..and again!!
That’s the title of a memo sent by the famous investor Howard Marks of Oaktree Capital to his clients recently. And it refers to how he is happiest writing when bull markets start going far, risk aversion disappears and there’s money all around inflating potential bubbles.
It is quite a long memo listing and describing various indicators that seem to be currently aligning together suggesting the prevalence of such a bubble type situation. For those interested in reading it, you can download it here.
But for those who don’t have the inclination or the time to go through the indicators, the what to do section at the end is what is most relevant. And honestly speaking it is nothing new, but it is well worth repeating.
There is no one size fits all action for all – so his answers are more like an essay on the one hand, and philosophy on the other. But the message is clear: There is a time to chase returns and there is a time to assess risk. And the time for caution is here, and the time for assessing low risk options is here.
So for individual intelligent investors, it is nothing new really. Dhirendra Kumar of Value Research Online in his well meaning article here says that it is well worth repeating the old stuff now.
The steps stay the same. They still constitute sticking to your asset allocation, re-balancing your portfolio if it has gone a bit out of whack, continuing to make investments as per your plan, and neglect the markets with a long term orientation.
The problem with this is that there is nothing new. But it still needs repetition, because it is tough to follow in practice.
Jason Zweig – the famous columnist and editor of the book “The Intelligent Investor” once wrote in a column titled “Saving Investors from themselves” (Please make it a point to read it here) that when asked how he defined his job, he said “My job is to write the exact same thing between 50 and 100 times a year in such a way that neither my editors nor my readers will ever think I am repeating myself.”
In my case, fortunately I don’t have to write so often, there is no editor, and readers shouldn’t mind repetition for their own sake. It will save them from themselves.
This is clearly the time to repeat the same old stuff.
As Howard Marks said in his memo, this approach of taking low risk options will not necessarily give you the highest returns, but what it will ensure is that you survive.
Here is what he says towards the ending sections of his memo which are well worth remembering:
“If you refuse to fall into line in carefree markets like today’s, it’s likely that, for a while, you will (a) lag in terms of return (b) look like a old fogey. But neither of those is much of a price to pay if it means keeping your head (and capital) when others eventually lose theirs.” “They will also make you a long term survivor. I can’t help thinking that’s a prerequisite for investment success.”
So there they go again. And hence it is indeed time to stick to the old stuff, even more so.
