I was going to do my regular linkfest this morning and then I saw that Howard Marks was out with a new memo to Oaktree clients, so we’re just going to focus on that. It’s a late summer Friday anyway, and other than some currency stuff overnight things are fairly quiet.
Anyway, I get a couple of paragraphs into the memo and I realize he’s responding to my blog post on his last memo as well as the subsequent appearance he made on my TV show. And I’m dying!
Regular readers know that Marks is a hero of mine. And we don’t quite disagree so much as talk past each other in this exchange. I’m thinking that it’s the difference between a wealth manager (me) and an asset manager (Oaktree).
In the note, Marks takes issue with my comment about how it’s always as good a time for caution as it is a time for being invested.
The particular statement I made was this one (full post here):
So I appreciate Howard Marks’s message but I think now is no more a time to be cautious than at any other time. We should always invest as though the best is yet to come but the worst could be right around the corner. This means durable portfolios, a willingness to miss out on 100% of a given asset’s upside, hedges, cash reserves, tactical asset allocation, diversification, realistic goals and objectives, etc. There is no better or worse time for any of these things that we can foresee in advance.
Marks believes that one can anecdotally and empirically create a mental latticework (a Charlie Munger concept) to describe the environment today and use that to position better for the future.
He’s had a lot of success doing exactly that. I would note that most people haven’t and won’t.
And that the rewards for getting this right a few times will be outweighed by the costs, anguish and performance drag from all of the miscues from a process like this. Being cautious about a potential 20% correction that eventually comes, but doing so throughout a 100% bull market advance beforehand is going to have a drastically negative impact on returns.
Marks won’t acknowledge his own greatness so I will: 99.99% of you, present company included, will never be Howard Marks. The implication is that most people should focus on building durable portfolios that can survive and thrive in a variety of potential market outcomes.
This is how we arrive at a place where he and I can both agree and disagree at the same time.
I send you over to read his new memo now. The stuff about his rethinking Bitcoin is also interesting. You will love this: