Every time Howard Marks writes a memo, it is almost guaranteed to end up in our Thought Starters email. The co-founder of Oaktree Capital Management is an investment industry legend and his memos have taken on an almost mythic status. If Buffett’s letters are the gold standard, then Nick Sleep and Howard Marks would be fighting for second place.
In this memo, Marks writes about how some classic themes in investor behaviour had reappeared in the bull market of 2020 and 2021. Bull markets are not an economic phenomenon as much as they are a psychological one. And Mark’s explains what happened over the past two years and how our belief about the future (and the companies building it) became so disconnected to the economic reality of today.
Marks doesn’t predict when this market crash will end or how low it may go. In fact, he explicitly writes that, “No one, including me, knows what the sum of those things implies for the future.” But, with the benefit of hindsight, he certainly can help us understand what we lived through in markets over the past two years.
Our biggest takeaway reading this memo? If bull markets are primarily driven by psychology, rather than economic fundamentals, then so are bear markets. And just as share prices can become untethered from reality on the upside, they can do the same on the downside. Our opportunity in a moment like this, is to find them.
This is an excerpt from our Thought Starters email. Once a week we send you 5 interesting articles that have caught our attention, to get you thinking. No spam, we guarantee.