Some learning from Howard Marks,
- Howard Marks: 3 More Tenets for Investment Success – Be specialized and don’t forecast
Have a high degree of specialization
“We don’t have a central research department, each strategy has its own research department. Each person is dedicated to one strategy, we don’t have jacks of all trades. And each fund does one thing…I started at Citibank 40 years ago and our high-yield bond portfolios in 40 years have never owned anything but a high-yield bonds. That’s not true of many funds. Many funds have some commons, some preferreds, some distressed debt, some munis, some sovereigns – other things to goose the returns. Back when I was at Citibank running convertibles and high-yield bonds my boss said to me: ‘Why don’t you put some converts into the high-yield portfolio?’ because the stock market was strong at the time. And I said, ‘Why, I think that’s a great idea, and I’ll also put in some gold and some old master paintings!’”
Micro not macro
“Our investment decisions are not governed by macro forecasts. The macro outlook is very important, it drives the markets these days and has for the last 15 years. I think macro took over from micro at a certain point. But I don’t think it’s knowable.
Most forecasts are extrapolations, everybody agrees with them. If they come true, it doesn’t make anybody any money. The forecasts that would make people money are idiosyncratic forecasts of deviations from trends, and they would be highly profitable, but they’re rarely right. Why do it? The goal is to be a superior investor. If we are not superior we have no edge. We have no reason for being.
It has to come from seeing things differently and doing things differently and having a superior insight. And I just don’t believe that it’s possible to have superior insight in the macro, which is economies, markets, currencies and rates. We spend all of our time trying to know the micro: companies, industries and securities and doing so better than others.”
Do not jump in and out of the market
“We’re not the kind of people that go in and out of the market, from cash to no cash. Very hard to do that right. If you go from an asset, say you sell a high-yield bond that yields 6%, you put it into cash which yields 1% – you better be right right away, and then you also have to get back in at the right time. It’s very, very hard to do that.”
