Investor Insights: Howard Marks On Why Investing Can Be Difficult

When Howard Marks talks or writes, I listen and read.  He writes a lengthy monthly newsletter that has a large following including Warren Buffet, one of the best investors of our time.  Here is a snippet from Howard’s last memo in which he opines on the chattering nabobs that you can find touting their forecasts (with such certainty) all over the media:

“The future should be viewed not as a fixed outcome that’s destined to happen and capable of being predicted, but as a range of possibilities and, hopefully on the basis of insight into their respective likelihoods, as a probability of distributions.”

For students who want to hear from a master investor and his common sense advice for young investors, this radio interview (start at 2:30 and end around 10:00 on the time slider) hits the mark.  It also provides opportunity for students to hear key investment terms in context.

Here were the key takeaways:

  • Differentiates between trading (short-term) and investing (long-term)
  • Investors need to think about what they want to accomplish:  To get average results is easy (think index funds); to get above-average results is hard.
  • Why is investing so hard?  Emotion is the enemy.  We are too optimistic when stock prices are high (and buy) and too depressed when they are low (sell).  This is counter to what makes a successful investor who sells when prices are high and buys when prices are low.
  • Young people should have higher tolerance for risk since if things go wrong, there is more time for them to come back.  In other words, young people can have a higher percentage of their investments in stock.  As you get older and closer to retirement, you will want to decrease your stock holdings.
  • Active vs. Passive argument:  Unless an individual investor has the skills necessary or can access managers who have that skill (which is truly rare), passive approaches or investing in broad indexes is the right choice.

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  1. Pingback: Activity Idea: The Problem With Investing Predictions | Next Gen Personal Finance (formerly CFCI)

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