Howard Marks: What Matters Most? Asymmetry

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In his latest memo titled – What Really Matters?, Howard Marks explains why ‘asymmetry’ matters most when it comes to investing. Here’s an excerpt from the memo:

What matters most?  Asymmetry.

  • In sum, asymmetry shows up in a manager’s ability to do very well when things go his way and not too bad when they don’t.
  • A great adage says, “Never confuse brains and a bull market.”  Managers with the skill needed to produce asymmetry are special because they’re able to fashion good gains from sources other than market advances.
  • When you think about it, the active investment business is, at its heart, completely about asymmetry.  If a manager’s performance doesn’t exceed what can be explained by market returns and his relative risk posture – which stems from his choice of market sector, tactics, and level of aggressiveness – he simply hasn’t earned his fees.

Without asymmetry, active management delivers no value and deserves no fees.  Indeed, all the choices an active investor makes will be for naught if he doesn’t possess superior skill or insight.  By definition, average investors and below-average investors don’t have alpha and can’t produce asymmetry.

The big question is how to achieve asymmetry.  Most of the things people focus on – the things I describe on pages one through nine as not mattering – can’t provide it.  As I’ve said before, the average of all investors’ thinking produces market prices and, obviously, average performance.  Asymmetry can only be demonstrated by the relatively few people with superior skill and insight.  The key lies in finding them.

You can read the entire memo here:

Howard Marks Memo – What Really Matters?

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