Howard Marks' Memos - Bubbles & Bubbles on top of Bubbles

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George$
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Howard Marks' Memos - Bubbles & Bubbles on top of Bubbles

Post by George$ »

I have a binder with with copies of memos to clients from Howard Marks at Oaktree. Lots of excellent insight and easy to read. Worth re-reading. -- Thus I'm starting this new thread.

I've just been rereading Marks' January 9, 2009 memo on 'The Long View'. The 18-page pdf file is an excellent overview, with hindsight, of the possibility that there may be smaller bubbles superimposed on a much longer term underlying bubble - like shorter waves on top of longer swells on the ocean. Here is a bit of concluding text from the Jan 2009 newsletter:
At times investors will be too risk-tolerant, and at others they’ll be too risk-averse.
They’ll forget to inquire skeptically after things have gone well for a while, just as they’ll
ask too many questions and hesitate too much when recent events have decimated
securities prices (and investors’ psyches). As little as two years ago, investors rushed
headlong into things, fearing that if they didn’t, they’d miss out on big gains. Now
they’re keeping their money in their wallets, saying “I don’t care if I ever make a
penny in the market again, I just don’t want to lose any more.” This change in
attitudes – throughout the financial system – is responsible for a lot of today’s deep
freeze.

Over the last several decades, our economy and markets benefited from positive
underlying trends and investors were well rewarded for bearing risk. As a result, there
was rising bullishness, willingness and expansiveness. When these trends reached
unsustainable excesses, they were corrected with a vengeance. I’m now of the opinion
that not only will short-term economic cycles of boom and bust repeat regularly, but
also that favorable long-term trends are bound to see a recurrence of this sort of
occasional massive pullback . . . at that moment when the passage of time has erased
all memory of past corrections and taken investor behavior (and thus asset prices)
to unsustainable highs.


Buoyant, decades-long up-trends and their explosive endings are the inevitable
results of the tendency of human nature to go to extremes. Hopefully the current
bursting of the long-term bubble will end within the next few years, and hopefully the
next iteration is another 30, 50 or 70 years away. This one’s providing enough
excitement for a lifetime.
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubble

Post by George$ »

A forthcoming IPO for Oaktree
Oaktree Captial on Friday filed to become the next publicly-listed alternative asset manager. No big surprise, given that the credit-focused group was widely expected to slot in between Apollo Global Management (went public in March) and The Carlyle Group (expected to file in Q3).
but here is what caught my attention - no salary or bonuses
2. Oaktree's "named executive officers" – including chairman Howard Marks – do not receive any salary or bonuses. They are entirely tied to equity grants, equity distributions and profit-sharing (read: carry).
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubble

Post by CROCKD »

In a world of bubble: What Toronto condos, Apple, tulips and Beanie Babies have in common
What do Canada’s real estate market, Apple shares, gold prices, and the entire country of Australia have in common?

The answer starts with a “b” and rhymes with “rubble,” – which is all that investors may have left when prices suddenly come tumbling down, as pundits insist they will.

All the above are being called bubbles.
Naysayers are roundly shouted down as “not getting it,” and observers and experts are happy to explain why “this time it’s different,” when rationalizing why an asset class has taken off. There’s also a feeling that values will continue to rise. Dow 36,000, anyone?
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubble

Post by George$ »

I think it worthwhile to read Howard Marks' Oaktree newsletters - much reading going back many years here.
The current one - of June 20, 2012 is - "It's All a Big Mistakle"
Some snippets -
People should engage in active investing only if they’re convinced that (a) pricing mistakes occur in the market they’re considering and (b) they – or the managers they hire – are capable of identifying those mistakes and taking advantage of them. Unless both of those things are true, any time, effort, transaction costs and management fees expended on active management will be wasted. Active management has to be seen as the search for mistakes.
....
Theory assumes investors are clinical, unemotional and objective, and always willing to substitute a cheap asset for a dear one. In practice, there are numerous reasons why one asset can be priced wrong – in the absolute or relative to others – and stay that way for months or years. Those are mistakes, and superior investment records belong to investors who take advantage of them consistently.
... concluding with
Risk control isn’t an action so much as it is a mindset. It stems largely from putting at least as much emphasis on avoiding mistakes as on doing great things.

Risk control – and consistent success in investing – requires an understanding of the fact that high returns don’t just come along for the picking; others must create them for us by making mistakes. And looked at that way, we’ll do a better job if we force ourselves to understand the mistake we think is being made, and why.

