Howard Marks: One Thing That Makes Great Investors Great

Here’s a great interview with Howard Marks from his own series called – The Marks Investor Series. In this Q&A session Marks discusses what makes great investors great.

Here’s an excerpt from that interview:

I think we can lump the explanation under the heading of emotion. You mentioned Seth Klarman and Stan Druckenmiller. These are two people that have been here in this series and I think one of the things that they have in common… they’re different people, but they’re both brilliant. But one of the things they both have in common is that they’re not emotional.

I say in my book that not being very emotional is very useful in the investing world. There are worlds in which it’s not such a good thing, like in marriage. Lack of emotionality does not endear us to our spouses. But the truth of the matter is it’s very helpful to either be unemotional or have the ability to control your emotions.

You make the really big money in this world by unhooking from the market when it gets up here and everybody’s happy and nobody could think of anything that could ever go wrong. Everybody thinks that the trees are going to grow to the sky. So you sell up here and then the market collapses and when you get down here nobody can think of anything that could ever go right again. Then every stock price is devoid of any optimism and that’s a great time to buy.

You have to be a contrarian and you have to be able to diverge from the crowd. If you think about it everybody receives the same inputs. We read the same newspaper. The economic news is the same for all of us. The corporate news is the same for us. The tv says the same thing to all of us. Some of us see the news and the prices as a buy signal just when most people see the news and the prices as a sell signal and vice versa. You want to be in the minority.

Back in the early seventies somebody gave me a great gift and told me about the three stages of a bull market. The first stage when only a few unusually perceptive people believed to understand that there could be some improvement.

The second stage when most people accept that improvement is actually taking place.

And the third stage when everybody and his brother believes that things can only get better forever. You make a lot of money if you buy in the first stage. You lose a lot of money if you buy in the last stage.

You buy the same things, but what matters is when do you buy them and at what price. And to do that you have to… the prices are set low because everybody else is pessimistic. You should be optimistic. The market is set high and dangerous when everybody else is optimistic, you should be pessimistic. But it takes emotional control to be able to do that.

You can watch the interview here: