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by
Howard Marks
“Experience is what you got when you didn’t get what you wanted.” Good times teach only bad lessons: that investing is easy, that you know its secrets, and that you needn’t worry about risk. The most valuable lessons are learned in tough times.
Everything should be made as simple as possible, but not simpler.
There’s more. If you’ve settled on the value approach to investing and come up with an intrinsic value for a security or asset, the next important thing is to hold it firmly. That’s because in the world of investing, being correct about something isn’t at all synonymous with being proved correct right away. It’s hard to consistently do the right thing as an investor. But it’s impossible to consistently do the right thing at the right time.
Investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity. At that point, all favorable facts and opinions are already factored into its price, and no new buyers are left to emerge. The safest and most potentially profitable thing is to buy something when no one likes it. Given time, its popularity, and thus its price, can only go one way: up.
“What the wise man does in the beginning, the fool does in the end.”
“Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true.”
Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive.
When buying something has become comfortable again, its price will no longer be so low that it’s a great bargain.
hugely profitable investment that doesn’t begin with discomfort is usually an oxymoron.
The absolute best buying opportunities come when asset holders are forced to sell, and in those crises they were present in large numbers. From time to time, holders become forced sellers for reasons like these: • The funds they manage experience withdrawals. • Their portfolio holdings violate investment guidelines such as minimum credit ratings or position maximums. • They receive margin calls because the value of their assets fails to satisfy requirements agreed to in contracts with their lenders.
The key during a crisis is to be (a) insulated from the forces that require selling and (b) positioned to be a buyer instead.
To satisfy those criteria, an investor needs the following things: staunch reliance on value, little or no use of leverage, long-term capital and a strong stomach. Patient opportunism, buttressed by a contrarian attitude and a strong balance sheet, can yield amazing profits during meltdowns.
