Howard Marks Memo – How’s the Market? – 1999

The 1999 memo is a short review of the market environment at that point in time. To conduct the review H. Marks takes help of an article published in The Wall Street Journal. In my opinion, the overarching lesson from this memo (based on the events that followed) is that one should be worried if one comes across similar arguments being used in the financial press (if one reads the financial press…).

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 How’s the Market? – 1999

1.

Indifference to valuation – The entire bullish article – 22 column inches long – omitted all mention of valuation parameters such as P/E ratio, EBITDA multiple or dividend yield. The bottom line is that many of the investors setting the prices in today’s market don’t care about valuation.”

My thoughts: In bullish times the story is more important than valuations. That will most likely come to change.

2.

Looking on the bright side – The bulls – who are firmly in control – have joined with the media to interpret things in a positive light. I got a chuckle out of the article’s description of investor reaction to the jobs data released on April 2:

Those showed low unemployment, which was good for consumer spending; low wage increases, which implies weak inflation; and mild job creation, which implies a growing but not overheating economy.

I’m sure that in other times and climes, it would have come out this way instead:

Those showed low unemployment, which carries a threat of renewed inflation; low wage increases, which implies an anemic economy; and mild job creation, which presages weak consumer spending.

My thoughts: This is why I very seldom read any financial press. It’s all a game of interpretation in order to fit a specific pre-chosen narrative. Sometimes it’s not even that as p. 3 and p. 4 will demonstrate:

3.

Weak underpinnings – The article reflected the bulls’ preoccupation with things that either don’t really matter in any fundamental sense . . .

. . . people are buying cars, they are buying houses, they are spending money. . . I think the wind is still at the market’s back.

. . . or say absolutely nothing about long-term value:

The whisper today was that the online firms are going to have very strong earnings.

4.

Gobbledegook — Lastly, some of what’s going on just makes no sense at all.

People are very comfortable that the earnings projections are going to be hit, but the expectations are higher than that.

I have no idea what that means […].

5.

“The “rational” value investors have been decrying the excesses of the market for years – myself included. I’ve never felt more strongly the truth of the saying I picked up in the 1970s: “being too far ahead of your time is indistinguishable from being wrong.” But as they say, “that’s my story and I’m stickin’ with it.””

My thoughts: As H. Marks pointed out in the 1998 memo Genius Isn’t Enough (and Other Lessons from Long-Term Capital Management) one core ingredients of success is; timing.   The problem though, investing with a non-consensus view, is that one has to be able to look wrong during certain time periods in order to be successful.

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