Podcast Summary
Lessons from Howard Marks: Humility, Adaptability, and Caution: Embrace humility, adaptability, and caution in investing, learn from past mistakes, and remain open to new opportunities. Old-fashioned values like integrity and fairness are essential in an uncertain world.
Learning from this conversation with Howard Marks is the importance of humility, adaptability, and a cautious approach to investing, influenced by his upbringing during the Great Depression and his parents' experiences. Marks, a successful investor with over 50 years of experience, emphasizes the need to challenge one's own beliefs, learn from past mistakes, and remain open to new opportunities in an uncertain world. He also highlights the benefits of old-fashioned values like integrity and fairness. Despite his initial dismissal of Bitcoin, Marks admits being wrong and shares his views on the current market environment, investing during high inflation, and his bullishness on China. This conversation offers valuable insights into Marks' investment philosophy and how to navigate an ever-changing world.
Lesson from the Nifty 50 bubble: Experience from the Nifty 50 bubble taught William the importance of avoiding overvalued stocks and focusing on less crowded areas of the market for better returns.
William's early experience in the stock market during the "go go" years of the late 1960s and early 1970s taught him a valuable lesson about the dangers of irrational exuberance and overvalued stocks. He joined the investment research department at Citibank during the height of the Nifty 50 bubble, a period when investors believed that the best and fastest growing companies were invulnerable to market downturns and that there was no such thing as a price too high. However, when the bubble burst, many of these companies suffered significant losses, and William himself lost his job as director of research. This experience shaped his perspective on investing, leading him to believe that there are more and less efficient markets and that focusing on the most efficient markets, such as US big stocks, is largely a waste of time. Instead, he found greater success in a less crowded area of the market, convertible bonds, where his in-depth knowledge could lead to superior performance.
The Role of Luck in Successful Investing: Luck plays a role, but successful investing comes from recognizing opportunities and buying well, not just buying good things. Stay adaptable and open-minded.
Luck plays a significant role in successful investing, but it's not the only factor. Andrew Duncan's story highlights the importance of being in the right place at the right time, as well as the ability to recognize and capitalize on new opportunities. The birth of the high yield bond industry in the late 1970s was a turning point for Duncan, leading him to the conclusion that "it's not what you buy, it's what you pay" and that "good investing comes from buying things well, not from buying good things." However, Duncan's investing beliefs have evolved in recent years, particularly during the COVID-19 pandemic, through conversations with his son. He now recognizes the importance of being skeptical of euphoria and seeking bargains, but also acknowledges that the bifurcation between growth and value investing is a relatively new development in finance. Overall, Duncan's experiences demonstrate the importance of staying adaptable and open-minded in the ever-changing world of investing.
Value vs Growth: A New Perspective: Value investing and growth investing don't have to be mutually exclusive. Considering both a company's present value and future growth potential can lead to valuable investment opportunities.
The traditional distinction between value and growth investing has become overly rigid in the investing industry. This was highlighted during the pandemic when Howard Marks, a renowned value investor, had deep conversations with his growth-focused son, leading to new insights. While value investing typically focuses on the present attributes of companies with a modest expectation for the future, growth investing is about companies with high future growth potential. However, Marks' son challenged this narrow perspective, arguing that price isn't the only factor and that overlooking a company's intrinsic value could lead to missed opportunities. This led Marks to write a memo titled "Something of Value," emphasizing the importance of considering both value and growth aspects and acknowledging the potential value in learning from others, even those with different investment styles.
Focus on buying and holding shares of great companies: Successful investing involves more than discounts, focus on long-term holding and deep understanding of companies' fundamentals
Successful investing, as advocated by Warren Buffett and Charlie Munger, involves more than just seeking discounts. Instead, investors should focus on buying and holding shares of great companies with a deep understanding of their business fundamentals. Buffett's earlier approach, referred to as "cigar butt" investing, was about buying undervalued assets and selling them for a profit once they reached fair value. However, the memo emphasizes the importance of long-term holding and developing a superior understanding of companies. This more open-minded approach to investing, which values flexibility and adaptability, can help investors navigate the ambiguities of today's rapidly changing world. As Bill Miller's success with Amazon demonstrates, looking beyond conventional value metrics and considering a company's future potential can lead to significant returns.
The power of community and tools in investing: Joining a supportive community of investors and using reliable tools can significantly enhance your investing journey. Remember, things may rhyme but not always repeat exactly, and staying informed and staying the course is crucial.
Having a supportive community of like-minded individuals can significantly enhance your investing journey. The TIP Mastermind Community is an excellent example of this, providing a platform for passionate value investors to share ideas, connect with experts, and build lifelong relationships. Similarly, having the right tools, like Yahoo Finance, can help investors stay informed and keep up with market trends. Another key takeaway is the importance of recognizing when things are different, even in the face of historical patterns. While history may rhyme, it doesn't always repeat itself exactly. It's crucial for investors to grapple with this complex issue and be prepared for the shifting sands of the market. As Sir John Templeton famously said, "The four most expensive words in investing are: This time it's different." However, it's essential to remember that sometimes, things truly are different, and it's our job as investors to navigate these complexities. Lastly, it's important to stay informed and stay the course. The markets can be overwhelming, and it's easy to get caught up in the day-to-day news headlines. But by using reliable tools like Yahoo Finance and staying informed about the latest trends and developments, investors can make more informed decisions and stay ahead of the curve.
