원문 보기
a guy named Wally Deemer, who was an old-time trader, who had some great quotes, and he turned them into a little book. And it but his greatest quote of all is, "When the time comes to buy, you won't want to." About 20-odd years ago, I wrote a memo called you can predict you can't predict, you can prepare.
And that's really the essence. And that that you can tell that that comes directly from the understanding of Mujo. Um we can't predict the future. We can't control the future. But we can prepare for the future. Now, that raises an interesting contradiction in terms. If you can't predict what the future will be, how can you prepare for it?
And the answer is you can prepare for a future which is unpredictable. So, you can uh in investing, you can put together a portfolio rather than one that will produce maximum success if a certain future unfolds, you can put together a portfolio which will do fine if several any of several futures unfold, and not too terribly if a bunch of other futures unfold.
Think about how most people invest. They pick one story. AI will boom. Gold will crash. The market will double. And they bet everything on it. Marks does the opposite. He builds a portfolio that survives many futures, not one that only in a single future. For you, that means no all-in bets. Spread your money so that no single surprise can wipe you out.
And that brings us to the biggest lie in investing. The average return. The S&P, however constituted, has returned an average of 10% a year for the last 100 years. But um not steadily. Mhm. In the '90s, it returned 20% a year. And in the aughts, it returned zero per year. So, certainly not steady. And not only is that an interesting phenomenon to think about, but even more so, the fact that the return on the S&P, which averages 10,
[clears throat] is almost never between 8 and 12. Mhm. This is a very interesting datum. Mhm. Uh uh Why is it that the norm is not the average? Greed and fear? Excess and correction. Do you think excess of optimism, correction, excess of pessimism. So, if markets swing between 20% years and 0% decades, the real question isn't how to pick the next big winner.
It's how to survive long enough to collect the average. Most people quit in the bad years and lock in their losses. And here's the scary part. Even the most celebrated companies in the world can wipe out your money. Mark saw it happen in his very first job. The the the the Citibank I joined in September of '69 was an investor in what was called the Nifty 50.
Mhm. The 50 supposedly best and fastest growing companies in America. Companies where nothing bad could ever happen. There was no price too high for the stock. And if you bought those stocks the day I got to work in September '69, if you held them tenaciously for for 5 years, you lost about 95% of your money.
95%. Because for many of them, something did go wrong. And for all of them, the price was too high. The P/E ratios, as I recall, were mostly between 60 and 90. 95% on companies everyone agreed were the best in America. The businesses weren't the problem. The prices were insane. Swap the Nifty 50 for whatever stock everyone at your office is talking about right now.
When nobody can imagine anything going wrong, risk is at its highest. Which raises a question. If popular stocks are dangerous, where do the big returns actually come from? of your success in investing is determined by other people. If if if you go into a field that everybody likes and they like it a lot and have bid up the price, then your returns are not likely to be high.
If they if you go into a field where everybody else has been blind to the merits and says, "I wouldn't touch that with a 10-foot pole." and you figure out that it's good and it turns out to be good, uh that's how you get an exceptional return with low risk. Uh so, um I think that for the most part uh well, I was lucky at I should say at the time I made these decisions uh actively or passively, took these steps, shall we say.
Um I went into fields other people didn't like. You you used the term junk bonds. Mhm. A derogatory term. Nobody talks about junk stocks, right? But the I mean, junk bonds are much more predictable than stocks and yet they called them junk. We call them distressed bonds. Yes, but that was a that was that was a bias
Right. that made them available to me cheap. Junk bonds. Even the name screamed, "Stay away." That's exactly why they were cheap and exactly why Marks made a fortune. The crowd's disgust became his discount. But being contrarian alone isn't enough. Plenty of people bet against the crowd and lose everything.
Here's how Marks explains the difference between being different and being right. If you think the same as everybody else, you'll act the same as everybody else. If If you act the same as everybody else, your investments will perform the same as everybody else. So, to perform better, you have to deviate from the herd.
Seems clear. Do you think How do you do it? How do you do it? And uh I said in the book asking how to how to become I I can tell you the importance of second-level thinking, but asking me how to become a second-level thinker is like in basketball, we say, you can't coach height. All the coaching in the world will not make your team taller.
Because second-level thinking or contrarian thinking is not just different from the herd. Mhm. That's not enough. Mhm. It has to be different from the herd and better. First-level thinking says, "Great company, buy it." Second-level thinking asks, "Everyone already knows it's great, so is that already in the price?" It's a simple question most investors never ask.
And when markets crash, asking it gets even harder because your own emotions start working against you. Why do bad times create an opening? Because panic drives down let's say stock prices. Mhm. But the same panic causes most people to panic, which means that most people can't stop up and buy in the panic.
And there's a There was a guy named Wally Deemer, who was an old-time trader, who had some great quotes, and he turned them into a little book. And he But his greatest quote of all is when the time comes to buy, you won't want to. So, this this idea that upheaval creates opportunity is logically correct, but not realistic because most people's psychological impediments prevent them from taking advantage of the upheaval.
This is why crashes make a few people rich and most people poorer. The fear you feel is the same fear everyone feels, and that fear is exactly what makes prices cheap. Remember this. The next time the market falls 20%, your gut will scream, "Sell." That's usually the moment to start buying slowly. Which brings us to the final rule.
And this one is about your personality, not the market. is that investing is a puzzle. Challenging puzzle. Investing I define as positioning your capital to take advantage from few of future developments. But I also say that future developments can't be predicted Mhm. accurately. So, it you need superior insight to get it more right than most people.
But you're not going to get it right all the time. If you have to be right all the time, if there's something in your makeup that that says you're going to be unhappy if you're not right all the time, don't become an investor. Uh Taleb in his book Fooled by Randomness uh talks about the difference between investing and dentistry.
Mhm. He says if you go to dental school and you learn how to fill a cavity and you fill the cavity that way every time, you'll be successful every time. So, if you have to be successful every time, become a dentist. Or or an engineer. A civil engineer, you say I want to build a bridge from here to there.
He does his calculations, how much steel, how much concrete. Every time the bridge stands. So, here are Howard Marks' seven rules. You can't predict, but you can prepare. The average return almost never shows up. Great companies can be terrible investments. The best deals hide in what everyone hates.
Being different only pays if you're also right. When it's time to buy, you won't want to. And if you need to be right every time, use an index fund and live your life. If this changed how you think about money, subscribe to the Contrarian Cut. Every week, we break down the smartest minds on money, business, and India. And tell me in the comments which rule hit you the hardest.
Comments 0