Howard Marks on “Balancing Offense & Defense, Avoiding Losers”

Howard Marks on “Balancing Offense & Defense, Avoiding Losers”

Howard Marks, chairman of Oaktree Capital Group LLC (NYSE:OAK), shared his investment advice during the Value Conferences Equity Income Summit 2013 (full video is below). He discussed some of the important strategies in investing, particularly as a fixed income investor.

Howard Marks on "Balancing Offense & Defense, Avoiding Losers"

According to Howard Marks, one of the most important things investors should remember over the medium-term (3-5 years) is to balance their offense and defense in their portfolio. He emphasized that as an investor, he acquires a lot of offense when the prices of assets are low, and the outlook and psychology of the market is depressed for most people. When people think that the future of the market is brilliant, and the psychology is buoyant, he thinks otherwise, he becomes defensive.

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Howard Marks believes in a fulcrum market, investors should seek balance

Marks said that the present condition of the market is in the middle, and he thinks current prices are not so high and not so low. He said investors need to balance, and he believes that investors can always find some bargains even during a difficult market.

During the discussion, Marks also explained about stretching for yield. According to Marks, investors are willing to invest in lower quality and riskier assets beyond what they normally do to achieve the kind of yields or returns they normally get. He stressed that investing in fixed-income assets is a “little clear cut” because it is so mathematical, but he advises investors to be aware of the incremental risks they are taking because riskier assets are dangerous.

He also explained that the Federal Reserve decided to cut rates amid the subprime and global financial crisis to stimulate the economy. Lower rates encourage people to spend, allow investors to carry and make cheaper investments, and restore the capital base and viability of financial institutions. According to him, low rates forced people to engage in pro-risk behavior.

Marks says it is hard to determine where we are with the current economic condition. He projected that we are in the sixth inning, and not in an oversold territory. He  advised investors to be cautious. He said, “We may not be exactly at fair prices or maybe in the little optimistic side because of the low rates.”

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Marks advises:  “Avoid losers.”

In addition, he said, “Today everybody is willing to do everything; there are no asset classes that most people refused to go regardless of return.” Because of the current behavior of the investment community, it is harder to find bargains.

Furthermore, he emphasized that when bond yields are low, stocks are more attractive. Another important thing an investor should remember is to avoid the losers.

Full Howard Marks video below

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