Liquidity Paradox

Liquidity can be transient and paradoxical. It’s plentiful when you don’t care about it and scarce when you need it most. Given the way it waxes and wanes, it’s dangerous to assume the liquidity that’s available in good times will be there when the tide goes out.

– Howard Marks

Never Fear

This country belongs to all of us. We made this country from nothing, from mud-flats… Over 100 years ago, this was a mud-flat, swamp. Today, this is a modern city. Ten years from now, this will be a metropolis. Never fear!

– Lee Kuan Yew, September 1965

Imprudent, Uncomfortable Ideas

Non-consensus ideas have to be lonely. By definition, non-consensus ideas that are popular, widely held or intuitively obvious are an oxymoron. Thus such ideas are uncomfortable; non-conformists don’t enjoy the warmth that comes with being at the center of the herd. Further, unconventional ideas often appear imprudent. The popular definition of “prudent” – especially in the investment world – is often twisted into “what everyone does”.

– Howard Marks

Volatility Is Not Risk

Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray.

– Warren Buffett, 2014 Berkshire Hathaway Annual Letter