INSUBCONTINENT EXCLUSIVE:
Investment legend Howard Marks says recognizing and dealing with risks associated with ups and downs of market cycles and knowing our
position in these cycles are two key ingredients required for becoming a successful investor
There are different cycles that influence financial markets, ranging from macro economy to credit, investor sentiment and what not
These different cycles feed into market cycle and you can spot great opportunities by observing these cycles keenly.
Study history, economy
investor psychology to withstand market volatilityMarks, co-chairman and co-founder of Oaktree Capital Management, believes risk can be
minimised near market peaks and bottoms by studying how economy, markets and investor psychology move in long cycles of expansion and
contraction.
Marks recommends investors to look at recent history, human emotion and asset pricing to be better equipped to interpret
volatility of market cycles, which can help bring clarity to investment decisions.
But he warns that while recent performance can only tell
market cycleMarks says one of most important priorities for an investor should be to know his position in market cycle
By doing things like reading widely and doing right research, it is possible to see patterns that can inform an investor about current state
video, which is now available on YouTube.
Make risk calibration a priorityAccording to Marks, key to an investment decision is to
and prices are going up every day, investors want to go out and buy more due to rising optimism and euphoria.
He stresses that this
excessive optimism can be dangerous
Risk aversion is an essential ingredient for market to be safe, says he
An overly generous capital markets can ultimately lead to unwise financing.
When prices are high, investors should want to sell and not buy
Very few investors follow this principle because they feel very positive about outlook
Similarly, when prices hit rock bottom investors are most depressed and most unlikely to buy.
Marks advises investors to do opposite and
We must sell when fundamentals are at their peak and emotions are most positive, and we must buy when fundamentals are at trough and people
marketsMarks believes there is a reason why swings of stock market far exceed swings in corporate earnings
human emotion than due to excel spreadsheets, discount rates or profits
This is certainly true in stock market and this creates massive swings totally disconnected from fundamentals
