I have discussed investment psychology in my recent article titled “The Lesson of Investors’ Psychology,” about the psychological mistakes that investors often make in their thinking and investing behaviours. In this article, I would like to focus on several important points in Howard Marks (Trades, Portfolio)’ recent memo: “On the Couch,” so that we can learn more from him to avoid mistakes in our investment analysis.
In his memo, Marks showed us his favourite sentence in a cartoon: “Everything that was good for the market yesterday is no good for it today.” Indeed, everyone knows that the Chinese overheating economy and excessive investment in fixed assets would lead to a hard landing and even recession. But it was only until last August that investors experienced the collapse of A-shares. The fear spread to the U.S., making it decline 11% in the week from Aug. 17 to 25. Marks wrote in his memo: “In 2015, we saw old problem get worse, new ones arise, and a general absence of anything to feel good about. The sense of hopelessness regarding problems like ISIS and runaway immigration is something investors handle particularly poorly. In August, the events in China sparked a revival of risk aversion and fear, with effects that carried around the world for a couple of weeks. And with the door opened to fearful interpretations, Pollyanna tolerance gave way to widespread negativism.” Continue Reading »