More by the Same Author
2013-03-19 The Outlook for Equities by Howard Marks of Oaktree Capital Management
It doesn’t take much to get me started on a memo. In this case one sentence was enough, in an article from the February 4 online edition of Pensions & Investments, as described by FierceFinance on February 28: “The long-term equity risk premium is typically between 4.5% and 5%.”
2013-02-05 Ditto by Howard Marks of Oaktree Capital Management
Anyone who reads my memos of the last 23 years will see I return often to a few topics. This is due to the frequency with which themes tend to recur in the investment world. Humans often fail to learn. They forget the lessons of history, repeat patterns of behavior and make the same mistakes. As a result, certain themes arise over and over. Mark Twain had it right: "History doesn't repeat itself, but it does rhyme." The details of the events may vary greatly from occurrence to occurrence, but the themes giving rise to the events tend not to change.
2012-12-01 A Fresh Start (Hopefully) by Howard Marks of Oaktree Capital
For years I kept these memos away from anything related to politics. But more recently I began to discuss issues facing the US, and this has required some mention of policy and thus of politics. Ive tried very hard to be non-partisan, with a goal of not having readers know my leanings. I hope Ive succeeded; at least no one has complained. Because I found Americas recent presidential election and especially the results so fascinating, Im going to move explicitly to the field of politics, but with the same goal of non-partisan expression.
2012-09-12 On Uncertain Ground by Howard Marks of Oaktree Capital
I'm going to devote this memo to the uncertainty in the world and the investment environment and then offer my take on the appropriate strategy response. This will require me to touch on a large number of topics, but I will try to dwell less than usual on each of them.
2012-06-22 Its All a Big Mistake by Howard Marks of Oaktree Capital
Mistakes are a frequent topic of discussion in our world. Its not unusual to see investors criticized for errors that resulted in poor performance. But rarely do we hear about mistakes as an indispensable component of the investment process. Im writing now to point out that mistakes are all that superior investing is about. In short, in order for one side of a transaction to turn out to be a major success, the other side has to have been a big mistake.
2012-02-17 Assessing Performance Records A Case Study by Howard Marks of Oaktree Capital
What are the non-negotiable requirements for accurately assessing investment performance? Id say: a record spanning a significant number of years, a period that includes both good years, and a benchmark or peer universe that makes for a relevant comparison. The other day, at an event for alumni and other constituents of the University of Pennsylvania, president Amy Gutmann reviewed the performance of the university during the financial crisis. Thinking about it afterward, I realized that I should share with you the story of Penns endowment and its lessons.
2011-11-17 Its All Very Taxing by Howard Marks of Oaktree Capital
But what is the fair share? How is it to be determined, and by whom? When Senator Reid says, its time for millionaires and billionaires to pay their fair share, he implies they havent been doing so thus far. How does he know? Whats the standard? If theres an objective standard for ones fair share, why does it only seem to be those from the left side of the political spectrum who say its not being paid? And if there isnt an objective standard, how can the fair share be determined? The truth is, fairness is almost entirely in the eye of the beholder.
2011-09-09 Whats Behind the Downturn? by Howard Marks of Oaktree Capital
I feel the prosperity we enjoyed in the final decades of the twentieth century was considerably better than normal, and better than were likely to see up ahead. Im not implying a world without growth or otherwise permanently negative. Just one without the prosperity, dynamism or positive feelings of past decades. In addition, the newness of the macro picture and some of the problems and the opacity of the solutions certainly make it less clear in which direction well go.
2011-07-25 Down to the Wire by Howard Marks of Oaktree Capital
The problem isnt the ceiling, its our behavior. The debt ceiling merely imposes a discipline that our national leaders should provide but generally havent. On this note, in his press conference on July 15, when asked about conservatives insistence on a balanced-budget amendment to the Constitution, President Obama replied, We dont need a constitutional amendment to do that [balance the budget]; what we need to do is to do our jobs. But clearly we do need some enforced discipline, because the years in which we havent run a deficit have been by far the exception of late, not the rule.
