An Oct. 25, 2018 Barron’s interview with legendary and perspicacious value investor Howard Marks, can offer illuminating perspectives on the current coronavirus-induced market panic. The insights Marks shared with Barron’s in that interview about the ebb and flow, or recurring vacillations, in the market cycle are as instructive for intelligent investors today as they were in 2018.
During the interview, Marks discussed some of his investing philosophy gleaned from his then-recently published book, “Mastering the Market Cycle: Getting the Odds on Your Side.” Marks noted that an essential aspect of value or intelligent investing is to know where you stand on the axis of risk-aversion. Marks noted that at one end of the line is the investor who seeks to be right all the time, regardless of the market cycle, and who dreads the possibility of being wrong. At the opposite end of the axis lies the investor who fears the prospect of loss and, as such, over the long term can never win.
Marks told Barron’s that
“in the real world, things generally fluctuate between ‘pretty good’ and ‘not so hot.’ But in the world of investing, perception often swings from ‘flawless’ to ‘hopeless.’”
He also said, “Nobody can say why this happens or why the tipping point was reached. But the psychology of the market is so irrational and excessive in its swings.”
The concept of market cycle irascibility is a common theme that not only pervades much of Marks’ writings, but also informs his assessment of risk. For Marks, investor intemperance, is the result of the inherent unpredictability of the market cycle’s excesses on both the down and the upside. The current health and economic crisis makes Mark’s comments to Barron’s in 2018 rather prescient. When asked by Barron’s what the best environments for good investing opportunities were, his response was quite telling:
“When things are undiscovered or intimidating, that’s when you find bargains. But when they are popular, nobody can see a flaw in them, they have been performing well, and the capital is flooding in, that’s not the environment in which you find bargains. In the book, I cite Mark Twain, who is reputed to have said that history doesn’t repeat itself, but that it does rhyme. But what is it that rhymes?”
Marks made the compelling argument that because of market cycles, the unwavering predictability of human nature, ego and greed, an essential, indeed, indispensable aspect of successful value investing, entails adopting a contrarian investment posture. This approach is most auspicious during moments of market tergiversations, prompted by hysteria, ignorance