Morgan Housel, bestselling author of "The Psychology of Money" and partner at Collaborative Fund, teams up with Howard Marks to discuss the nuances of debt. They dive into how leverage influences long-term stability and the perils of excessive risk-taking. The duo connects historical financial crises to modern investing strategies, stressing the importance of emotional discipline and historical awareness. They highlight the significance of fundamentals in finance, advocating for a measured approach that prioritizes enduring success over fleeting profits.
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insights INSIGHT
Debt's Philosophical Impact
View debt philosophically, not just mathematically.
More debt narrows the range of volatile outcomes you can endure.
question_answer ANECDOTE
Rick Guerin's Margin Call
Warren Buffett, Charlie Munger, and Rick Guerin invested together, but Guerin used margin.
Guerin, equally smart, was "in a hurry," highlighting the long-term benefits of patience.
insights INSIGHT
Predictable Surprises
Investors often claim unforeseen events, but many recur regularly.
Prepare for inevitable market downturns, high unemployment, and inflation.
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In 'The Psychology of Money,' Morgan Housel delves into the psychological and emotional aspects of financial decisions. The book consists of 19 short stories that illustrate how personal history, worldview, emotions, and biases influence financial outcomes. Housel emphasizes the importance of behavior over knowledge in managing money, highlighting the power of compounding, the dangers of greed, and the pursuit of happiness beyond mere wealth accumulation. He advocates for a frugal lifestyle, long-term perspective, and a balanced approach to investing, stressing that financial success is more about mindset and discipline than about technical financial knowledge[2][3][4].
Mastering the market cycle
Getting the Odds on Your Side
Howard Marks
In 'Mastering the Market Cycle: Getting the Odds on Your Side,' Howard Marks provides a comprehensive overview of market cycles, emphasizing the importance of understanding the patterns of ups and downs influenced by economics, markets, companies, and human psychology. Marks draws on his decades of experience to explain how investors can position their portfolios to take advantage of market cycles by studying past cycles, understanding their origins, and remaining alert for the next cycle. The book highlights that market cycles are driven by cause-and-effect relationships and that investors should prepare rather than predict market outcomes. It also delves into the psychological markers and emotional factors that influence investor behavior during different phases of the cycle.
A short history of financial euphoria
John Kenneth Galbraith
In this book, John Kenneth Galbraith traces the history of significant speculative episodes in the economy, from the tulip craze of the seventeenth century to the recent plague of junk bonds. He exposes how normally sane people display reckless behavior in pursuit of profit, attributing these behaviors to a 'notoriously short' financial memory that leads to market collapses. Galbraith emphasizes that recognizing these patterns can help guard against future recessions and improve financial stability. The book underscores the cyclical nature of financial euphoria, driven by mass psychology and leverage, and warns against the illusion that wealth is a measure of intelligence.
The Great Depression, A Diary
Benjamin Roth
In this special episode of Behind the Memo, Howard Marks is joined by Morgan Housel, the bestselling author and partner at the Collaborative Fund. They discuss ideas from Howard’s recent memo “The Impact of Debt,” which was inspired by Morgan’s article “How I Think About Debt.” They explore the relationship between leverage and longevity, the nature of risk, and the eternal relevance of Voltaire’s famous saying: “History doesn’t repeat itself. Man always does.”
You can listen to or read the Memo here (https://www.oaktreecapital.com/insights/memo-podcast/the-impact-of-debt).