The billionaire investors and author Howard S Marks is the co-founder and co-chairman of Oaktree Capital Management, which is the largest investor in distressed securities worldwide.
He is commended for his insightful ‘memos’ which list out his investment strategies and give insight into the economy. His memos are appreciated by none other than the ace investor Warren Buffett who once commented that: “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something, and that goes double for his book.” These memos are posted publicly on the Oaktree website.
He has also authored three books on investing including The Most Important Thing: Uncommon Sense for the Thoughtful Investor.
Marks believes on risk management and asserts that investors should make investment strategy based on their personal circumstances, and decide between the risk of losing money or the risk of missing an opportunity.
Here we reproduce some of his key lessons:
1. Risk management: Investing does not mean risk free earning. Without risk, investors can only make mediocre earnings. So, the better way to prevent losses is to manage risk effectively through diversification and rebalancing of portfolio, and other similar tools.
2. A bull market is a bad teacher: Whenever investors face a bull market, they feel the upswing will last for a foreseeable future, whereas it is far from reality. One should ideally reflect upon one’s investment strategies during market decline and losses.
3. It’s impossible to know when the tide will turn: So, it is imperative to switch between bull and bear phases of financial markets. Many investors tend to get spooked as they have to take a decision upon the turn of the market.
He believes that the first-level thinkers search for easy answers whereas second-level thinkers already know that success lies in investing is the antithesis of simple.
4. Rewire your brain to like low prices: When a product’s price falls, its consumers like it. Investors should ideally have the same mindset in case of investments too. When a stock’s price falls, the likely buyers should start to like it and grab the opportunity and earn gains.
For instance, there is an investor who wants to buy an IT stock because it is expected to deliver exceptional returns in the long term. And the stock price happens to fall for a few successive days thereby losing 5-8 percent of its value. Instead of feeling anxious, the investor should be elated for having managed to buy the stock at a lower price. After all, s/he wanted to buy it for a long time.
5. The swing between greed and fear is ingrained in the market: It is human nature to be greedy when the stock is rising and become over cautious during the market fall. So, these swings are usually extreme and investors should be extra careful and avoid falling in these traps.
