During his recent interview with SJP, Howard Marks explained why it’s important to lean against the excesses of investor psychology to be a successful investor. Here’s an excerpt from the interview:
Marks: You mentioned contrarianism. Contrarianism is very important and basically what it consists of is understanding the excesses of investor psychology. And number one, not being part of them, and number two taking advantage of them.
Ninety percent of what you have to know about market behavior, especially about short-term market behavior, is that in real life things fluctuate between pretty good and not so hot.
But in the market investors go from flawless to hopeless, flawless to hopeless. And nothing’s ever flawless and nothing’s ever hopeless. And what that means simply Sarah is that when people think the outlook is flawless, they’re too optimistic and they’re going to be disappointed so you want to turn cautious at that moment.
And when people think that the outlook is hopeless, things are never hopeless. And when pessimism is overdone and people think the outlook is hopeless it’s important to turn aggressive.
So we do modify our stance between aggressiveness and defensiveness but as I said we never get in and out of the markets. That’s really just too hard to do well.
Contrarianism, leaning against the excesses of psychology is an important part of what we do.
You can watch the entire discussion here:
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