Howard Marks: Mastering the Market Cycle

4 key learnings from a genuine master of the craft

Photo by Gemma Evans on Unsplash

Even among the classics of investing literature readers must be prepared to stomach a modicum of folksy wisdom, dusted with the odd strained aphorism or mildly exaggerated anecdote. Or else the reader is inducted into the cabala of Elliott Waves and similar charting techniques, most of which sounds like it was lifted from a Dan Brown novel.

While Marks’s latest book on market cycles is not without its share of Marksisms, this is surely some of the most self-aware writing of any professional investment manager. It offers something even the most experienced investors can appreciate and learn from, while remaining accessible to a general audience.

As humans we struggle to extricate our rational brain from our emotions-and not just when the markets head south. When things are going well, we tend to believe that they’ll carry on that way forever. We make more generous assumptions, reduce our margin of safety, and start underpricing risk. Likewise, when the market enters freefall, suddenly nothing is safe, any kind of risk appears monstrously overpriced, and the nightmare feels like it will never end.

If there’s a key insight from Marks it’s that cycles are fundamentally psychological. There may be some exogenous…