Howard Marks on Assuming Less Risk and Lowering Expectations

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greatmindsObserver has an interesting profile of respected investor Howard Marks, excerpted from the book The Great Minds of Investing (found via Abnormal Returns).

I enjoy the writings of Howard Marks because his observations are logical and rational, and he doesn’t mind putting out stuff that is boring and hard to do. It is much more popular to write about exciting things that are easy to do like “sell all your bonds!” or “buy oil stocks now!”. This quote from the profile is a good example. (Bolding is mine.)

“You can’t control the environment,” Mr. Marks adds. So the key is to recognize how it’s changing, accept it, and respond as wisely as possible. “The screwiest thing you can do is to think you’re a Master of the Universe. We’re all just little cogs, and the universe will go on without us. We have to fit into it and adapt to it.” For example, at the time of our interview in late 2014, he sees scant investment opportunity and excessive complacency: “What bigger mistake could there be than to think you can safely get high returns in a low-return world?” Investors should adjust by assuming less risk and lowering their expectations. He cites a favorite quote from Peter Bernstein: “The market’s not a very accommodating machine; it won’t provide high returns just because you need them.”

Assume less risk. Lower your expectations. I’ve been reading a lot of Dr. Seuss recently, and I think he would say “you may yawn and boo, but that is what you should do.”

For some reason, this book is out-of-stock at Amazon, unavailable at my library, and third-party copies are $70?! I believe this is because it contains high-quality photographs of the people profiled. Not to worry, Oaktree Capital has all of Marks’ famous memos online for free, or you can read a distillation of them in his book The Most Important Thing Illuminated (my review).

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Comments

  1. Looks like an interesting book – hopefully it’ll be back in stock at amazon soon!

  2. We’ve lowered our expectations about competence and honesty in government, the Federal Reserve, the SEC, the DOJ, politicians, honesty and integrity of virtually every institution in this country along with corporately controlled media and look at what we have. And now some one recommends lowering our expectations about standard of living and return on investment to supposedly minimize risk and maximize the benefits that accrue to the criminal elite as you continue to work into your late seventies because you have no choice or control? It sounds more like submission to me.

  3. Jonathan….is your response a typical reply to a typical internet comment that highlights both how hopeless things have become and the impossibility of changing anything anymore?

    • Perhaps, I usually don’t reply like that, I admit I was a bit cranky that day for external reasons. I do however take pride in the fact that most of my reader comments are thoughtful, positive, and not defeatist. I don’t like defeatism.

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