Howard Marks founded Oaktree Capital in 1995, managing $76 billion in capital, mainly investing in high-yield bonds, bad debt, and private equity. He has been writing investment memos to clients since 1990. From the memorandum he wrote, we can find the most important thing in his investment.
1.Think about a deeper level
Max believes that investors should have deeper thinking. He thinks that deeper thinking is an anti-conventional one. Investors should consider many different results of the problem. For example, what are the differences between my expectations and consensus? What are the outcomes in terms of probability?
Investment is an art. The key to success or failure is to think on the second level. Max said: "To be better than the average investor, you must be more advanced than the average person. Can you do this? What can you do?"”
2.Understand market effectiveness and its limitations
The premise of a market-effective theory contains certain assumptions. For example, it assumes that most investors work hard. They are smart, objective and mature investors. They have equal access to all available information and can freely buy or sell any short asset. But in reality, this situation does not apply to all investors.
As Marques said, “many of the best investments are in areas where other investors cannot or do not want to invest.” In certain periods, certain specific assets or even the entire market may be ineffective.
3.Understand the value
Max said: "We all know that even if a coin is thrown ten times in a row, the probability of the next throw is still 50%. The same thing, even if the price of the stock has risen for ten consecutive days, it cannot be determined tomorrow. The trend of the stock will be rising."”
When a company's current assets have more than its share price per share after paying all liabilities, such a company is considered to have a net worth value. In the 1850s in the United States, this type of investment was very well known. When the company knew in advance that the company would close and liquidate, the company's stock price would rise, which is known as "death is more valuable than living."”
But for more investors now, the value of the company is more reflected in its future earnings. Max said: "The purchase price is lower than its value, in my opinion, is the most reliable way to make money. The purchase of assets with greater value at cheap prices does not require luck, it just requires market participants to wake up, Return to reality, recognize the value of the business, and look for opportunities where prices are lower than value."”
Max said that the following areas are easy to find good investment opportunities: unknown areas, or areas that the market does not fully understand; areas in which fundamental issues have cyclical problems; temporary crisis of events, areas that make the market afraid; Ignored fields.
Before investing, investors must first judge the intrinsic value of the company and understand how to adhere to the concept of intrinsic value. Max said: "A certain thinking about the valuation is very accurate. A certain degree of insistence will bring good income. An incorrect thinking about valuation, stubborn persistence will bring about bad results." Investors should understand that according to the market The situation adjusts the valuation of the company.
4.Focus on the cycle
Rule 1: Most things are proven to be cyclical.
Rule 2: If others forget the first rule, the greatest chance of gaining income comes.
Most people may have heard a famous saying: "The tree will not grow into the sky." The one-way operation of things cannot last forever. One of the most dangerous things in investing is to view the current situation as a future trend rather than focusing on business conditions, investment, or credit cycles. Simply believe that good business performance will continue and bad situations will not come. It will be difficult to judge the exact location of the cycle in which the economy is located.
When optimism prevails, most forecasts and forecasts are completely wrong. At the cycle high of 1929, 1999, or 2007, most participants naively believed that “the stock market will behave as before.” Max thinks that understanding the cycle process is important, not simply inertial prediction6 Months or what will happen within 1 year. Max said: "The cycle will always win the party."”
