Howard Marks on Market Psychology and Smart Investing | Exploring Markets

Howard Marks on Market Psychology and Smart Investing

Here are some brilliant insights from Howard Marks.

They are in the form of quotations and notes. Each quote comes from a conversation Marks had with Mike Milken. If you are not familiar with Howard Marks, he's an author and manager of one of the largest private equity firms in the world. You can watch the entire talk at the bottom of the page below:
"Failing to understand the lessons of history more than anything is what dooms investors to be victimized repeatedly cycle by cycle."  
Most things involving people are governed by cycles. Yet repeatedly people commit the mistake of thinking trends can go on forever. 
"Experience is what you got when you didn't get what you wanted." 
The stock market lost 26% on Black Monday. No one knew what caused it.  
"My father used to tell the story about a gambler who always lost his rent money at the horse track. He eventually heard about a race with only one horse. So he went to the track and bet it all. That one horse jumped off the track and ran away. The point of that story is that there is no sure thing." 
Mark Twain said history does not repeat itself but it does rhyme. 
The tech bubble was like the nifty-50. These were companies that completely changed the world but had you bought them at the top you would have lost all nearly of your money. 
On feeling the urge to chase and outperform: Nobody ever went broke making 5%.
On the start of the financial crisis: Too much trust, too little worry. People came to believe that risk had been banished. Worldwide liquidity coming from China and oil producers. A massive rise in the securitization that delusioned people to think risk had been spliced, diced, and allocated in a way that avoided almost all risk. 
Risk aversion keeps the market honest and sane. It demands due diligence and compensation for bearing risk.  
3 stages of a bull market: 1.) When a few bright people realize that things can get better. 2.) When most people realize that improvement is actually taking place. 3.) When everybody and his brother thinks everything will get better forever. 
Most people see risk in low quality assets and safety in high quality assets.
Risk is perverse. The belief that there is no risk makes the world more risky.  
Only 4 corporations are rated AAA today. There were 16,000 mortgage obligations rated AAA before the crisis in 2007/2008.
The investment world is filled with excess testosterone. People think it's the job to know what the future holds. They have to act like they know.  
The best people in the world are the ones who can visualize a distribution of all possible things that could happen.  
"It's not what you don't know that gets you killed, it's what you know for certain that just ain't true." - Mark Twain
The real danger is acting on something you know is true.
There's a great belief that macro rules the markets today. In the short run these things will run the market. Not in the long run. But no one knows what the macro is. So it's essentially a waste of time.
Knowing what you don't know is important. It isn't losing money when you thought you were taking risk, it's losing money when you thought you were taking no risk that really changes behavior.
We never know where we're going but we sure as hell better know where we are.  
The future does not exist. It is only a range of possibilities. Many outcomes are governed by luck and randomness. 
Our history is filled with people who got famous being right once in a row.
You don't know if it was luck or skill until you see a large string of outcomes from that one person.
3 ingredients of success: aggressiveness, timing, and skill. 
Hard work and hard study can put you in the position to be lucky.
People at our firm do not have individual balance sheets. You do not eat what you kill. Everyone is incentivized to pull together. We get paid on how their team and firm does collectively.  
One his last sayings, which emphasizes the simplicity and authenticity of his expectations, "Good is good enough."