Oaktree Capital's Howard Marks begins his latest missive with a few
hard truths. Anyone who has read his memos of the last 23 years will see
he returns often to a few topics. This is due to the frequency with
which themes tend to recur in the investment world. Humans, he
notes, often fail to learn. They forget the lessons of history, repeat
patterns of behavior and make the same mistakes. As a result, certain themes arise over and over. Mark Twain had it right: “History doesn’t repeat itself, but it does rhyme.”
The details of the events may vary greatly from occurrence to
occurrence, but the themes giving rise to the events tend not to change.
Most or all of these themes have to do with behavior that’s observed in
the markets over and over. The good news is that today’s investors are painfully aware of the many uncertainties.
The bad news is that, regardless, they’re being forced by the low
interest rates to bear substantial risk at returns that have been bid
down. Their scramble for return has brought elements of pre-crisis
behavior very much back to life.
In 2004, I stated the following conclusion: “There are times
for aggressiveness. I think this is a time for caution.” Here as 2013
begins, I have only one word to add: ditto.
The greatest of all investment adages states that “what the wise man does in the beginning, the fool does in the end.” The wise man invested aggressively in late 2008 and early 2009. I believe only the fool is doing so now.
Today, in place of aggressiveness, the challenging search for return
should incorporate goodly doses of risk control, caution, discipline and
selectivity.
