Interview with Howard Marks: The Biggest Risk Is Rising Interest Rates

After his remarkable memo last month about the blurring lines between value and growth investing, the legendary investor and Chairman of Oaktree capital, shares his insights about the macro situation globally in this interview with The Market. Like always, there are some nuggets of wisdom for all of us. Whilst helping us understand the current macro situation, he shows remarkable humility in saying how hard it is to take a position despite all the years of experience and wisdom.
For examples, when the interviewer asks him about attractive opportunities, his nuanced answer about emerging markets and position sizing in general showing why investing may be simple yet not easy:
“Emerging markets, for instance. They are a good play because they have a bright future. They were up very well last year, but they are still reasonably priced on the basis of history. One of the big decisions you have to make today is how much China to have in your portfolio, since its economy is very powerful and rapidly growing. People often think: I should have representation in China, so I’m going to put in 2%. But that’s pretty close to zero. So the question is: Do you have the nerve to make it a big piece of your portfolio? That’s the interesting thing about investing. Everything you do to try to be right exposes you to the risk of being wrong. If you stay at 2% for China, and it goes well, you will regret that you didn’t do enough. On the other hand, if you are at 20%, and it does badly, you will shoot yourself. There are no easy answers or sure things. A friend of mine, Richard Oldfield, wrote a good book on investing. The title sums up investing quite well: «Simple, but not easy».”
On why it is important to know your risk appetite:
“If you overestimate your intestinal strength, you could wake up and find your portfolio down substantially. In that case, you may panic and sell, crystallizing that loss. Yet, markets fluctuate around a rising trendline. If you buy at a high price and it falls, that’s not the worst thing in the world, because the next high will likely be higher. So if you hold on for the long-term, you will make money. But if you buy high, the price falls and you sell, then you never get to participate in the subsequent recovery. That’s the cardinal sin: selling out at the bottom. That’s the reason it’s so important to not overestimate your risk tolerance.”
On ‘selling discipline’:
“Here’s my most important advice: Start young, try to figure out which companies will do best in the long run and hold them. Invest in good, solid companies, not promotional stocks, not the company of the day. That way, you can’t miss accumulating a lot of money. The big mistake is selling. About six years ago, I wrote a memo about liquidity where I stated that liquidity is not necessarily a good thing, because most people trade too much. I quoted my son Andrew, who said: When you look at the chart for something that’s gone up for twenty years, think about all the times a holder would have had to convince himself not to sell.”