On "What Really Matters?" & Investing
Last week, Howard Marks, co-founder of Oaktree Capital Management, which manages $163 billion, shared the following views in his investment memo “What really matters?”
“Security prices are determined by events and how investors react to those events, which is largely a function of how the events stack up against investors’ expectations."
“Macro events and the ups and downs of companies’ near-term fortunes are unpredictable and not necessarily indicative of – or relevant to – companies’ long-term prospects. So little attention should be paid to them."
“In the short term, the ups and downs of prices are influenced far more by swings in investor psychology than by changes in companies’ long-term prospects. Because swings in psychology matter more in the near term than changes in fundamentals – and are so hard to predict – most short-term trading is a waste of time . . . or worse."
“Most people buy stocks with the goal of selling them at a higher price, thinking they’re for trading, not for owning … Are the buyers buying because this is a company they’d like to own a piece of for years? Or are they merely betting that the price will go up?
“If you ask Warren Buffett to describe the foundation of his approach to investing, he’ll probably start by insisting that stocks should be thought of as ownership interests in companies.
“Warren Buffett always puts it best, and on this topic he usefully said, “We prefer a lumpy 15% return to a smooth 12% return.” Investors who’d rather have the reverse – who find a smooth 12% preferable to a lumpy 15% – should ask themselves whether their aversion to volatility is mostly financial or mostly emotional."
“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."
“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."
OUR TAKE
As the problematic actions of 30-year-old Sam Bankman-Fried and his FTX Group garner significant attention, the wisdom of 76-year-old Howard Marks is worth considering.
In recent years, investing has become more global and more technology driven (with the use of big data, AI models and significant computing power). Within this context, the tenets of long-term investing are unchanged.
Regardless of an investor's orientation (value, growth, etc.), a disciplined approach that minimizes emotion and focuses on risk management are in important in investing.