market folly

Tim Ferriss recently interviewed Oaktree Capital's Howard Marks on his popular podcast as part of Marks' press tour for his new book that's coming out: Mastering the Market Cycle: Getting the Odds on Your Side. Here are some notes/summary as well as the full audio below.


Howard Marks Interview on Tim Ferriss Podcast

- "You can't predict, you can prepare."  This quote is from one of Marks' memos from way back in the 1990s. He uses this to note that he didn't predict the housing crash, but he was prepared because of cautious preparation in advance.

-  His previous book The Most Important Thing outlines the concept that you have to know where we are in the cycle.  "And where you are in the cycle is the primary determinant of risk."  So his new book, Mastering the Market Cycle, focuses on that aspect because just knowing the position in the cycle is a huge advantage.

- The book focuses on looking at the future not as the past or something that's already happened that might repeat, but look at it as a range of possibilities, a probability distribution.

-  "Most of us have an inherent bias, (we're) essentially cautious or essentially aggressive."  He notes it's very important to assess your personal bias as that affects so much of your success in investing.

-  "One of the keys to successful investing is to either be unemotional or at a minimum, act like you are.  The great investors I know behave in an unemotional fashion."  The problem of course is teaching yourself to be unemotional is counter to human behavior.  So part of it is being born with that predisposition.

-  " 'I don't know.'  It's a great thing to say and not enough people say it."

-  Marks recommends people read Nassim Taleb's book, Fooled by Randomness

-  "There's nothing more dangerous in life than being sure you know something that you don't know."

-  Marks thinks the most useful chapter of his new book is the one that talks about one's attitude toward risk.  From the book: "If I could ask only one question about each investment I had under consideration, it would be, 'how much optimism is factored into the price?'"

-   "We make money from favorable surprises.  If the positive conviction is so high then by definition there can never be a favorable surprise."  Marks labeled this as a number one concept.

-  He says the greatest thing he was ever taught was about stages of a bull market and how people shift from not believing things will get better, to people accepting things are improving, to finally people believing the good times will go on forever.  Buying in the first phase gives cheapest prices because there's not much optimism in the price.  The second phase is when the favorable surprise happens.  Then you reach the phase where there's so much optimism in the price that it's unlikely to yield a profit.

-  Marks thinks we're in the 8th inning of the markets.  However, we don't know how many innings there are in the game.  In a normal game, the good times could be close to ending.  "I think this is a time for more caution than usual."

-  Marks likes playing backgammon since probability is the name of the game.

-  On cycles: the biggest mistake you can make is to ignore the repetitive nature of the cyclical pattern.

-  Marks likes reading Grant's Interest Rate Observer.  Another book that Marks has enjoyed: Factfulness, which he recommends as it takes qualitative viewpoints commonly held and debunks them with data.

- Marks believes bitcoin can't be valued.


Podcast Audio:  Here is the link to stream the podcast episode (mp3 format): click here



Be sure to also check out Marks' new book: Mastering the Market Cycle.