Finance
by Howard Marks
Where are we in the cycle?
Howard Marks, co-founder of Oaktree Capital, doubts anyone can say what the economy will do next. He does think an investor can judge whether a market is running hot or cold, and gain an edge by acting on it. This book is his guide to reading the cycle.
Hear a sample · read by Laura
Marks says cycles are made by people. Good news makes investors too hopeful, prices overshoot, and the excess gets corrected, usually by overshooting the other way. Cycles differ in length and size, so no calendar can time them. What repeats is the swing from one extreme towards the other.
Marks traces a chain. The economy moves a little. Company profits move more, because of borrowing and fixed costs. Investor psychology moves most of all and carries prices far past what the facts justify. So share prices swing much harder than the economy underneath them.
Marks treats investing as a bet on probabilities. Knowing where we stand can't tell you the future, but it shows which way the odds lean. When prices are low and people are gloomy, good results become more likely. When prices are high and everyone is cheerful, they become less likely.
Swings
Markets spend little time at a sensible middle. They overshoot on hope, then overshoot on fear.
Rhymes
No two cycles look the same, but the human behaviour behind them hardly changes.
Where we are
You can't forecast the future, but you can judge where we are in the cycle today.
Carelessness
Good times make people careless, and that carelessness is what brings the good times to an end.
Credit
Credit is the most powerful cycle. Money is easy to borrow in booms and vanishes in busts.
A story from the book
After Lehman Brothers failed in September 2008, many investors feared the financial system would collapse. Marks reasoned that if it did, nothing they did would matter, and if it didn't, prices that low were a gift. So Oaktree kept buying distressed debt through the worst weeks of the panic.
One thing to try
Marks has written memos to his clients for decades. This week, write a one-page memo on a market you have money in. Note how easy it is to borrow for it, how people talk about it, and where you think it sits in its cycle. Reread it in six months.
Knotd has the key ideas from 250+ non-fiction books, each in a few minutes, in plain words. Mastering the Market Cycle comes with a Name That Idea round to make it stick.
Get the whole book on KnotdOpen in the appWhere are we in the cycle? Howard Marks, co-founder of Oaktree Capital, doubts anyone can say what the economy will do next. He does think an investor can judge whether a market is running hot or cold, and gain an edge by acting on it. This book is his guide to reading the cycle.
Excess, then correction; Cycles stacked on cycles; Tilting the odds.
Marks has written memos to his clients for decades. This week, write a one-page memo on a market you have money in. Note how easy it is to borrow for it, how people talk about it, and where you think it sits in its cycle. Reread it in six months.
Yes. Knotd has the key ideas from Mastering the Market Cycle in a few minutes, in plain words, plus a Name That Idea round to test them. It's one of 250+ non-fiction books in the app.
