps caution; hope truly does spring eternal. That’s especially true when the good times are rolling. The tendency to ignore the rules invariably reaches its apex in periods when following them has cost people money. It is thus, as Galbraith points out, that those who harp on the lessons of the past are dismissed as old fogies. What are some of the recurring mistakes investors make?[…]

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The most important thing

Mark Howard of Oaktree Capital Management wrote in one of his memos that a lot of people ask him what is the most important thing he has learned throughout his years of investing. After been asked this question a lot, he decided to compile a list of the answers he has given to various people, because he has given various answers. Here is the list:

• The most important thing – above all – is the relationship between price and value.
• The most important thing is a solidly based, strongly held estimate of intrinsic value.

[…]

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How to build a successful partnership

Mark Howard of Oaktree Capital Management wrote in one of his memos some very good ideas about building a successful partnership:

If an organization is to be the best, it must find, train and retain the best. Not only does turnover drain off your best people, but it also takes their institutional memory and leaves you bogged down in hiring and training their replacements.

We always have placed great emphasis on preventing turnover, and the results are visible – in the very small number of senior professionals who have moved on to other employment in my 25 years in portfolio management, and in the investment performance that my long-term colleagues have produced.[…]

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