Book Review “Mastering The Market Cycle” by Howard Marks

August 02, 2019

Howard Marks is a legendary investor and founder of Oaktree Capital Management, currently managing in excess of $120 Billion; earlier this year Oaktree agreed to be acquired by Brookfield Asset Management. Howard Marks has long been considered one of the top investors in the world, especially in the area of distressed debt.

Mr. Marks central belief is that markets rise and fall over cycles, although he displays a certain humility in recognizing that he cannot possibly predict the timing of when things will turn up or down. The cyclical factors that go into his thinking are the very large cycles of population growth, the corresponding hours worked in the economy, and the output of that work, typically measured by productivity. Since those factors change very little year by year, Mr. Marks believes the long-term cycles are inevitable, and only short-term cycles can be influenced by government policies, capital market conditions and importantly, investor psychology.

Mr. Marks demonstrates that typical investor behavior is predictable in three stages: 1) markets look bad, and few people perceive things will get better, 2) investors realize improvements are taking place, and 3) nearly everyone concludes things will continually improve. Eventually, investment options either become over-crowded (and thus over-priced) or assets become so cheap they are not even priced at their intrinsic or replacement value. Deciphering where we are in those cycles and positioning a portfolio to take advantage of these long-term trends has proven particularly rewarding for Mr. Marks. His useful and readable book is a good overview of how you can gauge for yourself where we are in the cycle.