Howard Marks: “We Had One Of The Most Violent Downdrafts I Had Ever Seen”

Monday, January 14, 2019
By Paul Martin

by Tyler Durden
Mon, 01/14/2019

Right around the market peaked on September 2018, Oaktree’s iconic founder Howard Marks published a letter to investors in which he warned that the market conditions made it “a time for caution”, to wit:

I’m absolutely not saying people shouldn’t invest today, or shouldn’t invest in debt. Oaktree’s mantra recently has been, and continues to be, “move forward, but with caution.” The outlook is not so bad, and asset prices are not so high, that one should be in cash or near-cash. The penalty in terms of likely opportunity cost is just too great to justify being out of the markets.

But for me, the import of all the above is that investors should favor strategies, managers and approaches that emphasize limiting losses in declines above ensuring full participation in gains. You simply can’t have it both ways. Just about everything in the investment world can be done either aggressively or defensively. In my view, market conditions make this a time for caution.

In retrospect, one correction and one (short) bear market later, Marks was right, and on Monday speaking at a Bank of Singapore event, Marks recapped what happened, saying “we had one of the most violent downdrafts” that “I had ever seen,” Marks said. “Nothing much changed except people were first ignoring the bad news and then they were obsessing about the bad news.”

So having anticipated, if not exactly predicted, said “violent downdraft”, what was Oaktree – which was building up cash for precisely such an event – doing? Why buying with both hands.

As Bloomberg writes, while some traders say you should never try to catch a falling knife, Howard Marks begs to differ, noting that “that’s exactly what investors should be doing” and adding that the recent sell-off in U.S. equities was a case in point. As timing the bottom is impossible, the trick is to buy assets as they decline, before they start to appreciate, Marks said.

The Rest…HERE

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