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Notes on January 1994 Howard Marks (Oaktree Capital) Memo (Classic Guru Shareholder Letters Review)

November 09, 2012 | About:
It is common for investors to read the latest shareholder letters from investment gurus to understand their latest positions and opinions. However, it is often that the real wit and wisdom of the investment gurus are found in old classic shareholder letters.

This is one of many in a series of articles where I will extract relevant portions of classic Guru shareholder letters and share with readers my views.

I present to you the January 1994 Howard Marks (Oaktree Capital) Memo.

Extracts:

(1) "...No group or sector in the investment world enjoys as its birthright the promise of consistent high returns. There is no asset class that will do well simply because of what it is..."

(2) "...Investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity. At that point, all favorable facts and opinions are already factored into its price, and no new buyers are left to emerge. The safest and most potentially profitable thing is to buy something when no one likes it. Given time its popularity, and thus its price, can only go one way: up..."

(3) "...When undemanding investors appear, they'll buy anything. Underwriting standards fall, and it gets hard for demanding investors to find opportunities offering the return and risk balance they require, so they're forced to the sidelines. Demanding investors must be willing to be inactive at times..."

Comments:

(1) There has been a lot of hot money flowing into dividend stocks and REITs in this low interest rate environment from investors hunting for yield. There is nothing wrong with dividend stocks and REITs per se, but if your entire portfolio consists of overpriced dividend stocks and REITs, you are in trouble.

(2) As analysts will call it, "all the positives have been priced in." Ignore the crowd, be a contrarian.

(3) As Warren Buffett says, "Investing is a series of business pitches and, to achieve above-average performance, he must wait until a business comes across the strike zone in the best cell."

You can read Howard Marks' full memo [url=http://www.oaktreecapital.com/MemoTree/1994_1_24_Random%20Thoughts%20on%20the%20Identification%20of%20Inv%20Opportunities.pdf ]here[/url].

About the author:

Mark Lin
Mark is a private value investor and runs the Cheapskate Investing website which borrows from the wisdom of value investing giants, using a systematic quantitative screening approach to filter the global stock markets for cheap cigar-butts and wide-moat compounders. He is also a regular contributor to various value investing communities.

Visit Mark Lin's Website


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