In this fireside chat with the HKUST Business School, Howard Marks discussed the cyclical nature of markets, emphasizing that cycles are driven by excesses in psychology and behavior.
He explained that an excess of positive psychology leads to unsustainable behavior above the trend line, which eventually corrects back, often overshooting in both directions.
Marks also highlighted his shift from equity to credit, particularly high-yield bonds, which have been a powerful force in investing since 1978.
The key to OakTree’s success, he noted, lies in risk control, consistency, specialization, and avoiding reliance on macro forecasts and market timing.
Here are some key points from the chat:
Q: Where do you think we stand in the market cycle?
Marks: Cycles are born from excesses. Most of the excesses are of psychology, which lead to excesses of behavior. So, you have a trend line; you have an excess of positive psychology that leads to behavior above the trend line.
It gets to a level which is unsustainable; it corrects back toward the trend line. But usually, the way things go is through the trend line and continues to an excess on the downside, which is not sustainable, and then corrects back toward the trend line and through it to an excess on the upside.
Q: Why did you decide to move into credit from equity?
Marks: It turns out that high-yield bonds, which were the precursor of what we now call credit, have been probably the strongest force in investing since 1978.
Q: What do you think is the key that led to OakTree’s success, and where do you see OakTree’s future to be?
Marks: Risk control, consistency, less efficient markets, a high degree of specialization, non-reliance on macro forecasts, non-reliance on market timing.
Q: Some thinking process behind your important decision-making job?
Marks: The goal is to be a superior investor. If you’re average, you know, investing is a funny field because it’s really easy to be average and really hard to be above average.
Try to find a career that plays to your strengths, avoids your weaknesses, and will make you happy.
You can find key points from the chat here:
Howard Marks Fireside Chat HKUST Business School
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