Howard Marks: My Prescription

"To help investors deal with their potential for “human error,” this shrink would prescribe a number of elements that can help with the task. The first essential element in coping with markets’ irrationality is understanding. The importance of psychology and its influence on markets must be recognized and dealt with. The second key lies in controlling one’s emotions. An investor who is as subject as the crowd to emotional error is unlikely to do a superior job of surviving the markets’ swings. Thus, it is absolutely essential to keep optimism and fear in the appropriate balance. And finally, there’s contrarianism, which can convert other investors’ emotional swings from a menace into a tool.  Going beyond just fending off emotional fluctuation, it’s highly desirable to become more optimistic when others become more fearful, and vice versa." Howard Marks, co-founder and chairman of Oaktree Capital, which manages US$100 billion, has written an in-depth memo on investor behaviour, see it in full here: (VIEW LINK)