Howard Marks of Oaktree Capital Management says short-term trading is a waste of time, or worse. In his latest memo to his Oaktree clients, Marks said that price movements are far more affected by fluctuations in investor psychology than by changes in companies’ long-term prospects.
The hedge fund co-founder said, “Since fluctuations in psychology matter more in the near term than changes in fundamentals — and are much harder to predict — most short-term trading is a waste of time. Or worse.” Is.” 22 November.
What shouldn’t matter to investors, he said, are short-term events, trading mindset, short-term performance, volatility, over-activity. Study the ‘subtle like crazy’ to know your subject better than others, he said, adding buy loans when you like the yield, not for trading purposes.
Marks said that if one were to ask Warren Buffett to describe the foundation of his approach to investing, he would probably begin by asserting that stocks should be treated as ownership interests in companies. Most people, Marx said, buy stocks with the goal of selling them at a higher price, thinking they are for trading, not ownership.
This means they abandon the owner’s mindset and instead act like gamblers or speculators who place bets on changes in stock prices,” he said, adding that “the results are often unpleasant.”
There is a popular saying: Don’t just sit there; do something. But for investing, Marx tells investors, “Just sit there, do nothing.” Marx said that one should develop the mindset that one makes money not by what one buys and sells, but by what one holds.
Marx said that one should not give too much importance to the returns in a quarter or a year. He said investment performance is one result extrapolated from the full range of returns, which may be material. “In the short term, it can be heavily affected by random events. A single quarter’s return is likely to be a very weak indicator of an investor’s potential,” he said.
Marks said that most people cannot forecast the future frequently enough to outperform, because it is difficult to know which expectations about events are already factored into security prices.
“One of the important mistakes people are guilty of – we see this in the media all the time – is believing that changes in security prices are the result of events: that favorable events lead to higher prices and negative events lead to lower prices. I think that’s what most people believe – especially first-level thinkers – but it’s not true. Security prices are determined by events and how investors react to those events, which can be very important. The extent is a function of how events stack up against investors’ expectations,” he said.
Marx noted that security prices are highly susceptible to random and exogenous events in the short term, which can dilute the effects of fundamental events. Macro events and fluctuations in the near-term fortunes of companies are unpredictable and not necessarily indicative of — or relevant to — the longer-term prospects of companies, he said, adding that little attention should be paid to them.
Marx said that in many cases people give too much importance to volatility. He added that it is necessary to recognize that protection from volatility is generally not a good good.
Marks stated that reducing volatility for its own sake is a suboptimal strategy, asserting that it must be recognized that favoring low-volatility assets and approaches will – all things being equal – lead to lower returns.
Of vital importance, Marx said, equity investors should aim to participate in the secular growth of economies and companies and benefit from the wonder of compounding.
“Think of attending to the long-term performance of the average as the main event, and active efforts to improve it as embroidering around the edges.” They said.
Marx said that an investor can do these things successfully requires the assumption that he is smarter than a group of very smart people. “Think twice before you move, because the requirements for success are high,” he said.
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