Mastering The Market Cycle: Getting the Odds on Your Side

by Howard Marks

By definition, pronounced bargain prices are most likely to be found among things that conventional wisdom dismisses, that make most investors uncomfortable, and whose merits are hard to comprehend. Investing in them requires considerable inner strength.

most securities and approaches are right for certain environments and parts of the cycle, and wrong for others.

the influences responsible for the swing toward the midpoint invariably continue in force and thus cause the swing back from an extreme to proceed through the midpoint and then carry further, toward the opposite extreme.

in the real world, things generally fluctuate between “pretty good” and “not so hot.” But in the world of investing, perception often swings from “flawless” to “hopeless.” The pendulum careens from one extreme to the other, spending almost no time at “the happy medium” and rather little in the range of reasonableness.

Superior investing doesn’t come from buying high-quality assets, but from buying when the deal is good, the price is low, the potential return is substantial, and the risk is limited.