Investing based on old rules may not always work: Stay flexible, focus on what you pay, and invest within your comfort zone for successful investments
Investing based on past rules may not always be effective as markets and economic conditions change. For instance, the use of portfolio insurance during market downturns did not protect investors from losses. However, maintaining an open mind and being flexible while looking for companies with strong growth potential can lead to successful investments. Another key principle, as stated by Howard Marks, is to focus on what you pay for an investment rather than just what you buy. While this approach worked for him in the past, he acknowledges that being more flexible and embracing new opportunities could have led to better results. Ultimately, it's essential to invest within your comfort zone and stick to principles that align with your personality and risk tolerance.
The importance of understanding non-quantifiable aspects in investing: Successful investing requires an open mind, curiosity, and understanding of non-quantifiable aspects such as a company's essence and future developments to gain an edge.
Having an open mind and being curious are essential for successful investing, but it's also important to have standards and not dismiss things outright. The market has become more efficient, making it harder to find unique information for profits. Instead, investors must rely on non-quantitative information and insights to gain an edge. Buffett's success came from his ability to understand the essence of smart investing and find undervalued companies when few others did. Today, everyone has access to the same information, so superiority as an investor comes from understanding the non-quantifiable aspects of a company or the future developments that others may overlook. Insight, or "feel," is the only thing that is not a double-edged sword in investing. It's crucial to have a deep understanding of a company and the market to make informed decisions.
Investing wisely requires emotional intelligence: Successful investors use logic and emotional intelligence to make informed decisions, overcoming human emotions like fear and excitement to buy low and sell high.
Successful investing often requires overcoming human emotions and maintaining a rational, analytical perspective. Emotions like excitement, optimism, pessimism, and fear can lead investors to make poor decisions, buying high and selling low. The great investors, such as Bill Miller, Charlie Munger, and Joel Tillinghast, are known for their emotional intelligence and ability to go against the herd mentality. However, it's important to note that successful investors come in all shapes and sizes, and being unemotional is just one aspect of their makeup. Imagination, intuition, and the ability to make non-analytical decisions are also crucial. During times of uncertainty, such as the global financial crisis, making a decision based on logic and a sense of duty can be more important than relying on quantitative analysis.
The Significance of Emotional Intelligence in Investing: Recognizing excessive pessimism and adapting strategies based on market conditions are crucial for successful investing.
Investors need to be aware of the importance of emotional intelligence (EQ) in the financial world. William Green's experience during the 2008 financial crisis highlights the significance of recognizing excessive pessimism and using it in conjunction with financial analysis to identify potential investments. The market environment today, as Joel Greenblatt sees it, presents challenges for those who cling to outdated formulas or rules. The rapid market recovery from the COVID-19 crash in early 2020 was met with skepticism, but those who stayed on the sidelines missed out on significant gains. It's crucial for investors to maintain a deep understanding of market conditions and be prepared to adapt their strategies as needed.
Speaker's confidence in market stability despite inflation: Despite temporary inflation, maintain normal risk posture with a slight defensive tilt, as inflationary expectations aren't baked in and most of the world struggled with low inflation for a decade.
Despite the current high asset prices and the fear of inflation, the speaker believes that a market collapse is unlikely due to rational prices and a healthy economic outlook. He suggests that investors should maintain their normal risk posture, but with a slight defensive tilt, as interest rates are expected to rise and asset values will decrease somewhat. The speaker also emphasizes that not all aspects of the current inflation are permanent, and some are due to temporary supply chain disruptions and artificial demand from COVID-19 relief funds. He also points out that the private sector is no longer heavily unionized, and inflationary expectations are not baked in as they were during the 1970s inflation. The speaker advises investors to remember that most of the world struggled to achieve even 2% inflation for the past decade, and the current inflation will likely run hot for a while, but it's important to stay invested and not panic.
Navigating Inflation: Investment Strategies for Fixed Income and Beyond: Consider investing in floating rate instruments, healthy real estate, and companies with faster profit growth to protect against inflation. Bitcoin and cryptocurrencies may have potential as a hedge, but come with risks. Stay informed about global economic trends, particularly in countries like China.
For fixed income investors, it's important to have more investments in floating rate instruments and less in fixed rate instruments, as the value of fixed rate instruments decreases when interest rates rise. Real estate can also be a good tool against inflation, especially in healthy parts of the economy where rent increases can be passed on to tenants. Lastly, investing in companies where profits grow faster than inflation can help produce positive returns. These are not definitive rules, but rather areas to consider when navigating inflationary environments. Regarding Bitcoin and cryptocurrencies, the speaker's views have changed, acknowledging their potential as a store of value and hedge against inflation, but also cautioning that they are highly volatile and speculative. As for China, the speaker suggests keeping an eye on its economy, as its economic policies and geopolitical tensions can have significant impacts on global markets. In summary, the key takeaway is to focus on investments that can help protect against inflation, such as floating rate instruments, healthy real estate, and companies with faster profit growth. Additionally, while Bitcoin and cryptocurrencies may have potential as a hedge against inflation, they come with significant risks. Lastly, staying informed about global economic trends, particularly in countries like China, is essential for making informed investment decisions.
