Money and Finance
- The Advantage Of Objectivity...
From Howard Marks in his memo "On the Couch": One of the most significant factors keeping investors from reaching appropriate conclusions is their tendency to assess the world with emotionalism rather than objectivity. Their failings take two primary...
- Hussman Weekly Market Comment: Optimism Vs. Arithmetic
Link to: Optimism vs. Arithmetic Current market conditions provide an ideal moment to highlight the distinction between investment and speculation. Sound investment is a) the purchase of an expected stream of future cash flows that will be delivered to...
- Howard Marks Interviewed By Hugo Scott-gall
Via Zero Hedge: Hugo Scott-Gall: How can we understand investor psychology and use it to make investment decisions? Howard Marks: It's the swings of psychology that get people into the biggest trouble, especially since investors’ emotions invariably...
- Howards Marks Quote From 2003
Although this is how Howard Marks ended his May 2003 Memo “What's Going On?”, I think it is also a perfect way to go about investing in today’s market. “In recent times we've had several reminders regarding the inevitability of the market...
- Vaccinate Yourself Against 2014 Predictions With Silver Medals
Its prediction season! What will the market do? What will happen in economics? In the world? No one really knows but there sure are lots of people ready, willing, and able to give authoritative sounding predictions on what will happen in 2014. I follow...
Money and Finance
The Limits to Negativism - by Howard Marks
The last few weeks witnessed the greatest panic I’ve ever seen, as measured by its severity, the range of assets affected, its worldwide scope and the negativity of the accompanying tales of doom. I’ve been through market crashes before, but none attributed to the coming collapse of the world financial system.
It’s worth noting that few of the recent sharp price declines were associated with weakness in the depreciating assets or the companies behind them. Rather, they were the result of market conditions brought on by psychology, technical developments and their interconnection. The worst of them reflected a spiral of declining security prices, mark-to-market tests, capital inadequacy, margin calls, forced selling and failures.
It was readily apparent that such a spiral was underway, and no one could see how or when it might end. That was really the problem: no scenario was too negative to be credible, and any scenario incorporating an element of optimism was dismissed as Pollyannaish.
There was an element of truth in this, of course: nothing was impossible. But in dealing with the future, we must think about two things: (a) what might happen and (b) the probability it will happen.
During the crisis, lots of bad things seemed possible, but that didn’t mean they were going to happen. In times of crisis, people fail to make that distinction. Since we never know much about what the future holds – and in a crisis, with careening causes and consequences, certainly less than ever – we must decide which side of the debate is more likely to be profitable (or less likely to be wrong).
For forty years I’ve seen the manic-depressive cycle of investor psychology swing crazily: between fear and greed – we all know the refrain – but also between optimism and pessimism, and between credulity and skepticism. In general, following the beliefs of the herd – and swinging with the pendulum – will give you average performance in the long run and can get you killed at the extremes.
It’s worth noting that few of the recent sharp price declines were associated with weakness in the depreciating assets or the companies behind them. Rather, they were the result of market conditions brought on by psychology, technical developments and their interconnection. The worst of them reflected a spiral of declining security prices, mark-to-market tests, capital inadequacy, margin calls, forced selling and failures.
It was readily apparent that such a spiral was underway, and no one could see how or when it might end. That was really the problem: no scenario was too negative to be credible, and any scenario incorporating an element of optimism was dismissed as Pollyannaish.
There was an element of truth in this, of course: nothing was impossible. But in dealing with the future, we must think about two things: (a) what might happen and (b) the probability it will happen.
During the crisis, lots of bad things seemed possible, but that didn’t mean they were going to happen. In times of crisis, people fail to make that distinction. Since we never know much about what the future holds – and in a crisis, with careening causes and consequences, certainly less than ever – we must decide which side of the debate is more likely to be profitable (or less likely to be wrong).
For forty years I’ve seen the manic-depressive cycle of investor psychology swing crazily: between fear and greed – we all know the refrain – but also between optimism and pessimism, and between credulity and skepticism. In general, following the beliefs of the herd – and swinging with the pendulum – will give you average performance in the long run and can get you killed at the extremes.
-
....................
-
Related link: The Tide Goes Out
-
- The Advantage Of Objectivity...
From Howard Marks in his memo "On the Couch": One of the most significant factors keeping investors from reaching appropriate conclusions is their tendency to assess the world with emotionalism rather than objectivity. Their failings take two primary...
- Hussman Weekly Market Comment: Optimism Vs. Arithmetic
Link to: Optimism vs. Arithmetic Current market conditions provide an ideal moment to highlight the distinction between investment and speculation. Sound investment is a) the purchase of an expected stream of future cash flows that will be delivered to...
- Howard Marks Interviewed By Hugo Scott-gall
Via Zero Hedge: Hugo Scott-Gall: How can we understand investor psychology and use it to make investment decisions? Howard Marks: It's the swings of psychology that get people into the biggest trouble, especially since investors’ emotions invariably...
- Howards Marks Quote From 2003
Although this is how Howard Marks ended his May 2003 Memo “What's Going On?”, I think it is also a perfect way to go about investing in today’s market. “In recent times we've had several reminders regarding the inevitability of the market...
- Vaccinate Yourself Against 2014 Predictions With Silver Medals
Its prediction season! What will the market do? What will happen in economics? In the world? No one really knows but there sure are lots of people ready, willing, and able to give authoritative sounding predictions on what will happen in 2014. I follow...