Howard Marks Memo – Who Knew? – 1998

In the first 1998 memo we return to two of H. Marks favorite topics to discuss; predictions and market cycles. This memo is written in the light of the Asian meltdown that took place during 1997.

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 Who Knew? – 1998


“[…] it’s easy to be right about the future . . . if you restrict your predictions to two: (1) something significant is bound to happen eventually, and (2) we never know what it’ll be.”

My thoughts: Still, “experts” get credited for these kinds of forecasts all of the time. Be aware.


“[…] I was in a client’s office in December, cautioning that I thought we would never reside for long in the investment nirvana of the new paradigm where inflation, interest rates, economic growth, expanding profits and rising stock prices stay properly aligned. He said, “I’d think a self-professed non-forecaster like you would never say, ‘never’.”

My response was, “Maybe it’s a result of my sobering experience in the 1970s, but there are plenty of things I’ll say “never” to … on the negative side: Things will never go right forever. Investors’ fondest hopes will never fail to be dashed eventually. Some unpleasant surprises will never fail to arise.””

My thoughts: The phenomena ‘regression towards the mean’ will mandate that you sometime say “never”.


“I read decades ago that every bull market has three stages:

The first, when a few far-sighted people begin to believe that some improvement is possible,

the second, when most investors come to agree that improvement is actually underway, and

the third, when everyone believes everything will get better forever.”

My thoughts: This is really all you need to know about market cycles. In relation to that H. Marks gives us the recipe for how to succeed:


“If you’re going to succeed at all in timing cycles, the only possible way is to act as a contrarian: catch some opportunities at the bottom, let your optimism abate as prices rise, and hold relatively few exposed positions when the top is reached. To find bargains at the bottom, you don’t have to think that things will get better forever; you just have to remember that every cycle will turn up eventually, and that prices are lowest when it looks like it won’t. But it’s just as important to avoid holding at (and past) the top, and the key is not to succumb to the popular delusion that “trees will grow to the sky.””


“Prices near highs and optimism in bloom — that’s a dangerous combination, especially with perceived risk on the rise. Peter Bernstein wrote around 1979 that “The great buying opportunities … are never made by investors whose happiest hopes are daily being realized.” And yet many of today’s investors have only known success, and few appear seriously chastened by recent developments. This permits me to conclude that this is not a buying opportunity and, although no collapse need be imminent, the stock market’s best days are behind it for a while.

My thoughts: I’m afraid that this is a fair analysis of our current market environment as well.

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