Risk control requires that we avoid the analytical and psychological errors to which others succumb.

In particular, risk control requires that we temper our belief in our opinions with acceptance of our fallibility.

In the end, superior investing is all about mistakes . . . and about being the person who profits from them, not the one who commits them.
“The search for truth is more precious than its possession.” Albert Einstein
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubble

Post by ig17 »

New memo: Getting Lucky

"Performance is what happens when events collide with an existing portfolio." -- Howard Marks
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubble

Post by poedin »

ig17 wrote:New memo: Getting Lucky

"Performance is what happens when events collide with an existing portfolio." -- Howard Marks
... good investors diversify and is right more often, over a period of time.
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubble

Post by George$ »

ig17 wrote:New memo: Getting Lucky

"Performance is what happens when events collide with an existing portfolio." -- Howard Marks
Thank you ig17 -
:wink: - but I find it difficult to try and keep up with all the good reading.
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubble

Post by George$ »

While Howard Marks, "Getting Lucky" is great reading with much wisdom - let me pick one that made me reflect on my own "luck".

On page 5 he writes "I know how lucky I've been. I find it incredibly uplifting and the source of great optimism regarding the future to know and appreciate my good fortune. ... .... I revel in my good luck."

I'm 73 today and my wonderful mother has passed away a while back. Some decades ago she and I were discussing my birth in 1940 in Latvia when another war was starting (she also survived WWI as a child herself). My mum said to me that when I was born, in around 1940 and WWII was starting in Europe, - that IF abortion had been an option to her in 1940, I probably would not have been born.

Like Marks - "I know how lucky I've been."

and with many other "getting lucky" that followed.

:)
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubble

Post by Koogie »

George$ wrote:While Howard Marks, "Getting Lucky" is great reading with much wisdom - let me pick one that made me reflect on my own "luck".

On page 5 he writes "I know how lucky I've been. I find it incredibly uplifting and the source of great optimism regarding the future to know and appreciate my good fortune. ... .... I revel in my good luck."

I'm 73 today and my wonderful mother has passed away a while back. Some decades ago she and I were discussing my birth in 1940 in Latvia when another war was starting (she also survived WWI as a child herself). My mum said to me that when I was born, in around 1940 and WWII was starting in Europe, - that IF abortion had been an option to her in 1940, I probably would not have been born.

Like Marks - "I know how lucky I've been."

and with many other "getting lucky" that followed.

:)
Happy Birthday and many more.
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubble

Post by George$ »

Koogie wrote:
George$ wrote:While Howard Marks, "Getting Lucky" is great reading with much wisdom - let me pick one that made me reflect on my own "luck".

On page 5 he writes "I know how lucky I've been. I find it incredibly uplifting and the source of great optimism regarding the future to know and appreciate my good fortune. ... .... I revel in my good luck."

I'm 73 today and my wonderful mother has passed away a while back. Some decades ago she and I were discussing my birth in 1940 in Latvia when another war was starting (she also survived WWI as a child herself). My mum said to me that when I was born, in around 1940 and WWII was starting in Europe, - that IF abortion had been an option to her in 1940, I probably would not have been born.

Like Marks - "I know how lucky I've been."

and with many other "getting lucky" that followed.

:)
Happy Birthday and many more.
Thank you for the kind words - but my misspoke, sorry. My birthday is in August - I meant to convey that "as of now, my age is 73".
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubble

Post by Norbert Schlenker »

Howard Marks wrote:...Unconventional behavior is the only road to superior investment results, but it isn't for everyone. In addition to superior skill, successful investing requires the ability to look wrong for a while and survive some mistakes. Thus each person has to assess whether he's temperamentally equipped to do these things and whether his circumstances - in terms of employers, clients and the impact of other people's opinions - will allow it ... when the chips are down and the early going makes him look wrong, as it invariably will...
http://www.oaktreecapital.com/MemoTree/ ... t%20II.pdf
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubble

Post by George$ »

Norbert Schlenker wrote:
Howard Marks wrote:...Unconventional behavior is the only road to superior investment results, but it isn't for everyone. In addition to superior skill, successful investing requires the ability to look wrong for a while and survive some mistakes. Thus each person has to assess whether he's temperamentally equipped to do these things and whether his circumstances - in terms of employers, clients and the impact of other people's opinions - will allow it ... when the chips are down and the early going makes him look wrong, as it invariably will...
http://www.oaktreecapital.com/MemoTree/ ... t%20II.pdf
Thanks Norbert - for the April-2014 "Dare to be Great II" article by Howard Marks. (At times I don't keep up - :wink: )

Here is linking to all the memos starting in 1990.

