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hello and welcome uh thank you for clicking on my video this video is gonna be a book review i'll get into that into what book in a little bit but some backstory i told a few people that i enjoy reading and a few of them have said you know what andres if you enjoy reading a lot of people don't enjoy reading some people hate reading i kind of just convinced myself that i like it and it worked and i ended up really enjoying it i find it very relaxing but i mainly focus on reading books about economics politics and finance so that's kind of going to give you the idea of the types of books that i'll be reviewing and going through some books i might do what the whole book where i just review the whole book in one sitting but i think to start i might try going chapter by chapter all right introducing the book that we're gonna start with it's this book but yeah so the first book that we're gonna be reviewing is mastering the market cycle by howard marks he is one of the co-founders of oak tree capital i believe they are based in california and just to give you an idea of the caliber of howard marx is his book has been reviewed by ray dalio by charlie munger by carl icahn all of these are really um well-known and well-performing either fund managers or investors some even traders i think carl icon is also a bit of a trader um but yes so the premise of this book is helping to helping you understand how utilizing the market cycles improve your investments and your portfolio allocation but without going into too much detail let's get into chapter one okay we are now over um to our next show all right let's get into into the book all right mastering the cycle mastering the market cycle sorry getting the odds on your side okay so um as expected chapter one is mostly gonna be focused around um uh intro introducing the topic introducing cycles um etc yeah let's not get too much into it so we're going to begin by looking at a statement here on page 10 and it reads as follows it's very difficult to be consistently superior in those regards as related to macro so in my view trying to predict what the macro future holds is unlikely to help investors achieve superior investment performance very few investors are known for having outperformed through macro forecasting so that's a pretty bold statement because we generally think of investors like the ones who reviewed the book charlie munger carl icahn ray dalio to be more of the macro investor types but here he is making the bold claim that very few people are able to outperform using a macro approach now maybe ray dalio is one of the few because he goes on to say that there are certain things that unknowable or certain things that are not knowable or at least not knowable well enough to con or consistently enough to be able to profit from that or have that lead to our performance so maybe smaller investors don't have the access that ray dalio have to use macro forecasting so then what's left well he breaks it out in these three points and i'll read them to you trying to know more than others about what i call the noble the fundamentals of industries companies and securities so that is studying um being disciplined asks you the appropriate price to pay for airport for a participation in those fundamentals so in other words wait for the right price understanding the investment environment we're in and deciding how to strategically position our portfolios for it so the first two are kind of what you think of as the grain dodd's um approach to security analysis um you're more fundamental trying to buy something that's undervalued by the market and unless you're getting a good good price for it and also being patient enough to wait for when you get the right price but then he introduces this third point and that is understanding the environment so this is kind of where you start beginning to get this the taste for cycles and while mastering the market cycle is the title um so then we start to get into this idea of um aggressiveness and defensiveness and i'll read this to you in my view the greatest way to optimize the position of a portfolio at a given point in time is through deciding what balance it should strike between aggressive and defensiveness and i believe the aggressiveness and defensiveness balance should be adjusted for over time in response to changes in the state of the investment environment and where a number of elements stand in their cycles right so to break that down essentially if you feel that the the market is in a cycle where you feel like you've got a high probability of of profit then you must be more aggressive and if you feel like you're an environment where the probability for profit is is low then you want to put it towards a defensiveness in other words here he summarizes very well when we're getting value cheap we should be aggressive when we're getting value expensive we should pull back then he briefly talks about understanding risk so i agree with his definition here and that's also how i define risk risk is what you stand to lose and here he says as well so this is my statement up here and then he says i lean heavy towards the first definition in my view risk is primarily the likelihood of permanent capital loss okay then the next concept that he introduces is um is going to be a lot more surrounding probability so i'm going to close the book for now to explain um the kind of the story that he uses to illustrate uh probability so he has this id or the story of there's this bowl and in this bowl there is i'll use this color there is black and red balls so he uses the story of um of oyito's analogy of a ball a bowl with tiny little balls in and we as the investor are trying to make guesses about what um what so if if your chance of making a profit is like picking something out of this ball um do you do you pick a black ball or do you pick a red ball well without knowing anything um about this ball like how big is it how many balls can it contain how many black balls are there how many red bulls are there you are really shooting in the dark you're just at random picking a bowl and um whether that maybe that ball if you open it up it has some prize in it um but um right so without knowing information about this ball it's very hard to play this game and and win at this game of picking a ball and winning a prize so we need more information information so essentially he makes the claim that the person that's able to research this environment and understand more about what's going on in this ball is inevitably going to be the investor that is going to be able to uh make the higher return so you want to get information like because once you start ascertaining information like that then you can become a smarter investor and know when to uh pick a red ball and when to pick a black ball so this kind of late begins to lay the foundation for how he also not only do we think of of cycles but we also think of probabilities within those cycles so right so here we can see after i've given you that illustration understands or the good investor understands the tendencies or odds does he know something that others don't about the color of the balls in a jar he has a sense for whether the chances of winning exceeds the chances of losing thus he is able to invest more when they are favorable and less when they aren't all right that's it for chapter one thank you so much for for watching yeah i hope you enjoyed it i hope you got value from it please subscribe please come along as i go through every chapter sometimes i think i'll have to group a few chapters together because some chapters are much shorter and much less substantive but yeah that is chapter one of mastering the market cycle by howard marks
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