To The Moon

Howard Marks, co-founder of the US-based hedge fund Oaktree Capital and one of the most celebrated investors of recent times, believes that in the world of investing what really matters is the performance of one’s holdings over a five-year or 10-year period.

Marks is renowned for finding deep value and price distortions in the financial markets. During the depth of the global financial crisis, when investors were fleeing corporate bonds and stocks, Marks was buying aggressively and later making a substantial profit on those investments.

Recommend to Read: Return Surpass Buffett in 2022, Howard Marks Q3 Holdings Digest

Before sharing What really matters or should matter for investors, Howard shared a number of things that he think doesn’t matter.

• What Doesn’t Matter: Short-Term Events
• What Doesn’t Matter: The Trading Mentality
• What Doesn’t Matter: Short-Term Performance
• What Doesn’t Matter: Volatility
• What Doesn’t Matter: Hyper-Activity

www.businesstoday.in

Below are Howard's Memos for what really matters, hope it give some insprations for you.

What really matters is the performance of your holdings over the next five or ten years (or more) and how the value at the end of the period compares to the amount you invested and to your needs.

Some people say the long run is a series of short runs, and if you get those right, you’ll enjoy success in the long run. They might think the route to success consists of trading often in order to capitalize on relative value assessments, predictions regarding swings in popularity, and forecasts of macro events.

I obviously do not.Most individual investors and anyone who understands the limitations regarding outperformance would probably be best off holding index funds over the long run.

Investment professionals and others who feel they need or want to engage in active management might benefit from the following suggestions.I think most people would be more successful if they focused less on the short run or macro trends and instead worked hard to gain superior insight concerning the outlook for fundamentals over multi-year periods in the future. They should:

• study companies and securities, assessing things such as their earnings potential;

• buy the ones that can be purchased at attractive prices relative to their potential;

• hold onto them as long as the company’s earnings outlook and the attractiveness of the price remain intact; and

• make changes only when those things can’t be reconfirmed, or when something better comes along.

At the London conference mentioned on page one – whileI was discussing (and discouraging) paying attention to the short run – I said that at Oaktree we consider it our job to (a) buy debt that will be serviced as promised (or will return the same amount or more if not) and (b) invest in companies that will become more valuable over time. I’ll stick with that.

The above description of the investor’s job is quite simple . . . some might say simplistic. And it is. Setting out the goals and the process in broad terms is easy. The hard part is executing better than most people: That’s the only route to market-beating performance.

Since average decision-making is reflected in security prices and produces average performance, superior results have to be based on superior insight. But I can’t tell you how to do these things better than the average investor.There’s a lot more to the process, and I’m going to outline some of what I think are key elements to remember.

You’ll recognize recurring themes here, from other memos and from earlier pages in this one, but I make no apology for dwelling on things that are important:

• Forget the short run – only the long run matters. Think of securities as interests in companies, not trading cards.

• Decide whether you believe in market efficiency. If so, is your market sufficiently inefficient to permit outperformance, and are you up to the task of exploiting it?

• Decide whether your approach will lean more toward aggressiveness or defensiveness. Will you try to find more and bigger winners or focus on avoiding losers, or both? Will you try to make more on the way up or lose less on the down, or both? (Hint: “both” is much harder to achieve than one or the other.) In general, people’s investment styles should fit their personalities.

• Think about what your normal risk posture should be – your normal balance between aggressiveness and defensiveness – based on your or your clients’ financial position, needs, aspirations, and ability to live with fluctuations. Consider whether you’ll vary your balance depending on what happens in the market.

• Adopt a healthy attitude toward return and risk. Understand that “the more return potential, the better” can be a dangerous rule to follow given that increased return potential is usually accompanied by increased risk. On the other hand, completely avoiding risk usually leads to avoiding return as well.

• Insist on an adequate margin of safety, or the ability to weather periods when things go less well than you expected.

• Stop trying to predict the macro; study the micro like mad in order to know your subject better than others. Understand that you can expect to succeed only if you have a knowledge advantage, and be realistic about whether you have it or not. Recognize that trying harder isn’t enough. Accept my son Andrew’s view that merely possessing “readily available quantitative information regarding the present” won’t give you above average results, since everyone else has it.

• Recognize that psychology swings much more than fundamentals, and usually in the wrong direction or at the wrong time. Understand the importance of resisting those swings. Profit if you can by being counter-cyclical and contrarian.

• Study conditions in the investment environment – especially investor behavior – and consider where things stand in terms of the cycle. Understand that where the market stands in its cycle will strongly influence whether the odds are in your favor or against you.

• Buy debt when you like the yield, not for trading purposes. In other words, buy 9% bonds if you think the yield compensates you for the risk, and you’ll be happy with 9%. Don’t buy 9% bonds expecting to make 11% thanks to price appreciation resulting from declining interest rates.

Of critical importance, equity investors should make their primary goals (a) participating in the secular growth of economies and companies and (b) benefiting from the wonder of compounding.

Think about the 10.5% yearly return of the S&P 500 Index (or its predecessors) since 1926 and the fact that this would have turned $1 into over $13,000 by now, even though the period witnessed 16 recessions, one Great Depression, several wars, one World War, a global pandemic, and many instances of geopolitical turmoil.

Think of participating in the long-term performance of the average as the main event and the active efforts to improve on it as “embroidery around the edges.” This might be the reverse of most active investors’ attitudes. Improving results through over- and underweighting, short-term trading, market timing, and other active measures isn’t easy.

Believing you can do these things successfully requires the assumption that you’re smarter than a bunch of very smart people. Think twice before proceeding, as the requirements for success are high (see below).

Don’t mess it up by over-trading. Think of buying and selling as an expense item, not a profit center. I love the idea of the automated factory of the future, with its one man and one dog; The dog’s job is to keep the man from touching the machinery, and the man’s job is to feed the dog.

Investors should find a way to keep their hands off their portfolios most of the time.

You are welcomed to read the full memos from oartreecapital official website: https://www.oaktreecapital.com/