Many investors – especially equity and growth equity investors – have a positive bias. People tend to look at negative developments and characterize them as isolated. They ignore contagion and second order consequences. In positive periods, investors engage in selective perception – they only see the good – and skewed interpretation – whatever happens, people interpret it positively in a bull market. In recent years, the central bank, by pushing rates to zero, mandated that people – we can think of them as handcuffed volunteers – indulged in highly risky behaviour. The market eventually reached a tipping point where the reality could no longer be ignored.

Howard Marks

Every Trend Gets Overdone

What the wise man does in the beginning, the fool does in the end. That’s the nature of the investment business – every trend gets overdone – in the investment business, the most important, single-biggest decision a strategist has to make is whether to play offense or defense. When do you turn aggressive? We just try to figure out when the negatives are being over-emphasized. It’s feel – there’s no science. Everybody should understand their own psychology – are you generally an optimist or a pessimist? Personally, I’m more conservative – but my caution is overcome by the desperation I see around me. When everybody thinks there’s no hope, I find it easier to turn bullish. If the fundamentals are a little worse, but the psychology is drastically worse, that results in cheap prices and one can be less cautious.

– Howard Marks

Avoiding The Downside

Fixed income investing is a negative art – all that matters is avoiding the downside and excluding the securities that won’t pay what they claim they will pay. However, avoiding the losers is not sufficient if you want to exceed fixed income returns. You have to take some chances.

Howard Marks

Technological Evolution

While the surface manifestations change, the underlying forces are very, very old. The acceleration of productivity we see in Silicon Valley has been happening for thousands of years. If you look at the history of stone tools, technology was already accelerating in the Mesolithic. The acceleration would have been too slow to perceive in one lifetime. Such is the nature of the leftmost part of an exponential curve. But it was the same curve.

You do not want to design your society in a way that’s incompatible with this curve. The evolution of technology is one of the most powerful forces in history.

– Paul Graham