Howard Marks Quotes
Before trying to compete in the zero-sum world of investing, you must ask yourself whether you have good reason to expect to be in the top half.
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[T]o achieve superior investment results, you have to hold nonconsensus views regarding value, and they have to be accurate.
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The key turning point in my investment management career came when I concluded that because the notion of market efficiency has relevance, I should limit my efforts to relatively inefficient markets where hard work and skill would pay off best.
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An accurate estimate of intrinsic value is the essential foundation for steady, unemotional and potentially profitable investing.
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[N]o asset is so good that it can't become a bad investment if bought at too high a price. And there are few assets so bad that they can't be a good investment when bought cheap enough.
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"Prices are too high" is far from synonymous with "the next move will be downward."
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But every investor who's unwilling to throw in the towel on outperformance, and who chooses to deviate from the index in its pursuit, will have periods of significant underperformance. In fact, since many of the best investors stick most strongly to their approach—and since no approach will work all the time—the best investors can have some of the greatest periods of underperformance.
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When you boil it all down, it's the investor's job to intelligently bear risk for profit. Doing it well is what separates the best from the rest.
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[G]reat investors are those who take risks that are less than commensurate with the returns they earn.
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"[T]his time it's different." These four words should strike fear—and perhaps suggest an opportunity for profit—for anyone who understands the past and knows it repeats. Thus, it's essential that you be able to recognize this form of error when it arises.
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When things are going well, extrapolation introduces great risk. Whether it's company profitability, capital availability, price gains, or market liquidity, things that inevitably are bound to regress toward the mean are often counted on to improve forever.
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When things are going well and prices are high, investors rush to buy, forgetting all prudence. Then, when there's chaos all around and assets are on the bargain counter, they lose all willingness to bear risk and rush to sell. And it will ever be so.
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I've recently boiled down the main risks in investing to two: the risk of losing money and the risk of missing opportunity. It's possible to largely eliminate either one, but not both. In an ideal world, investors would balance these two concerns.
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Assets become overpriced because of investor behavior that overrates their merit and carries them aloft. This process shouldn't be expected to come to a halt when the price has risen to the “right†level or when you've sold it because you feel it's priced too high. Usually, the freight train rumbles on quite a bit further, and price judgments are much more likely to look wrong at first than right. Although understandable, this can be very hard to live with.
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Mastery over the human side of investing isn't sufficient for success, but combining it with analytical proficiency can lead to great results.
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[S]kepticism and pessimism aren't synonymous. Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive.
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The process of intelligently building a portfolio consists of buying the best investments, making room for them by selling lesser ones, and staying clear of the worst. The raw materials for the process consist of (a) a list of potential investments, (b) estimates of their intrinsic value, (c) a sense for how their prices compare with their intrinsic value, and (d) an understanding of the risks involved in each, and of the effect their inclusion would have on the portfolio being assembled.
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A high-quality asset can constitute a good or bad buy, and a low-quality asset can constitute a good or bad buy. The tendency to mistake objective merit for investment opportunity, and the failure to distinguish between good assets and good buys, get most investors into trouble.
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[T]here aren't always great things to do, and sometimes we maximize our contribution by being discerning and relatively inactive. Patient opportunism—waiting for bargains—is often your best strategy.
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You simply cannot create investment opportunities when they're not there. The dumbest thing you can do is to insist on perpetuating high returns—and give back your profits in the process.
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Predictions are most useful when they correctly anticipate change. If you predict that something won't change and it doesn't change, that prediction is unlikely to earn you much money. But accurately predicting change can be very profitable.
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Randomness (or luck) plays a huge part in life's results, and outcomes that hinge on random events should be viewed as different from those that do not.
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[M]any important financial phenomena follow long cycles, meaning those who experience an extreme event often retire or die off before the next recurrence.
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The superior investor never forgets that the goal is to find good buys, not good assets.
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Risk is primarily the likelihood of permanent capital loss. But there's also such a thing as opportunity risk: the likelihood of missing out on potential gains.
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.
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.
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.
We have to safeguard our portfolios (and our investment management businesses) against the danger stemming from the fact that the thing that's most likely to happen—which our understanding of cycles can tell us—may not happen until long after it first becomes likely. And we have to steel ourselves emotionally so as to be able to live through the potentially long time lag between reaching a well-reasoned conclusion and having it turn out to be correct.
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.
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