Mastering The Market Cycle Quotes

“What the wise man does in the beginning, the fool does in the end.”
― Howard Marks, Mastering The Market Cycle: Getting the odds on your side

“the three stages of a bull market”: the first stage, when only a few unusually perceptive people believe things will get better, the second stage, when most investors realize that improvement is actually taking place, and the third stage, when everyone concludes things will get better forever.”
― Howard Marks, Mastering The Market Cycle: Getting the odds on your side

“Warren Buffett tells us, “The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.”
― Howard Marks, Mastering The Market Cycle: Getting the odds on your side

“The superior investor is mature, rational, analytical, objective and unemotional.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“Skepticism and pessimism aren’t synonymous. Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“As Sir John Templeton put it, “To buy when others are despondently selling and sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.”
― Howard Marks, Mastering The Market Cycle: Getting the odds on your side

“There are three ingredients for success—aggressiveness, timing and skill—and if you have enough aggressiveness at the right time, you don’t need that much skill.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“History doesn’t repeat itself, but it does rhyme.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“Like so many other things in the investment world that might be tried on the basis of certitude and precision, waiting for the bottom to start buying is a great example of folly. So if targeting the bottom is wrong, when should you buy? The answer’s simple: when price is below intrinsic value.”
― Howard Marks, Mastering The Market Cycle: Getting the odds on your side

“It follows from the above that risk is high when investors feel risk is low. And risk compensation is at a minimum just when risk is at a maximum (meaning risk compensation is most needed). So much for the rational investor!”
― Howard Marks, Mastering The Market Cycle: Getting the odds on your side

“As I’ve indicated earlier, the riskiest thing in the world is the belief that there’s no risk. By the same token, the safest (and most rewarding) time to buy usually comes when everyone is convinced there’s no hope.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“In investing, there is nothing that always works, since the environment is always changing, and investors’ efforts to respond to the environment cause it to change further”
― Howard Marks, Mastering The Market Cycle: Getting the odds on your side

“I think it’s helpful to take an organized approach to what I call the “twin risks.” What I’m talking about here is the fact that investors have to deal daily with two possible sources of error. The first is obvious: the risk of losing money. The second is a bit more subtle: the risk of missing opportunity. Investors can eliminate either one, but doing so will expose them entirely to the other. So most people balance the two. What should an investor’s normal stance be regarding the two risks: evenly balanced, or favoring one or the other? The answer depends mostly on one’s goals, circumstances, personality and ability to withstand risk (and on the same things with regard to one’s clients, if any). And separate and apart from his normal posture, should the investor alter the balance from time to time? And if so, how? I think investors should try to appropriately adjust their stance if they (a) feel they have the requisite insight and (b) are willing to expend effort and bear the risk of being wrong. They should do this based on where the market is in its cycle. In short, when the market is high in its cycle, they should emphasize limiting the potential for losing money, and when the market is low in its cycle, they should emphasize reducing the risk of missing opportunity.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“Putting it all together, fluctuations in attitudes and behavior combine to make the stock market the ultimate pendulum. In my 47 full calendar years in the investment business, starting with 1970, the annual returns on the S&P 500 have swung from plus 37% to minus 37%. Averaging out good years and bad years, the long-run return is usually stated as 10% or so. Everyone’s been happy with that typical performance and would love more of the same. But remember, a swinging pendulum may be at its midpoint “on average,” but it actually spends very little time there. The same is true of financial market performance. Here’s a fun question (and a good illustration): for how many of the 47 years from 1970 through 2016 was the annual return on the S&P 500 within 2% of “normal”—that is, between 8% and 12%? I expected the answer to be “not that often,” but I was surprised to learn that it had happened only three times! It also surprised me to learn that the return had been more than 20 percentage points away from “normal”—either up more than 30% or down more than 10%—more than one-quarter of the time: 13 out of the last 47 years. So one thing that can be said with total conviction about stock market performance is that the average certainly isn’t the norm. Market fluctuations of this magnitude aren’t nearly fully explained by the changing fortunes of companies, industries or economies. They’re largely attributable to the mood swings of investors. Lastly, the times when return is at the extremes aren’t randomly distributed over the years. Rather they’re clustered, due to the fact that investors’ psychological swings tend to persist for a while—to paraphrase Herb Stein, they tend to continue until they stop. Most of those 13 extreme up or down years were within a year or two of another year of similarly extreme performance in the same direction.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“Seen through the lens of human perception, cycles are often viewed as less symmetrical than they are. Negative price fluctuations are called “volatility,” while positive price fluctuations are called “profit.” Collapsing markets are called “selling panics,” while surges receive more benign descriptions (but I think they may best be seen as “buying panics”; see tech stocks in 1999, for example). Commentators talk about “investor capitulation” at the bottom of market cycles, while I also see capitulation at the top, when previously prudent investors throw in the towel and buy.”
― Howard Marks, Mastering The Market Cycle: Getting the odds on your side

“The superior investor resists psychological excesses and thus refuses to participate in these swings. The vast majority of the highly superior investors I know are unemotional by nature. In fact, I believe their unemotional nature is one of the great contributors to their success.”
― Howard Marks, Mastering The Market Cycle: Getting the odds on your side