2011-05-26 How Quickly They Forget by Howard Marks of Oaktree Capital
Asset prices fluctuate much more than fundamentals. Rather than applying moderation and balancing greed against fear, euphoria against depression, and risk tolerance against risk aversion, investors tend to oscillate wildly between the extremes. They apply optimism when things are going well in the world (elevating prices beyond reason) and pessimism when things are going poorly (depressing prices unreasonably). If investors remembered past bubbles and busts and their causes, and learned from them, the swings would moderate. But, in short, they don’t. And they may be forgetting again.
2011-03-04 On Regulation by Howard Marks of Oaktree Capital
You can tell businesspeople precisely what to do, but you can’t make the economy or companies comply with policies and social aims. Regulations are limited in their scope and effect, and like a balloon, when you push in one place, self-interested behavior pops out in another. Those who enact regulation are rarely able to anticipate and control the response of those being regulated or the second-order consequences of the rules. Bubbles will lead to crashes, and the willingness to dispense with regulation and rely on free markets will never be complete, regardless of regulation’s limitations.
2010-12-21 All That Glitters by Howard Marks of Oaktree Capital
I have ave no doubt: gold is the ideal investment. It serves as a reliable store of value, especially in challenging and uncertain times. It’s a hedge against inflation, since its price rises in sympathy with the general level of prices. It exists without the involvement of man-made constructs such as governments. And it’s desired and accepted all around the world (and always has been.) The supply of gold is finite. It can’t be created out of thin air. Thus it’s not subject to dilution or debasement, as is paper currency when governments decide to print more.
2010-12-01 Open and Shut by Howard Marks of Oaktree Capital
Today some assets are fairly priced and others are high, but there are no bargains like those of 2008. Capital and nerve can’t hold the answers in such an environment. We’re no longer in a high-return, low-risk market, especially in light of the inability to know how today’s many macro uncertainties will be resolved. Instead of capital and nerve, then, the indispensable elements are now risk control, selectivity, discernment, discipline and patience.
2010-09-27 Hemlines and Investment Styles by Howard Marks of Oaktree Capital
High quality, large cap stocks have good potential over a range of possible scenarios, and are more attractive than bonds, which will do well in periods of economic weakness or deflation but poorly during periods of market strength or inflation. Treasury bonds and other high grade bonds currently have all environmental factors in their favor, but are priced rich. For them to do well from here, with yields so low, everything has to work out the way the bond bulls hope. Given current yield spreads, high yield bonds should outperform high grade bonds in most foreseeable long-term environments.
2010-07-22 It's Greek to Me by Howard Marks of Oaktree Capital
The current positives for investors include moderate valuations, rising corporate earnings and the likelihood we're already in a recovery. On the other hand, consumers are still too traumatized to resume spending strongly. Conservatism, austerity and increased savings are good for individuals but bad for a stagnant overall economy. Anyone who invests today in a pro-risk fashion out of belief in the recovery must be confident he'll be agile enough to take profits before the long-term realities set in.
2010-05-21 Warning Flags by Howard Marks of Oaktree Capital
The fact that we don't know where trouble will come from shouldn't allow us to feel comfortable in times when prices are high. The higher prices are relative to intrinsic value, the more we should prepare for the unknown. Anecdotal evidence of rising risk tolerance does not mean entire markets have returned to dangerous levels. The door is open to transactions that wouldn't be possible if risk aversion were higher. The clear inference is that fear of loss has declined and fear of missed opportunity has come back to life.
2010-03-23 I Would Rather Be Wrong by Howard Marks of Oaktree Capital
Washington politicians are proving themselves unable to solve - or even tackle - our financial problems. Both parties refuse to budge from positions that dramatically narrow the grounds for problem solving. The Republicans' conservative base demands adherence to a no-tax pledge, while liberal Democrats demand their representatives to prevent cuts in spending on domestic programs.
2010-01-26 Tell Me I'm Wrong by Howard Marks of Oaktree Capital
Howard Marks says “the rally in financial markets worldwide has outpaced the fundamentals,” and he does not believe we are “in the midst of a strong recovery.” He expects the economy to “sputter alon
