Howard Marks says he’s made five great market calls in his career. Here’s how he did it.
Howard Marks, co-chairman and co-founder of Oaktree Capital Group LLC, pictured in November 2019. The investor says he has made five great calls in 50 years, and shares how he got there.
Investors are playing the waiting game for Tuesday, a day ahead of what could be a pivotal consumer prices report.
“Over time, it takes just a few winners to work wonders.” That’s what one of the world’s most widely followed investors, Berkshire Hathaway’s Warren Buffett, told investors earlier this year. Some of his big victors have included Apple, which he bought in 2016, or Coca-Cola in 1988 — clearly those early investments have paid off.
Our call of the day comes from another legend, Oaktree Capital Management’s co-founder and co-chairman Howard Marks, who offers insight about how he made his best ever calls — five in 50 years — along with a key mistake for investors to avoid.
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First, the latter. In a new note to investors, Marks addresses whether it’s worse for investors to buy at the top or sell at the bottom. “If you buy at what later turns out to have been a market top, you’ll suffer a downward fluctuation,” he says. If the long-term thesis on that stock is intact, the next top will usually beat the last so investors will usually come out ahead, he adds.
“But if you sell at a market bottom, you render that downward fluctuation permanent, and even more important, you get off the escalator of a rising economy and rising markets that has made so many long-term investors rich. This is why I describe selling at the bottom as the cardinal sin of investing,” he says.
As for his five good calls, Marks says the first was in January 2000, when he warned of a tech bubble that was about to burst because, simply, “stock prices had become unsustainably high.” The bursting came later.
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In July 2007, he warned clients that “skepticism, fear and risk aversion” were in short supply as many were stuck believing the housing market would only go up. Oaktree made big defensive moves in its investment portfolio ahead of the crash that would arrive eight months later.
Another call came in late 2008, when Oakmark decided to invest aggressively, ignoring the aversion to put money to work as fallout from Lehman’s bankruptcy swept across the markets. “There was too much fear and too little greed, too much pessimism and too little optimism, and too much risk aversion and too little risk tolerance,” he says.
He also warned clients of excessive negativity around stocks in 2012, which worked in favor of those willing to take a contrarian stance. “Once again excessively negative sentiment had resulted in major gains. It’s as simple as that,” he said. The S&P 500 returned 16.5% a year from 2012 to 2021.
His last big call came in March 2020, when Marks cautioned about emotional stock selling fueled by panic over the COVID-19 pandemic. Indeed, equities eventually bounced. “When the knee-jerk reaction of most investors is to stand pat or sell, a contrarian decision to buy might be well called for,” he said.
