Earlier this year, Howard Marks and Joel Greenblatt came face to face at the inaugural Forbes and Shook Research Top Financial Advisor Summit in Las Vegas where it became apparent that their worldview is nearly identical. When speaking about the current market conditions the pair said, “Most people, including most people in the investment business, don’t have the ability to take advantage of market opportunities. We get excited when prices are high and we get depressed when prices are low,’ said Marks, before Greenblatt interjected, “I think you and I would agree that people are nuts.” Time favors the rational.
Here's an excerpt from that interview:
The ExodusPoint Partners International Fund returned 0.36% for May, bringing its year-to-date return to 3.31% in a year that's been particularly challenging for most hedge funds, pushing many into the red. Macroeconomic factors continued to weigh on the market, resulting in significant intra-month volatility for May, although risk assets generally ended the month flat. Macro Read More
“The greatest challenge that everyone in this room faces is we are in a low return world,” Marks said. “All assets have appreciated thanks to the Federal Reserve's cheap money regime. All assets should be expected to offer lower returns going forward,” Marks added. Greenblatt, who does a bottoms-up analysis of the S&P 500 Index and Russell 2000 Index, said equity markets are in 80th percentile and 90th percentile of expensiveness. Stock market returns in the next year are likely to be well below historical averages.
But both investors aren't fretting a market that doesn't offer too many fat pitches because over the long-term manias of over-exuberance or unnecessary depression always play into the hands of rational and calculating investors. When the fat pitches return is impossible to predict, but the Oaktree's and Gotham's stand ready to take their cuts. “People ask me all the time are we in a high yield bond bubble. I say no we are in a bond bubble,” Marks said.
"I spend most of my time trying to figure out what the temperature of the market today says about investor discipline. Without guessing about the future, I think you can adjust the offensiveness or defensiveness of a portfolio based on what you see in the marketplace. Warren Buffett says the less prudent others are, the more prudent you should be. I agree," he said.
"Most people, including most people in the investment business, don't have the ability to take advantage of market opportunities. We get excited when prices are high and we get depressed when prices are low,' said Marks, before Greenblatt interjected, "I think you and I would agree that people are nuts."
Time favors the rational.
You can read the original article at Forbes here.
This article was originally posted by Johnny Hopkins at The Acquirer's Multiple.