Howard Marks: “Waiting for the Bottom Is Nonsense”

It seems that almost every day there is more and more bad economic news. Unfortunately, there is no prospect that the situation will improve any time soon. The global economy remains closed as politicians around the world try to fight the coronavirus outbreak.

However, amid bad news and uncertainty, stock markets around the world are rising. It is difficult to understand why markets rise when bad news continues to prevail. Almost every Wall Street commentator and economist believes that the stock market will test its lows over the next few months as the global economy falls into recession or possibly depression.

If so, why are stock markets still higher in the stock market and what should investors do about it?

There is no point in trying to fight the market. Betting against a growing market can be a devastating course of action. The market can remain irrational for a longer time than most investors can remain solvent.

Over the past few weeks, Howard Marks, CEO of Oaktree Capital Management, has expressed some interesting thoughts on the subject. He tried to explain that as the market could decline, so could it move higher. We do not know what the future holds for the stock market, so it makes no sense to try to predict the unknowable.

Instead, Marks recommended buying stocks when they reach attractive prices and leave the rest to the market. Here’s what he wrote in his latest letter to investors in his fund:

“The old saying goes, ‘Perfect is the enemy of the good.’ Similarly, waiting at the bottom can prevent investors from making good purchases. The investor’s goal should be to make a large number of good purchases, not just a few perfect ones. before every purchase, you insist that you make sure that the item in question will never be available lower? That is, you buy the bottom? I doubt it. enough? I believe that you sell because you think that the sale price is adequate, not because you’re convinced that the price will never increase more. To invest in trying to buy only the bottom and sell only the top would be self-destructive.

So in my opinion waiting at the bottom is nonsense. What should be the investor’s criteria? The answer is simple: if something is cheap – based on the relationship between price and intrinsic value – you have to buy, and if it goes down further you have to buy more.

As investors, we can only control two things: cost and price paid. The rest depends on the market. It is pointless to try to put time in the market and bet against the market when market movements do not make sense.

As long as you are patient enough to wait for the right opportunity to buy stocks, you will be well-rewarded, provided the business survives and is able to generate consistently good returns. “