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Mastering the Market Cycle

Getting the Odds on Your Side

By Howard Marks
12-minute read
Audio available
Mastering the Market Cycle: Getting the Odds on Your Side by Howard Marks

Mastering the Market Cycle (2018) tackles a subject that’s often misunderstood, ignored or both: financial cycles. It not only explains what cycles are, how they tend to act and what influences them, but how best to position yourself within them to deal with risk and the current market environment. Along the way, it discusses multiple recent financial cycles, teasing out the lessons that can be learned from each.

  • Aspiring investors wondering how to choose their assets
  • People who’ve already made investments
  • Investors trying to gain a competitive edge

Howard Marks is an American investor, a writer and a cofounder of Oaktree Capital Management, a Los Angeles-based asset-management firm that oversees more than $122 billion in assets. He also writes an ongoing series of memos, which are eagerly awaited by many value investors, including legendary business magnate Warren Buffett. Mastering the Market Cycle is his second book, the much-anticipated follow up to The Most Important Thing.

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Mastering the Market Cycle

Getting the Odds on Your Side

By Howard Marks
  • Read in 12 minutes
  • Audio & text available
  • Contains 7 key ideas
Mastering the Market Cycle: Getting the Odds on Your Side by Howard Marks
Synopsis

Mastering the Market Cycle (2018) tackles a subject that’s often misunderstood, ignored or both: financial cycles. It not only explains what cycles are, how they tend to act and what influences them, but how best to position yourself within them to deal with risk and the current market environment. Along the way, it discusses multiple recent financial cycles, teasing out the lessons that can be learned from each.

Key idea 1 of 7

Investors do their best to buy assets with high value at a low price.

Let’s start with a basic question. What’s an investor? Well, he’s someone whose job is to invest in a range of assets, comprising a package known as a portfolio, which he hopes will increase in value as the years pass.

How does he know which investments will accrue value? Well, he doesn’t. Though some guesses are more likely to be correct than others, an investor never truly knows what the outcome of an investment will be. All he can do is discipline himself in the art of making educated guesses.

But this is no easy art to master. For starters, it’s pretty much impossible to predict the distant future with greater accuracy than other investors. They are likely to know as much as you do about impending large-scale economic, geopolitical or market-related events, such as wars, stock market crashes or the advent of new technologies. Why? Well, you and they are all probably reading the same articles and looking at the same data, so their guesses about future events will probably be as good as yours.

So you can forget long-term forecasting. It’s much wiser to pay attention to what the author calls “the knowable” and base your short-term predictions off that knowledge.

The knowable is all the information you can gain about the true value of a given asset. For example, if you’re thinking about investing in a company, you’d want to look at the real value of that company’s assets and compare that value with the price of a share in that company. If the price underrates the real value, you may be looking at a solid investment.

So the goal is simple enough: you want to buy assets when they’re cheap and wait for developments in the market to bring their price up.

For instance, imagine the real estate market has crashed, and developers are defaulting on debt and being forced to abandon their building projects. You might be able to snatch up structures whose worth in materials alone exceeds the price at which you’re buying.

Doing this will, obviously enough, increase the chances that your portfolio will gain value in the future.

Now, some investors would say this is all the job involves – buying low and selling high. But the author contends that the superior investor should, and often does, consider a third component: financial cycles.

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