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looking at Super investor Howard marks a recent podcast where he talks about the biggest mistake that he thinks investors make he also talks about Market cycles and where we are in the current market cycle as he sees it this is from a recent podcast by Nord bank I'll put a link to the whole podcast long podcast in the description but let's just dive into this part of it first no you're very um dismissive of economic forecasting as we as we talked about but you are a strong believer in cycles and knowing where we are in the cycle why why is the understanding of Market Cycles so important well the world is cyclical uh and uh you know he's written a book about Market Cycles by the way I'm going to put a link to that in the description really good book where he no everybody knows that the market and the economy um and and uh politics um move cyclically and uh you know nothing moves in a straight line uh where human behavior is involved and if you were to count on it doing so you would uh get into big trouble I've been thinking about writing a memo uh lately people have been asking me what is the biggest mistake his memo is famous of course by the way it's but in podcast I listen to the podcast version he does it every so often it's become very well known in the investing Community value investing Community where he talks about various topics and he has addressed these things over time the cycles and he has he's made predictions very seldom but but the predictions he has made have been right because he doesn't do it very often that you've seen or what is the mistake that people make most often and I think it is that once the market is moving in One Direction that it will always continue to do so in Truth uh regression toward the mean or the correction uh of uh excesses is much more dependable than continued moving in a straight line that's interesting you know that that movement regression to the mean or Corrections what he's talking about is a correction there you know everybody has M goes with momentum we can see that in stocks like Nvidia and big US tech stocks the meate techs right now he doesn't talk about that so much but I see what he means there that we get excited about the market we go with momentum when we we we forget that it can turn and he is saying it's more dependable that there is a correction after an excess in the market so he's talking about fear and greed people go with greed and we see it time and time again the stock market over many years over over Generations why do things R back be because the I wrote a book uh in 2018 called the mastering the market cycle and I I'm a as I said I'll put a link to that in the description it's a really good book I highly recommend reading that great believer in Cycles I'm a student of Cycles I I I've lived with cycles for a long time and yet when I got about two-thirds of the way through writing the book I said to myself why do we have Cycles the economy grows at 2% a year why doesn't it just grow 2% every year why sometimes one and sometimes three and sometimes minus one so what's the answer the answer is that people go to excess and for example if the economy is growing well for a few years business uh heads say oh well we have to build a new Factory to get our increased share of the growth in our industry and so they do but so does everybody else now there are too many factories and now uh the uh Factory utilization Falls and the companies go into decline so then they pull back and they and they St building factories so straight that's an example of that that I always talk about is during the.com bubble which was of course a great period of excess and greed and a lot of things were pulled forward a lot of the future was pulled forth there and what happened there was fiber optic cables were laid and way more than was needed you know there's this feature of streaming video streaming which we've got now where you know you're watching this through a free service and you know we can see things with the internet now in fast Broadband but back then in the 1990s a lot of cable was laid that it was too much and it took a long time to catch up but it did happen so that's what he's talking about there and you can see things happening now as it happening with AI with you know all the the data senters and things needed for AI Perhaps Perhaps not you know there was an example of Cisco but that is one of the examples that I think that he's talking about there that humans go to excess and they go to excess in the stock market of course with this greed greed and fear straightforward greed and fear greed and fear is is a good way to put it and you know uh you mentioned the memos the second memo I wrote uh 1991 was called the pendulum greed and fear optimism and pessimism credulousness and skepticism now you yes so if you're getting value out of this video so far do more people and if you're new here do consider subscribing if you want to get this kind of content more and hit that notifications Bell if you're on YouTube to get notified when I post a new new videos you dismiss forecasting yet you are a great believer in know or trying to figure out where we are in the cycle isn't that kind of counterintuitive it sounds it on the face but I think there is a time when when forecasting becomes more useful and that is when we're at an extreme uh uh now if think about what I said a minute ago that the biggest mistake people make is to believe that a process once in operation will continue non-stop forever that's what takes markets to extreme highs which we call Bubbles and lows which we call crashes and that brings to mind it's different this time we've seen Bubbles and exuberance people say it's different next time there already a there always a million reasons for that why it's different this time but when we're extremely high and people get excited and say hey this is going to go on forever usually it will collapse eventually of its own weight so when the market is crazy high or crazy low I think we can uh make a profitable uh forecast the only thing is uh n we don't get too many opportunities uh so he only predicts what's going to happen what he thinks is going to happen he only has through his memos a few times when it's been really excessive or really low that's how he thinks that that's the only time that you can actually make a solid Dependable prediction I was speaking with my son when I was writing that book on cycles and I said you know I think my market forecasts have been about right he says yes Dad that's cuz you did it five times in 50 years five times the market has been at such an extreme that regression toward the mean has been dependable not in terms of when it will happen or what will cause it or how fast it'll happen but the fact that it will where are we now I think we're in the middle ground I think we're a little bit above uh fair value but not so high that a decline is uh predictable or Dependable you know are you so he's Middle Ground middle of the cycle so we're seeing this activity with AI related stocks that's getting excited but he thinks overall obviously what he's saying is there that he's not seeing taking the temperature of the market he's not seeing a lot of excess around and you know if we compare it to in recent times say 2021 when there was a lot of excitement there was spacks there were mean stocks there were many things going on hundreds of specs will launch we're not seeing that kind of activity so I think I've heard him talk before and I think that's why he's saying that he's saying it's not so hot and he talks about credit being loose or tight that sort of thing so he that's why he thinks it's kind of Middle Ground even though there is this exuberance in AI related stocks are you talking about credit cycle now or stock market no I'm talking right now about the about the stock market right pretty much and I'm not I'm not involved in the stock market directly uh you know most of oak tree activities are in the credit markets yeah but it's a I think the stock market is a good barometer because it's very it's very obvious uh we get a reading in the stock market every day we don't get frequent readings in the credit market and in private credit we never get readings it all takes place behind closed doors so I take the stock market and particularly the S&P 500 stock index in the US as a very good indicator of what's going on inside psychology how many more right and psychology so psychology of the market the market Cycles now I do have a new stock Channel stocks a day with JJ which I've been posting daily reacting to stock news and can see this exuberance in the market and I react to that and you know I'm doing this to kind of point out some of these the psychology some of the things that go on on a daily basis stocks to day with JJ I'm going to put a link in the description to that more good years do you think we have well see now now you've crossed the line into we going into prediction now into well but not only that but you've crossed the line into ask me to make a prediction as to time right one of my oak tree colleagues in his quarterly letter to his clients stated his rule if you name a price don't name a date if you name a date don't name a price yeah so he's not making any predictions on time on you know how long the cycle is going to go for he doesn't do that as he said he takes the temperature of the market and then any one time that's how he does it and as he said he uses the stock market to do that even though he's not fully involved in the stock market as such wellth they have bought you know stakes and companies his company a lot so not strictly true but you know taking the temperature of the market that's what he does and I as I said that book's a really good book now if you want to hear more about this kind of thing I do talk about this kind of thing on the art of value patreon which I'll leave a link in the description to that for a Reon price I think every month I'm currently doing stock analysis videos I'm going to do about one a week and I also post an investing update to subscribers every week just my thoughts my extra thoughts where I don't share anywhere else so if you want to be involved in that I'll put a link in the description to that and hopefully see you over there now if you're watching on YouTube I'm going to put a link on this screen to what YouTube thinks that you want to watch next what you should watch next so go and see that now if you want to and also a subscribe button if you want to sub subscribe to this to get more of this kind of content and thanks to everybody for watching or indeed listening wherever you're doing that and I will see you in the next one
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