Excerpts of Howard Marks’ Memos to Clients ~ Anil K Tulsiram 0 CONTENTS My observations ..................................................................................................................................................... 5 Price matters more than quality of investments .................................................................................................... 5 Contrarian investments: ......................................................................................................................................... 5 On venture capital returns during Tech bubble: ................................................................................................ 7 Beware of generalizations .................................................................................................................................. 7 Etorre's Observation: The other line moves faster. (Sept 2002) ....................................................................... 8 Are the best small companies best investment (March, 2003) ........................................................................ 10 Contra investments - 2006 ............................................................................................................................... 10 Unconventionality - 2006 ................................................................................................................................. 10 I would not buy that at any price – April, 2007 ................................................................................................ 11 Large amount of money is made by buying what everybody underestimates – Apr-2007 .............................. 12 If everyone likes it, its probably fairly priced or overvalued – Arpil, 2007 ....................................................... 13 Be a Pioneer - 2006 ........................................................................................................................................... 13 Contra investing and market inefficiency - ....................................................................................................... 14 Bargain if no Optimism is incorporated in price (Sept 2012) ........................................................................... 14 Put avoiding losses ahead of the pursuit of profits .............................................................................................. 14 Consistently finishing in the money is what matters most:.............................................................................. 15 Avoid Black Swan events – May, 2008 ............................................................................................................. 15 On Black Swan event – December - 2006 ..................................................................................................... 16 Message from Black Swan – October, 2008 ................................................................................................. 16 Long term vs Short term (July, 2008) ................................................................................................................ 17 Investment philosophy: ........................................................................................................................................ 17 Secret to risk control ( May-2011) .................................................................................................................... 19 Investment philosophy for buying junk bonds, can be applied to buying stocks – April, 2007 ........................ 19 If we avoid the losers, the winners will take care of themselves. (April, 2005) ............................................... 20 Finally, can macro-forecasts be used to gain an advantage or forecast are of no value? ................................ 20 Embracing Illiquidity (July- 2009) ...................................................................................................................... 21 Join I don’t know school ................................................................................................................................... 21 On failure of strategists to foresee TMT and tech bubble (March, 2003): ....................................................... 22 Let the down cycle play itself, before started buying – January – 2008 ........................................................... 24 Formula for taking advantage in declining market – October, 2008 ................................................................ 25 Counter cyclical vs Buy low sell high vs capital allocation (November, 2009) .................................................. 25 Disavowal of market timing – Moving into cash .............................................................................................. 25 INVESTMENT PHILOSOPHY (from website) ...................................................................................................... 26 Cycles .................................................................................................................................................................... 27 1 Cycles are inevitable ......................................................................................................................................... 27 Cycles' clout is heightened by the inability of investors to remember the past............................................... 27 Cycles are self-correcting .................................................................................................................................. 27 Cycles are the result of human behaviour, herd instinct and the tendency to psychological excesses, and these things are unlikely to evaporate. ............................................................................................................ 28 Ignoring cycles and extrapolating trends is one of the most dangerous things an investor can do. ............... 28 Respect cycles ................................................................................................................................................... 28 You can’t predict cycles, but you can prepare (July 2004) ............................................................................... 29 Greed or Fear ................................................................................................................................................ 30 Risk tolerance or risk aversion ...................................................................................................................... 30 Full or empty ................................................................................................................................................. 31 Value Investing vs. Growth Investing – (or Value Today vs. Value Tomorrow) ............................................ 31 Selling Panic .................................................................................................................................................. 32 Credit cycle ................................................................................................................................................... 32 Just Give Me My 10% .................................................................................................................................... 33 Stages of bull market: ....................................................................................................................................... 34 Progression of market cycle (May, 2003) ......................................................................................................... 35 The credit Cycle ................................................................................................................................................ 35 Defensive investing: .............................................................................................................................................. 37 Warren Buffett constantly stresses “margin of safety.” ................................................................................... 37 Avoiding bad years :.......................................................................................................................................... 37 in the good times, it’s good enough to be average. ......................................................................................... 38 Investment and sports ...................................................................................................................................... 38 Something can go wrong: ................................................................................................................................. 39 Future possibilities cover a broad range – November, 2009 ............................................................................ 40 Never Forget the 6'-Tall Man Who Drowned Crossing the Stream That Was 5' Deep on Average - November, 2009 .................................................................................................................................................................. 40 Leverage ........................................................................................................................................................... 41 Leverage Ok only for stable business – December, 2008 ............................................................................. 41 Are You Tall Enough to Use Leverage? – December 2008 ...........................................................................