The Memo All the Serious Investor Should Read

"When I see memos from Howard Marks in my mail, they're the first thing I open and read. I always learn something, and that goes double for his book," Warren Buffett has said.

 Here  ( Click )  is the latest memo from Howard Marks on " Expert Opinion "! 

Quoted below summary on his view about expert opinion and making an economic forecast.

// Quote //

My Opinion of Opinions

Since I’ve discussed these things at great length over the years, I‘ll try here to sum up succinctly:

  • There are no facts about the future, just opinions. Anyone who asserts with conviction what he thinks will happen in the macro future is overstating his foresight, whether out of ignorance, hubris or dishonesty.

  • Developments in economies, interest rates, currencies and markets aren’t the result of scientific processes. The involvement in them of people – with their emotions, foibles and biases – renders them highly unpredictable. As physicist Richard Feynman put it, “Imagine how much harder physics would be if electrons had feelings!”

  • It’s one thing to have opinions on these subjects, but something very different to be confident they’re right (and act on them).

  • Taking bold action based on forecasts of things that are uncertain isn’t just misguided; it’s dangerous. As Mark Twain said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for certain that just ain’t true.”

  • Everyone at Oaktree has opinions on the macro. And when we see extremes in markets and, especially, capital market behaviour, we’re apt to take strong action. But we’re highly aware of what we don’t know, and when conditions are moderate or indistinct, we don’t bet heavily.
// Unquote //

In case you never heard about him ... here (click) is the detail from Wikipedia.

The Most Important Thing: Uncommon Sense for the Thoughtful Investor :

This is one of my favourite books in investment and masterpiece of Howard Marks, also it is the book recommended by many super-investors like Warren Buffet, Seth Klarman, Christopher Davis and Joel Greenblatt.

Two chapters I like the most in this book :

1) Second Level Thinking ( chapter 1) 

You have to be a “second-level thinker”, Mr Marks says. First level investor thinking says “it’s a good company, let’s buy the stock”. Second-level thinking says, “everyone thinks it’s a great company. That makes it overpriced — sell.” 

First level thinking looks at stock and says, “I think the company’s earnings will fall, sell”. Second-level thinking says “ I think the company’s earnings will fall far less than people expect, and the pleasant surprise will lift the stock — buy.” 

The real money isn’t made in buying what other people like. It’s about buying what others underestimate. Buying that kind of thing can be a lonely business. And fund managers mostly hate that. You get the idea: simple, but not easy.

Allow me to quote from his book: “ Few people have what it takes to be great investors. Some can be taught, but not everyone….and those who can be taught can’t be taught everything.

Valid approaches work some of the time but not all. And investing can’t be reduced to an algorithm and turned over to a computer. Even the best investors don’t get it right every time.

The reasons are simple. No rule always works. The environment isn’t controllable and circumstances rarely repeat exactly. Psychology plays a major role in the market, and because it’s highly variable, cause-and-effect relationships aren’t reliable. Investing is like economics, is more art than science, and that means it can get a little messy.

In chapter 9, he tries to explain the importance of " Awareness of the Pendulum ".

image credit to
 According to him:" the mood swings of the securities markets resemble the movement of a pendulum. Although the midpoint of its arc best describes the location of the pendulum "on average," it actually spends very little of its time there. 

Instead, it is almost always swinging towards or away from the extremes of its arc. But whenever the pendulum is near either extreme, it is inevitable that it will move back toward the midpoint sooner or later.

He finished this chapter with this remark:" There are a few things of which we can be sure, and this is one ...: Extreme market behaviour will reverse. Those who believe that the pendulum will move in one direction forever -- or reside at an extreme forever---eventually will lose huge sums. Those who understand the pendulum's behaviour can benefit enormously."

Sounds familiar? remember the concept of " reverting to mean "(click)!!

Cheers !!

Quote Of The Day :

" I think it's essential to remember that just about everything is cyclical. There's little I'm certain of, but these things are true: Cycles always prevail eventually. Nothing goes in one direction forever. Trees don't grow to the sky. And there's little that's as dangerous for investor health as insistence on extrapolating today's events into the future ." by Howard Marks


  1. STE,

    Reversion to mean gives me the courage to scale-in near cycle lows and the conviction to take some money off the table near cycle highs.

    Make less is better than lose money ;)

    1. Hi SMOL,
      Yah ! using this to avoid buying at top and nobody can really "buy low sell high" every time in every trade,,, trade in the range ... making less money , but be safe and have "margin of safety ".
      Cheers !! :-)


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