Investor Psychology and Market Cycles

This chapter explores the insights from Howard Marks' 2005 memo, emphasizing the dangers of complacency and the cyclical nature of markets. It discusses how emotional extremes influence investor behavior, showcasing Oaktree Capital's defensive strategies before the 2008 crisis and the significance of contrarian thinking. By analyzing historical trends and market sentiments, the chapter highlights the opportunity for savvy investors during times of pessimism and the importance of understanding macroeconomic factors.

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Episode notes

In today’s episode, Shawn O’Malley (@Shawn_OMalley_) breaks down 30 years’ worth of memos from one of Wall Street’s most storied investors: Howard Marks.

You’ll learn how Marks’s thinking about beating the market evolved over the course of his career, what it was like going through the 2008 Financial Crisis as a professional investor, the 5 market calls that Marks is most proud of, avoiding the cardinal sin of investing, plus so much more!

IN THIS EPISODE, YOU’LL LEARN

00:00 - Intro

01:38 - Why steady, slightly above-average returns drive the best long-term returns

05:28 - How to find a balance between finding fewer losers and more winners

07:36 - How to intelligently bear risk for profit

13:48 - Why nobody knows what will happen next in a crisis

14:40 - Why booms and busts are inevitable

22:44 - When Marks realized the dot com bubble was going to pop

24:08 - How low interest rates drive investors to take risks

27:33 - Why beliefs about the housing market were wrong

30:45 - How Marks’s firm responded to the Great Financial Crisis

36:02 - How Marks understood when to start buying stocks again after the 2008 crash

37:59 - When Marks knew bargains were being offered in March 2020

39:37 - How to avoid the cardinal sin of investing

And much, much more!

*Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences.

BOOKS AND RESOURCES

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2023 Memo: Taking The Temperature.
2023 Memo: Fewer Winners Or Losers?
2012 Memo: Deja Vu All Over Again.
2008 Memo: The Limits To Negativism.
2008 Memo: Nobody Knows.
2007 Memo: It’s All Good.
2005 Memo: Three They Go Again.
2004 Memo: Risk And Return Today.
2000 Memo: Bubble.com.
1990 Memo: The Route To Performance.
Benjamin Graham and David Dodd's book Security Analysis.
Jesse Livermore's book How To Trade In Stocks.
Edward Chancellor's book Devil Takes The Hindmost.
Howard Marks' book Mastering The Market Cycle.
Howard Marks' book The Most Important Thing.
Check out the books mentioned in the podcast here.
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