The Truth about Investing 101

This is taken from a presentation by Howard Marks Co-Founder of Oaktree Capital. This is the first in a series of articles to follow. Mr. Marks makes concise and incisive comments about the art of investing that can help amateur and professional investors alike.

Superior results don’t come from buying high quality assets, but from buying assets – regardless of quality – for less than they’re worth.

Benjamin Graham emphasized that margin of safety means never paying too much for a stock. The margin of safety would act as a buffer for unanticipated negative occurrences impacting the investment choice. This is the fundamental premise of value investing; with margin of safety, investors may reduce downside risk, insulate themselves from mistakes, and earn remarkable returns. A thorough examination of the financial accounts can aid in the identification of alpha opportunities.

Investors would be wise to accept that they can’t see the macro future and restrict themselves to doing things that are within their power.

The macro future consists of market cycles; hence markets are bound to correct in the current scenario. People do not miss their financial goals as a result of market corrections but due to their own reaction to the market correction. What we can do as rational investors is invest in stocks of a company with a viable business model by learning about their businesses, industries, and the business, as well as the elements that influence the business. Controlling emotions can benefit in financial decisions; nevertheless, this is easier said than done. Fear of loss can induce investors to act impulsively, making poor investing selections.

One of the main reasons for the sultry predictions is the enormous influence of randomness.

The economy is a broad network of interrelated production and consumption activities that help determine how finite resources are allocated. It is difficult to foresee each and every interconnected action with certainty. The one thing we can be assured of is that the future is unpredictable. Most investors cannot predict the macroeconomic future better than anyone else. In an unpredictable market, time-tested investing tactics may fail, causing investors to lose money.

Once in a while someone receives widespread attention for having made a startlingly accurate forecast. It usually turns out to have been luck and thus can’t be repeated.

Analysts and major brokerages often forecast an index’s climb to historic highs, particularly during bull runs. However, such forecasts are usually attention grabbers that drive more traffic to the blog or website. Usually, it turns out to be a lucky coincidence. Investors must strive to distinguish between market noise and market information about their stock. A methodical, calculated approach to building a balanced portfolio that meets your goals is far superior to putting everything on the line for one call. Investing decisions should never be made only on the basis of a single source or perspective. Coffee-can investing is a tried-and-true approach that never fails: buy low, sell high.

Source: Howard Marks- Truth About investing.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”