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Stepan Lavrouk
Stepan Lavrouk
Articles (589) 

Howard Marks: 40 Years Ago, Nobody Knew Anything

The guru reflects on how the investing landscape has changed over time

August 12, 2020

The investing world has gone through a lot of different changes over the last few decades. Trends like digitization and computerization have fundamentally changed the way people trade and invest. Value investor Howard Marks (Trades, Portfolio) has accumulated over 50 years of experience in the financial markets, and has had the opportunity to view all of these changes in real time. Here's what he had to say on the subject in a talk at the CFA Society of Chicago.

Structural versus cyclical inefficiencies

The world was a much different place 40 or 50 years ago. There wasn't anywhere near the amount of market data that we have today and, in any case, it was hard to access information. It's hard to imagine a world in which you can't get a quick quote on a publicly traded security. Thanks to services like GuruFocus, even in-depth analytics and niche valuation ratios for stocks can be quickly accessed. It's hard to overstate just how much this has changed investing.

Marks believes that in today's world, there is very little "structural inefficiency" - that is, there are few assets that are undervalued simply because no one knows anything about them:

"Inefficiency is the result of ignorance. And today, there's much less ignorance. So I believe that markets have become more efficient over time, and it's very hard to find anything about which there is ignorance. Back in 1978, people used to say to me, 'Well young man, I'm sure you can make a lot of money doing that [investing in unfamiliar securities], but it wouldn't be proper. It wouldn't be fiduciary.' Today, anybody will do anything to make a buck! So that bias does not exist, and that's the bias that gave people like me opportunity 40 years ago."

Today, people are willing to invest practically anywhere - a development that has only been accelerated as interest rates have fallen and investors reach further and further for yield. It's probably unsurprising that this has occurred - with so much more data available than before, investors now have somewhat more security than they did before.

Marks concluded his remarks by saying that while structural inefficiencies may have been gradually erased from the market, cyclical inefficiencies - driven by boom and bust psychology - have remained. Does this mean that investing today is harder than it used to be? Perhaps there is something to this point of view, but at the same time it's easier than ever before to access information. And arguably, the amplitude of the booms and bust cycle has been amplified by the presence of trend following investing algorithms, creating more cyclical inefficiencies. It seems as if every era has its own areas of opportunity - you just need to know where to look.

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About the author:

Stepan Lavrouk
Stepan Lavrouk is a financial writer with a background in equity research and macro trading. Specific investing interests include energy, fundamental geoeconomic analysis and biotechnology. He holds a bachelor of science degree from Trinity College Dublin.

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