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Howard Marks: Pattern Recognition In Markets, Portfolio Positioning And Market Cycles

A interview and Q&A with billionaire debt investor and founder of Oaktree Capital Management, Howard Marks. In this interview, Howard discusses the pattern recognition in markets and how to adjust a portfolio to different points in a market cycle. Howard also talks about the worst words in investing and the impact of history on making investment decisions.

Pattern Recognition

Howard Marks: Pattern Recognition In Markets, Portfolio Positioning And Market Cycles

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Transcript

Well I think it's extremely important to. The word synthesize and you have to have something to synthesize. Which means that you have to have a large number of diverse inputs. And it's you know it's it's not enough to have some exposure to some things you should always worry about the things you haven't had exposure to. So I think that reading broadly is extremely important. And then of course I think it's it's essential to exchange ideas with others. I happen not to like solitary activities as much. And you know if you if you have some colleagues or peers that you respect then you exchange ideas you probably it's possible for both of you to learn it can be a win win. And of course we all have ideas on what we think are going to happen and what we think we should do about it. It's great to have those ideas challenged and see if they can stand up in the face of challenge. So exchanging ideas I think is is extremely important. And then you know thinking broadly. And. We we have to you know really challenge every day. Now you know. I write these memos I started 29 years ago. And. When I write the memos and when I write the books you know invariably.

I think of something in the process that I hadn't thought of before. It's not good news. Yes it's it's not like. It's not like create writing a book consists of. Trying to get your thoughts on paper. When you write the book you get new thoughts in this book for example I had an outline when I started to write of course and I thought I'd write about the economic cycle and the profit cycle and. The cycle and psychology. And then I realized that there was a chapter missing that deserved its own chapter and that was the cycle in attitudes towards risk. When people are. Cavalier toward risk and happy with risk and embrace risk then by definition prices go high because there is no concern or caution. And then when the when the cycle turns down and they become allergic to risk they generally sell without regard to price at prices that are far too low. So the this and the cycle and risk is enormously influential and determinative. I hadn't thought I'd have it in there. I'd put it in. So I think that you know we're writing it is important to to get more ideas. And then lastly I would recommend strongly that you live a long time. And you and you expand and use periods a lot of markets and a lot of cycles. And. Because if you don't experience it. Then you have to own it. You can only learn about it by reading or speaking with others. There's nothing like experiencing it first time and you know one of the things I believe strongly is that experience is what you got when you didn't get what you wanted. We learned a lot from tough times and from failure. And we learned relatively little from success. You put money in the market. It goes up. What have you learned. You've learned. Number one it's easy. Number two risk bearing pains. Number three there's nothing to worry about. And those are horrible lessons. And. And you know you learn much more. From from difficult times than from success.

And I guess you sort of have to know what's notable in that. And success in the market as I read your book. Requires.