Supported by Greenhaven Road Capital, finding value off the beaten path.
Another Howard Marks post? Yes, yes, yes. I wrote about his memo, Expert Opinion because it touched on three timely topics; media, social media, and predictions. I wrote about his book, The Most Important Thing because it was a wonderful summary of his worldview. And I wrote the first post about Howard Marks because it was my first exposure to him.
I’m writing this one because I still haven’t internalized, understood, or applied Marks’s good ideas. But I’m getting there. This one is shorter than the above links. Here are my notes from Barry Ritholtz’s conversation with Marks.
1/ “Experience is what you got when you didn’t get what you wanted.”
What I liked about this quote was the win-win ethos behind it. You can either get what you wanted or get experience, both are valuable.
2/ If you want to be in the top twentieth, try being in the top half for a long time. Extraordinary results come from not messing up. Pretty good spouses can have great marriages. Philanderers don’t. Pretty good managers can have great careers. Theifs don’t. Marks explains how investors can follow this model too.
3/ Second level thinking doesn’t mean the derivative of the derivative of the derivative and so on. It means considering something just more enough to get your results into the top half (see #2).
4/ Ritholtz asks, ‘what do you do when the phones start lighting up in the office with clients who want to know what you are doing?’ Marks says:
“One of the money managers most important jobs is client education. Hopefully, we’ve convinced our clients by now that you have to be contrarian and you have to look wrong for a while and it’s our job to hold their hands when we do extreme things.”
Relationships are like the winds that swirl around a bike rider. They can push the rider forward, blow in her face, or push across as a distraction. Unlike the rider who has no control over the wind, you and I do with the relationships we build.
5/ “You can only assess the bottom in the past tense. The bottom is the price below which a stock never went.”
We can add this to our list of Signals. If someone says this is the bottom rather than that was the bottom, call them out.
In his book, The Most Important Thing, Marks outlines the stages of a bull (and bear) markets.
- A few people believe things will get better.
- Most investors realize improvement is underway.
- Everyone is sure things will get better forever.
To understand this cycle you have to look at what people do not what people say says Marks. For example, in February 2017, with low fixed income yields, there is some distance between how people act and how people feel. This gulf is because they have to reach for returns.
6/ Book suggestions. “My philosophy was shaped mostly by reading,” says Marks, who like Munger, ‘makes friends with the eminent dead.’ John Kenneth Galbraith A Short History of Financial Euphoria, says Marks, “was very impactful on me.”
About Fooled by Randomnes Marks says, “in a world of randomness you can’t have events that are predictable and I think he (Taleb) makes very sound arguments.”
Against the Gods is “one of the best,” says Ritholtz.
Currently, Marks is reading Stress Test and it “is very interesting…it’s not exciting or fun but it’s very illuminating…if we don’t study crises we are bound to repeat them quickly – if we study them it will take longer.”
7/ Do something you enjoy.
“What I try to counsel young people is to try and find something they’ll enjoy because if you’re doing something every day for your life and you’re not enjoying it you’re wasting your life. Doing that to pile up money you’ll have left at the end seems futile…you should not let society set your goals. The challenge is to figure out what will make you happy and pursue it.”
Long-time readers know that I dislike the advice to ‘follow your passion’ but ‘do what you enjoy and interests you’ seems fairer. Every job is still a job people like Austin Kleon and Jon Acuff caution. Just because you get to do the thing you want doesn’t mean that thing will be easy, said Brent Beshore. Mohnish Pabrai said to find something you’d do instead of watching a movie.
Don’t wait to do the things you enjoy. Warren Buffett said that’s like saving sex for old age, “it just doesn’t work.”
Thanks for reading. If you liked this I just finished a longer article about Sam Hinkie. It’s available for download here: https://gumroad.com/l/philiprocess