And here is his original "Dare to Be Great" in 2006
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubble

Post by George$ »

The Dec 18, 2014 latest letter from Howard Marks - always worth reading carefully and slowly

The Lessons of Oil
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubble

Post by AltaRed »

Enjoyed that piece on oil, George.

There are 2 key aspects that make this oil price 'crisis' different from past ones. Howard mentions one directly, i.e. first time the oil prices have collapsed on their own without a material external trigger like the financial crisis. The other one Howard does not mention directly is how quickly US oil production is likely to drop (perhaps as quickly as it has risen) due to beveraged balance sheets (and the lack of high yield debt) and the severe decline rate of fracked wells. IOW, the recovery (other than OPEC blinking) could be quite different than in the past.
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubbles

Post by DenisD »

On the Couch by Howard Marks
So what about the likelihood of another 2008-style crash? The bottom line for me is that a rerun of the Global Financial Crisis isn’t in the cards:
Noticed this on Bogleheads.

All Memos: https://www.oaktreecapital.com/insights ... arks-memos
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubbles

Post by Flaccidsteele »

I’m now of the opinion that not only will short-term economic cycles of boom and bust repeat regularly, but also that favorable long-term trends are bound to see a recurrence of this sort of occasional massive pullback . . . at that moment when the passage of time has erased all memory of past corrections and taken investor behavior (and thus asset prices) to unsustainable highs.
Translation: more of the same as per history.

I just hope it occurs with more frequency because I can't afford asset prices during booms.
So what about the likelihood of another 2008-style crash? The bottom line for me is that a rerun of the Global Financial Crisis isn’t in the cards:
Howard Marks is a downer. How does he expect value investors to feed themselves? Actually dig in regular-priced haystacks for discounted needles?
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubbles

Post by ig17 »

Howard Marks:

What Does The Market Know?

https://www.oaktreecapital.com/docs/def ... t-know.pdf
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubble

Post by hamor »

Norbert Schlenker wrote:
Howard Marks wrote:...Unconventional behavior is the only road to superior investment results, but it isn't for everyone. In addition to superior skill, successful investing requires the ability to look wrong for a while and survive some mistakes. Thus each person has to assess whether he's temperamentally equipped to do these things and whether his circumstances - in terms of employers, clients and the impact of other people's opinions - will allow it ... when the chips are down and the early going makes him look wrong, as it invariably will...
http://www.oaktreecapital.com/MemoTree/ ... t%20II.pdf
Um, I didn't see this thread before, interesting.
Was it JM Keynes who said - "It's easier to fail conventionally, than to succeed unconventionally"?
Google to the rescue: "Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally"
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubbles

Post by Peculiar_Investor »

ig17 wrote:Howard Marks:

What Does The Market Know?

https://www.oaktreecapital.com/docs/def ... t-know.pdf
Thanks. A very insightful and thought provoking read.
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubbles

Post by Flaccidsteele »

Howard Marks wrote:...Unconventional behavior is the only road to superior investment results, but it isn't for everyone. In addition to superior skill, successful investing requires the ability to look wrong for a while and survive some mistakes. Thus each person has to assess whether he's temperamentally equipped to do these things and whether his circumstances - in terms of employers, clients and the impact of other people's opinions - will allow it ... when the chips are down and the early going makes him look wrong, as it invariably will...
Pretty much true. IMO.

If most people succeeded at investing it wouldn't be unconventional.

Good read. Thanks for sharing.
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubbles

Post by Spidey »

Whoops, wrong Bubbles. Couldn't resist.

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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubbles

Post by DenisD »

Latest memo from Howard Marks: There They Go Again...Again
Where are we today? As I said earlier, risk is high and prospective return is low, and the low prospective returns on safe investments are pushing people into taking risk – which they’re willing to do – at a time when the reward for doing so is low.
Mentioned on Bogleheads: https://www.bogleheads.org/forum/viewto ... 0#p3467380
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubbles

Post by fireseeker »

The latest memo is well worth the investment of reading time.
Thanks to all and sundry for introducing me to Howard Marks.
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Re: Howard Marks' Memos - Bubbles & Bubbles on top of Bubbles

Post by AltaRed »

:thumbsup: Thank you indeed!
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