Here is the 1990 Howard Marks (Oaktree Capital) Memo.
(1) "...bold steps taken in pursuit of great performance can just as easily be wrong as right. Even worse, a combination of far above-average and far below average years can lead to a long-term record which is characterized by volatility and mediocrity..."
(2) "...I feel strongly that attempting to achieve a superior long term record by stringing together a run of top-decile years is unlikely to succeed. Rather, striving to do a little better than average every year -- and through discipline to have highly superior relative results in bad times -- is:
- less likely to produce extreme volatility,
- less likely to produce huge losses which can't be recouped and, most importantly,
- more likely to work (given the fact that all of us are only human)..."
(3) "...in equities, if you can avoid losers (and losing years), the winners will take care of themselves...that the best foundation for above-average long term performance is an absence of disasters. It is for this reason that a quest for consistency and protection, not single-year greatness, is a common thread underlying all of our investment products..."
The unifying theme in this memo is pretty clear:
- Consistency, Protection, Avoidance of Losers
We should keep this in mind when we manage our own investment portfolio and also the same principles apply to the stocks we invest in.
Between a high flying stock which tripled its EPS in the last 12 months after years of underperformance and a boring dividend paying stock consistently churning out 10% EPS growth every year for the past 10 years, what will you choose?
You can read Howard Marks' memos (1990-now) here.