In his recent interview on The Investors Podcast, Howard Marks discussed comparisons between the Nifty 50 and the FAANG stocks of today, and why there are no sure things in investing. Here’s an excerpt from the interview:
In every market cycle we get to the point where people say you know what this thing, whatever it is, whether it’s the nifty 50, 50 years ago or the internet 20 years ago, or tulip bulbs several hundred years ago, they get to the point where they say well this is now. It’s risen to the point where it’s a sure thing. This can’t lose.
Why not? Well for example you look at the tech or the FAANGS they’re in the S&P heavily. Every time a dollar flows into say an S&P Index Fund, or even an active manager who kind of secretly closet indexes, money is going to flow into these names predominantly because they are so heavily weighted in the index.
Which means that money has to keep flowing in, which means that they have to keep doing better, which means that they’ll never falter, which means that they’re a sure thing.
Well there are no sure things and there’s nothing that can’t falter.
My dad used to tell the story about the guy who was the habitual gambler and every week he would go to the track and lose all his money.
So one day he heard about a race with only one horse. So he went out to the track and he put all his money down and halfway around the track the horse jumped over the fence and ran away.
The point is there are no sure things and if you… this goes back to the Mark Twain. If you find something that you think is a sure thing and you bet disproportionately on it because it’s a certainty and it turns out not to be a certainty that’s how you lose a lot of money.
You can watch the entire discussion here:
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