market folly

Oaktree Capital's Chairman Howard Marks is out with his latest memo entitled, "The Role of Confidence."  In it, he tackles how if people are confident that an economy's future is good, then they'll go out and essentially make the economy good by spending and investing... it becomes self-fulfilling.


On Extremes in Confidence

As an investor, he looks for extremes in confidence between 'too much' and 'too little.'  Investors often become overconfident after things have been good for a while, and they become extremely negative when it seems there's no hope in sight.  Investors, he says, should do the opposite:

"When most investors are driven to drop their prudence by an excess of confidence, we should be terrified.  In the same way, when most investors become devoid of confidence and flee the market, we should turn aggressive."

Why should you care what Marks has to say?  Well for one, he always offers insightful tidbits and words of wisdom in his letters.  And secondly, Warren Buffett himself has said he loves to read Marks' missives.  And what Marks is saying is really just another version of Buffett's famous: "be greedy when others are fearful."


Marks Says We're in 'Middle Ground'

This is perhaps the most noteworthy quote from his commentary relevant to the current markets:

"As I wrote in my book, when there's nothing clever to do, the mistake lies in trying to be clever.  Today it seems the best we can do is invest prudently in the coming months, avoiding aggressiveness and remembering to apply caution."


Embedded below is Howard Marks' latest memo for Oaktree Capital:




You can download a .pdf copy here.

For more from this investor, we previously highlighted Marks at the London Value Conference.