Acknowledging what we don't know is crucial for informed investment decisions: Intellectual humility is essential for making informed investment decisions, as acknowledged uncertainty and openness to new information can lead to better outcomes.
Having an open mind and acknowledging what we don't know is crucial for making informed investment decisions. William Green's story about his skepticism towards cryptocurrency serves as a reminder of the importance of intellectual humility. He admits that his negative stance was based on a lack of knowledge about the subject matter. Similarly, Joshua Sharfstein emphasizes the importance of acknowledging uncertainty and the possibility that others might be right. In the context of investing in China, it's essential to consider both the opportunities and risks, and recognize that the future is uncertain. As Peter Bernstein once wrote, "risk cannot be reduced to a number," and it's essential to approach complex situations with a nuanced understanding of the probability distribution of potential outcomes.
China's Future Behavior: Uncertain for Investors: Despite China's potential for growth, its uncertain political, ideological, and social landscape makes investing a complex endeavor. Regular investors may consider investing through funds or managed accounts.
China, as the second largest economy in the world, holds significant potential for growth, but its future behavior towards its citizens, businesses, and the rest of the world remains uncertain. This political, ideological, and social uncertainty makes investing in China a complex endeavor. While some may view China as "uninvestable," others see it as an economic adolescent with the potential for great growth ahead. For regular investors, it may be wise to consider investing through funds or managed accounts rather than attempting to navigate the complexities of the Chinese market on their own. The future of China's role in the global economy is uncertain, but those who believe in China's desire to be a part of the world community may find opportunities in the Chinese market. However, it's important to remember that even with expert analysis and insights, no one can predict the future with certainty.
Operating with integrity and taking responsibility: Oaktree's success is rooted in its commitment to ethical business practices, which aligns it with a growing consensus that corporations and professionals have responsibilities beyond making money for shareholders.
Integrity and responsibility are essential business principles for successful investment firms like Oaktree. Bruce Karsh and Howard Marks, Oaktree's co-founders, emphasized these values when they started the firm in 1995, and they have remained a cornerstone of Oaktree's business philosophy. While some may view these principles as mere marketing verbiage, Karsh and Marks believe that operating with integrity and taking responsibility for the planet and society is not only the right thing to do but also good business in the long run. They have seen that those who prioritize short-term gains over ethical business practices may make more money initially, but in the long run, ethical investing pays off. Oaktree's commitment to these principles sets it apart from other firms and aligns it with a growing consensus that corporations and professionals have responsibilities beyond making money for shareholders.
Living and partnering authentically: Success comes from living and partnering based on shared values and authenticity, not societal or financial pressures.
Building strong, values-aligned partnerships and living life according to one's own values are essential for personal and professional success. Chazen, the founder of Weld North Education, emphasizes the importance of these principles in his long-lasting, respectful partnership with Bruce Kosh. He believes that shared values and complementary skills are the foundation for a successful partnership, even if partners have different thinking styles. Moreover, Chazen encourages people to focus on living their lives authentically and finding what truly makes them happy, rather than societal or financial pressures. As Chazen often tells students, there is only one success in life: the ability to live it your way.
Identify and focus on strengths and fulfillment: Understand strengths and weaknesses, align with opportunities, consider what truly matters, and embrace unique talents to live more meaningful and fulfilling lives
It's essential to identify and focus on the areas where we excel and find fulfillment, rather than trying to force ourselves into roles or pursuits that don't suit us. Howard Marks, a renowned investor, writer, and teacher, shared his insights on this topic during a conversation with William Green. Marks emphasized the importance of understanding one's strengths and weaknesses and aligning them with the right opportunities. He also highlighted the significance of considering what truly matters to us as we age and striving to make the most of our lives. Green, inspired by Marks' story, encouraged listeners to find enjoyment in their pursuits and avoid weaknesses. Marks' career in finance didn't just happen by chance; he was drawn to it, and his success can be attributed to his natural abilities and aptitude for the field. By embracing our unique talents and focusing on what we love, we can live more meaningful and fulfilling lives.
Appreciating listeners and building a community: William Green expresses gratitude to listeners, encourages engagement, and maintains a consistent podcast schedule to build a loyal community.
Learning from the latest episode of The Investors Podcast is the importance of gratitude and engagement in building a community. The host, William Green, expressed his appreciation to listeners David Park from New York and Ashutosh Parashar from India, promising to send them a signed copy of his book as a token of thanks. He also encouraged listeners to follow him on Twitter and share their thoughts on the podcast. The episode also highlighted the consistency of the show's schedule, with Bitcoin discussions every Wednesday and billionaire studies every Saturday. The Investors Podcast Network emphasized the educational nature of the show, reminding listeners to consult professionals before making any financial decisions. Overall, the episode underscored the importance of building a loyal community through authentic engagement and appreciation.
