Howard Marks: What Does the Market Know?

In a follow-up to his memo from earlier this week, Howard Marks explores how much weight we should give to the fluctuations in the markets. “In the long term the consensus of investors figures out what things are really worth and moves the price there. But in the short term, the market merely reflects consensus opinion regarding an asset’s future popularity, something that’s highly susceptible to the ups and downs of psychology.” 2008 saw the Senior Loan Index drop by 29%, while the High Yield Bond Index dropped by only 25%, a clear example of market psychology overriding the fundamentals. “If you believe the market has some special insight that exceeds the collective insight of its participants, then you and I have a fundamental disagreement.” See the Oaktree Capital Chairman’s full thoughts in his latest memo: (VIEW LINK)