Howard Marks: An Investor Must Do One Of These Two Things To Achieve Superior Results

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In his recent conversation with Panmure House, Howard Marks explained why an investor must do one of these two things to achieve superior results. Here’s an excerpt from the conversation:

What are the things that can be the source of superior investing? It seems to me there are two:

• Number one: A better comprehension, if that’s the right word, of the future. Some people see the future better than others, and that could do the trick, because, remember, what he says doesn’t suffice is readily available quantitative information about the present. By definition, there’s no information about the future, but maybe some people can see the future better than others.

• Or the other thing that could be a source of superior results is a superior ability to process qualitative information. Remember, what he described as not helpful is readily available quantitative information about the present. What about qualitative information? Qualitative information includes mood, and we’ve been talking about the market mood. And maybe some people have a better feeling than others for the collective psyche and for whether it’s too depressed and therefore presenting great opportunities to buy or too enthusiastic and thus offering great opportunities to sell or short. [In addition to mood, qualitative information also includes things like the quality of management, the effectiveness of the company’s product development capability, and the strength of its accounting.]

The point is that a superior investor has to do at least one of those two things better, and maybe both. I think that that’s where the superiority comes in.

And, by the way, to take it one step further, we can ask, “How many people have a superior view of the future? And how many people have a superior understanding of the market mood [and other qualitative factors]?” And if the answer to both is “not so many,” then that explains why active investing has been a flop for most people who’ve tried it.

You can read the entire transcript here:

Howard Marks: Conversation at Panmure House

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