Beg to Differ
While I learn something from every Howard Marks memo, some are more impressionable than others. The timing of his recent one couldn't be better. Three of my favorite passages are below.
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"All of the discussion surrounding inflation, rates, and recession falls under the following heading: the short term. And yet:
- We can't know much about the short-term future (or, should I say, we can't dependably know more than the consensus
- If we have an opinion on the short-term, we can't (or shouldn't) have much confidence in it.
- If we reach a conclusion, there's not much we can do about it - most investors can't and won't meaningfully revamp their portfolios based on such opinions.
- We really shouldn't care about the short-term - after all, we're investors, not traders."
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"For example, when asked whether we're heading towards a recession, my usual answer is whenever we're not in a recession, we're heading towards one. The question is when. I always believe we'll have cycles, which means recessions and recoveries will always lie ahead. Does the fact that there's a recession ahead mean that we should reduce our investments or alter our portfolio allocation? I don't think so. Since 1920, there have been 17 recessions as well as one Great Depression, a World War and several smaller ones, multiple periods of worry about global cataclysm, and now a pandemic. And yet, as I mentioned in my January memo, Selling Out, the S&P 500 has returned about 10 1/2 % a year on average over that century-plus. Would investors have improved their performance by getting in and out of the market to avoid those trouble spots...or would have doing so have diminished it? Ever since I quoted Bill Miller in that memo, I've been impressed with his formulation that 'it's time, not timing' that leads to real wealth accumulation. Thus, most investors would be better off ignoring short-term considerations if they want to enjoy benefits of long-term compounding."
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"Thus, what does it mean that something or someone has performed poorly for a while? No one should fire managers of change strategies based on short-term results. Rather than taking capital away from underperformers, clients should consider increasing their allocations in the spirit of contrarianism (but few do.) I find it incredibly simple. If you wait at a bus stop long enough, you're guaranteed to catch a bus, but if you run from bus stop to bus stop, you may never catch a bus."
I believe most investors have their eye on the wrong ball. One quarter's or one year's performance is meaningless at best and a harmful distraction at worst. But investment committees still spend the first hour of every meeting discussing returns in the most recent quarter or year-to-date. If everyone else is focusing on something that don't matter and ignoring the thing that does, investors can profitably diverge from the pack by blocking out short-term concerns and maintaining a laser focus on long-term capital deployment."
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Source: I Beg to Differ (Howard Marks)
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