During his recent interview at Chicago Booth, Howard Marks explained how human emotions often lead investors to make poor decisions—buying high when markets are thriving and selling low during downturns.
He emphasizes the importance of being contrarian, resisting emotional impulses, and sometimes doing the opposite of the crowd. Marks highlights that blindly opposing the majority isn’t wise; instead, investors should analyze market behavior and act accordingly.
He references his book The Most Important Thing, where investors like Joel Greenblatt contributed insights. Marks advises that understanding emotional biases and adopting a counter-cyclical approach can lead to better investment outcomes over time.
Here’s an excerpt from the interview:
Marks: Well, so-called human nature emotion tends to conspire to make us do the wrong thing at the wrong time. When things are going well and the economy is rising, profits are reporting rising earnings, and stocks are rising, people get more and more excited, and they buy more and more at higher and higher prices.
Then things peter out—the economy is not so great, the company news isn’t so good, and the prices are collapsing. Then they get depressed and they sell. Well, my mother told me: “Buy low, sell high.” Human emotion tends to get you to buy high and sell low.
So that’s the essence of being counter-cyclical or contrary. Most people have so many flaws—too emotional, too greedy. They feel terrible if somebody’s making money and they’re not, so they rush into the market and throw gasoline on the fire.
First of all, you must abstain from that process. If you’re part of that process, you’ll perform as terribly as they do. But even better than abstaining is to sometimes do the opposite—and that’s called contrarianism.
Now, there’s a book I wrote called The Most Important Thing, and the second edition was called The Most Important Thing Illuminated. Some of my friends and other investors also inserted commentary in the book. It works well in Kindle; you see a black dot, you hit the black dot, and you get a comment on what you just read.
My friend Joe Greenblatt, who was one of the great equity investors of all time, inserted in the section on contrarianism that “just because five other people won’t stand in the path of an oncoming freight train doesn’t mean you should.”
So blindly just doing the opposite of what everybody else does is not a good tactic, but observing the behavior of others, figuring out what’s wrong with it, and maybe doing the opposite is warranted at certain points.
You can watch the entire interview here:
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