In the latest episode of Behind the Memo, legendary investor Howard Marks shared his wisdom on navigating market cycles, particularly during speculative bubbles. His insights serve as a crucial reminder for investors: true success comes from independent thinking and resisting the herd mentality.
One of Marks’ most striking points is the danger of jumping on the bandwagon. “If you jump on the bandwagon the same as everybody else, you’ll use all your money to buy at elevated prices,” he warns.
The problem? When the inevitable crash arrives, those who followed the crowd are left without capital to seize new opportunities. This highlights a fundamental truth of investing: discipline and patience matter more than excitement and momentum.
But financial losses aren’t the only consequence of herd behavior—there’s also a psychological toll. Marks explains, “Your psyche will be shot. Having participated in what then turns out to have been a mindless pursuit in the bubble, you won’t have the resolve. You’ll lose faith in yourself.”
It’s a vicious cycle: investors get swept up in euphoria, only to be paralyzed when the market turns against them. This hesitation means missing the very bargains that could have led to long-term gains.
The essence of value investing is buying assets for less than they’re worth, but that requires someone on the other end of the trade willing to sell at a discount. Why would anyone do that?
Marks offers a psychological explanation: “They bought it higher, they’ve seen deterioration of the economy, and the company, and the earnings and their own psyches. They’ve seen the price collapse. They’ve lost confidence.” This loss of confidence creates opportunities for those who stayed disciplined during the mania.
However, being in a position to buy during downturns requires a deliberate choice: restraint during the boom. Marks acknowledges this is easier said than done.
“You have to have not been fully committed during the bubble. That’s hard. Everybody else is making money. You don’t want to miss out.” Resisting FOMO is difficult, but essential. As he puts it, “You can’t be exceptional if you succumb to the influences that are dominating everyone.”
Perhaps the most powerful lesson from Marks is the idea of “uncomfortably idiosyncratic” investing. Citing the late David Swensen of Yale, Marks emphasizes that successful investment management requires taking positions that feel uneasy because they go against the grain.
“If everybody else is doing something and making money at it, and you’re not doing it because you believe it’s overdone and it’s an error… if you’re not uncomfortable with that, there’s probably something wrong with you.”
Ultimately, the message is clear: in investing, the greatest rewards come not from following the crowd but from having the conviction to stand apart from it.
You can watch the entire episode here:
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
