Howard Marks Memo – First Quarter Performance – 1991

The 1991 memo – First Quarter Performance – is short, about one A4 page. Still, there exists two nuggets of wisdom related to the topic of the market pendulum that I would like to highlight and share with you.

Please comment if you have read the memo and what you thought of it. Also, if you have found a worldly wisdom in the memo that you think I should have included please comment on that as well. I’m very interested in what caught your eye while reading and why.

Worldly wisdom’s from First Quarter Performance – 1991


The mood swings of the securities markets resemble the movement of a pendulum. Although the midpoint of its arc best describes the location of the pendulum “on average,” it actually spends very little of its time there. Instead, it is almost always swinging toward or away from the extremes of its arc. But whenever the pendulum is near either extreme, it is inevitable that it will move back toward the midpoint sooner or later. In fact, it is the movement toward an extreme itself that supplies the energy for the swing back.

My thoughts: H. Marks analogy of “the movement of a pendulum” is a brilliant explanation for the regression towards the mean phenomena. The consequences of the pendulum movements and how that is related to you as an individual investor is extremely important to understand. In relation to that H. Marks makes the following statement:


It would be wonderful to be able to successfully predict the swings of the pendulum and always move in the appropriate direction, but this is certainly an unrealistic expectation. We consider it far more reasonable to try to (1) stay alert for occasions when a market has reached an extreme, (2) adjust our behavior slightly in response and, (3) most importantly, refuse to fall into line with the herd behavior which renders so many investors dead wrong at tops and bottoms.


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