“How? Try to travel into the future and look back. In 2023, do you think you’re more likely to say, “Back in 2018, I wish I’d been more aggressive” or “Back in 2018, I wish I’d been more defensive”? And is there anything today about which you’d be likely to say, “In 2018, I missed the chance of a lifetime to buy xyz”? What you think you might say a few years down the road can help you figure out what you should do today.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“There’s only one form of intelligent investing, and that’s figuring out what something’s worth and buying it for that price or less. You can’t have intelligent investing in the absence of quantification of value and insistence on an attractive purchase price. Any investment movement that’s built around a concept other than the relationship between price and value is irrational.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“the first stage, when just a few thoughtful investors recognize that, despite the prevailing bullishness, things won’t always be rosy, the second stage, when most investors recognize that things are deteriorating, and the third stage, when everyone’s convinced things can only get worse.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“If the market were a disciplined calculator of value based exclusively on company fundamentals, the price of a security wouldn’t fluctuate much more than the issuer’s current earnings and the outlook for earnings in the future. In fact, the price generally should fluctuate less than earnings, since quarter-to-quarter changes in earnings often even out in the long run and, besides, don’t necessarily reflect actual changes in the company’s long-term potential.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“A few years ago my friend Jon Brooks supplied this great illustration of skewed interpretation at work. Here’s how investors react to events when they’re feeling good about life (which usually means the market has been rising): Strong data: economy strengthening—stocks rally Weak data: Fed likely to ease—stocks rally Data as expected: low volatility—stocks rally Banks make $4 billion: business conditions favorable—stocks rally Banks lose $4 billion: bad news out of the way—stocks rally Oil spikes: growing global economy contributing to demand—stocks rally Oil drops: more purchasing power for the consumer—stocks rally Dollar plunges: great for exporters—stocks rally Dollar strengthens: great for companies that buy from abroad—stocks rally Inflation spikes: will cause assets to appreciate—stocks rally Inflation drops: improves quality of earnings—stocks rally Of course, the same behavior also applies in the opposite direction. When psychology is negative and markets have been falling for a while, everything is capable of being interpreted negatively. Strong economic data is seen as likely to make the Fed withdraw stimulus by raising interest rates, and weak data is taken to mean companies will have trouble meeting earnings forecasts. In other words, it’s not the data or events; it’s the interpretation. And that fluctuates with swings in psychology.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“So these are the possibilities I see with regard to economic forecasts: Most economic forecasts are just extrapolations. Extrapolations are usually correct but not valuable. Unconventional forecasts of significant deviation from trend would be very valuable if they were correct, but usually they aren’t. Thus most forecasts of deviation from trend are incorrect and also not valuable. A few forecasts of significant deviation turn out to be correct and valuable—leading their authors to be lionized for their acumen—but it’s hard to know in advance which will be the few right ones. Since the overall batting average with regard to them is low, unconventional forecasts can’t be valuable on balance. There are forecasters who became famous for a single dramatic correct call, but the majority of their forecasts weren’t worth following.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“But most investors do capitulate eventually. They simply run out of the resolve needed to hold out. Once the asset has doubled or tripled in price on the way up — or halved on the way down — many people feel so stupid and wrong, and are so envious of those who’ve profited from the fad or side-stepped the decline, that they lose the will to resist further. My favorite quote on this subject is from Charles Kindleberger: “There is nothing as disturbing to one’s well-being and judgment as to see a friend get rich” (Manias, Panics, and Crashes: A History of Financial Crises, 1989). Market participants are pained by the money that others have made and they’ve missed out on, and they’re afraid the trend (and the pain) will continue further. They conclude that joining the herd will stop the pain, so they surrender. Eventually they buy the asset well into its rise or sell after it has fallen a great deal. In other words, after failing to do the right thing in stage one, they compound the error by taking that action in stage three, when it has become the wrong thing to do. That’s capitulation. It’s a highly destructive aspect of investor behavior during cycles, and a great example of psychology-induced error at its worst.”
― Howard Marks, Mastering The Market Cycle: Getting the odds on your side

“When the same or closely similar circumstances occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generation as a brilliantly innovative discovery in the financial and larger economic world. There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present. (A Short History of Financial Euphoria, 1990)”
― Howard Marks, Mastering The Market Cycle: Getting the odds on your side

“Investing, as I’ve said, consists of positioning capital so as to benefit from future events. I also said we never know what the future holds, and thus where we’re going. But we should do all we can to know where we stand, since the current position of the cycle has powerful implications for how we should cope with its possible future.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“In the absence of the ability to see the future, how can we position our portfolios for what lies ahead? I think much of the answer lies in understanding where the market stands in its cycle and what that implies for its future movements.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“The oscillations around the trend will cancel out in the long run (admittedly after causing much elation or distress in individual years), but changes in the underlying trend will make the biggest difference in our long-term experience.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“A knowledge advantage regarding the tendencies is enough to create success in the long run.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“trying to know more than others about what I call “the knowable”: the fundamentals of industries, companies and securities, being disciplined as to the appropriate price to pay for a participation in those fundamentals, and understanding the investment environment we’re in and deciding how to strategically position our portfolios for it.”
― Howard Marks, Mastering The Market Cycle: Getting the Odds on Your Side

“The odds change as our position in the cycles changes. If we don’t change our investment stance as these things change, we’re being passive regarding cycles; in other words, we’re ignoring the chance to tilt the odds in our favor. But if we apply some insight regarding cycles, we can increase our bets and place them on more aggressive investments when the odds are in our favor, and we can take money off the table and increase our defensiveness when the odds are against us.”
― Howard Marks, Mastering The Market Cycle: Getting the odds on your side