Many words of wisdom in this clip from Howard Marks and reminding of some critical reasons why most people who try to ‘invest’ in capital markets, are left with losses and trauma each cycle. It doesn’t have to be that way, but you do need to approach investing and financial management in a completely different way than conventional ‘advice’ suggests. For those who are today strapped to the titanic for yet another sinking, it is still not too late to save your financial strength.
Howard Marks, Oaktree Capital’s co-founder and co-chairman, discusses market liquidity, risk-blindness at Central banks and opportunities that come for those who have the discipline to wait for value. Here is a direct video link.
Probably the biggest problem (of many) with conventional investment theory is that it assumes investors all have long time horizons and the ability and fortitude to ride out bear markets and deploy fresh cash when valuations are low. In reality, most don’t have any of this–especially once we are at or within a few years of retirement. And let’s face it, most don’t get the bulk of our savings amassed until we are late in our working career. So lower risk tolerance actually comes with having more savings to lose–yet this is the exact opposite of how the risk-selling industry sees its customers.
Since investment ‘advisors’ typically make little to no fees on any capital left in cash, most never recommend their clients hold anything more than 5 or 10% cash and so almost no clients are prepared and able to buy assets in a meaningful way in bear markets. Not only that, but once their savings have already lost a ton of value in falling markets, very few have the stability or strength to buy more when prices are finally attractive. To the contrary: most feel the need to run for the exits after they have lost.
A second big reason for misery is that most people are putting money they need for income and expenses within the next 5 years–into highly volatile, long-term asset bets. Performance of these bets is far from guaranteed, and yet most are set up on a needed income withdrawal plan far above actual yields. When valuations are high, the probability of capital losses over 5 and even 10 year time frames far outweighs the probability of gains, and yet most are foolishly betting away their peace and financial security as if it was all superfluous cash. Madness is mainstream in the investment business. Buyers beware.
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