Welcome back, ValueHuntr readers! In the coming weeks, we will resume regular posts relating to the business of value investing. In the meantime, we’ve kept some older posts that are still useful and relevant now. For today’s post, we highlight a timely quote from the latest memo by Oaktree’s chairman Howard Marks. In this memo, titled “How Quickly They Forget,” Marks comments on investor behavior, memory and risk-taking against the backdrop of today’s “low-return world.”
On risk, Marks had this to say:
Especially since the publication of my book, people have been asking me for the secret to risk control. “Okay, I’ll read the 180 pages. But what’s really the most important thing?” If I had to identify a single key to consistently successful investing, I’d say it’s “cheapness.” Buying at low prices relative to intrinsic value (rigorously and conservatively derived) holds the key to earning dependably high returns, limiting risk and minimizing losses. It’s not the only thing that matters – obviously – but it’s something for which there is no substitute. Without doing the above, “investing” moves closer to “speculating,” a much less dependable activity. When investors are serene or even euphoric, rather than discomforted, prices rise and we become less likely to find the bargains we want.
You can read the full memo here.