Thread by @MnkeDaniel

Howard Marks Memos from 1990-1995

The Key Learnings Summarized in 1 to 2 Tweets each.

Here we Go 👇🏼

1990 - Route to Performance

The absence of disaster is the best foundation for above-average long term performance.

Hence, aiming for “a little better” than average is more likely to succeed than aiming for top-decile returns.

$10,000 invested for 20 years at a 10% interest rate would turn into $67,000

A 12% interest rate would turn the money into $97,000.

And the longer the time horizon, the larger the gap.

All you need, is a little better.

1991 - Memo to Clients

Markets behave like a pendulum.

The pendulum swings between euphoria and depression, overpriced and underpriced.

But whenever the pendulum is at an extreme, it inevitably swings back. Sooner or later.

Successful investors should be aware of where the pendulum is.

Not to time the market, but to adjust their investing approach.

Too much euphoria - more conservative positions
Too much depression - more risk-taking

Be aware of the market's mood and adjust appropriately.

1992 - Microeconomics 101

Two factors determine the outcome of your investment.

Intrinsic Value and Price.

Two obvious facts that still matter:

It’s better to invest in a good company than a bad one.
It’s better to pay less than more.

When demand is low, prices will be too.

That’s your chance to pay less for a good business.

Moments of low demand:

- Bad Press
- Short term problems
- Out of Favor
- Bad Mood of the Market (Mr. Market)

1993 - The Value of Predictions

The problem with forecasts is that even being right doesn’t guarantee superior performance.

You need to be right and differ from the consensus.

And that’s hard to do since most forecasts aren’t terrible, and the actual results fall near the consensus most of the time.

Betting against the consensus and being wrong is also an expensive mistake.

Result: Don’t forecast too much. Ignore macro until you’re very certain.

1994 - Identification of Investment Opportunities

Demand drives stock prices.

And demand is determined by how many people like a stock.

That would mean that the most disliked stocks are the best investing opportunities.

“The safest and most potentially profitable thing is to buy something when no one likes it.”

Low risk of losing money because already at the bottom and lots of upside potential when the mood shifts.

1994 - How does an Inefficient Market get that Way?

In an efficient market, assets are priced fairly, and no bargains exist.
The only way to increase the expected return is to take on more risk.

In an inefficient market, some assets become overpriced, others underpriced.

Returns can be increased by skill, not only by taking on more risk.

But how does a market get inefficient?
There are many possible reasons.

1. Information is unevenly distributed
2. Underdeveloped Market-Infrastructure
3. Investors fail to act rationally

In today’s markets, failing to act rationally is the main reason for our inefficient markets.

An efficient market is unbiased. A market with human interaction never will be.

1995 - How the Game should be Played

Oaktree’s (Howard Marks) way is never to tolerate poor performance as a side effect of “swinging for the fences.”

The goal is to be slightly above average and not losing money.

An investor should never interrupt the process of compounding.

That’s why Warren Buffett says:

There are two rules to investing:

1. Never lose Money!
2. Never forget Rule Number 1!

Thanks for reading. I hope you learned something new today.

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