Mastering The Market Cycle: Getting the Odds on Your Side

by Howard Marks

Another way I put it is that “success isn’t good for most people.” In short, success can change people, and usually not for the better. Success makes people think they’re smart. That’s fine as far as it goes, but there can also be negative ramifications. Success also tends to make people richer, and that can lead to a reduction in their level of motivation. In investing there’s a complex relationship between humility and confidence. Since the greatest bargains are usually found among things that are undiscovered or disrespected, to be successful an investor has to have enough confidence in his judgment to adopt what David Swensen, the hugely successful head of Yale’s high-performing endowment, describes as “uncomfortably idiosyncratic portfolios, which frequently appear downright imprudent in the eyes of conventional wisdom” (Pioneering Portfolio Management, 2000). 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.