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Mark Lin
Mark Lin
Articles (212) 

Notes on 1993 Howard Marks (Oaktree Capital) Memo (Classic Guru Shareholder Letters Review)

November 08, 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 1993 Howard Marks (Oaktree Capital) Memo.


(1) "...Being "right" doesn't lead to superior performance if the consensus forecast is also right. For example, if the consensus forecast for real GNP growth is 5%, then stock prices will come to reflect that expectation. If you then conclude that GNP will grow at 5% and your expectation of rapid growth motivates you to buy stocks, the stocks you buy will be at prices which already anticipate such growth...."

(2) "...Most Forecasts are Extrapolations. The fact is, most forecasters predict a future quite like the recent past. One reason is that things generally continue as they have been; major changes don't occur very often. Another is that most people don't do "zero-based" forecasting, but start with the current observation or normal range and then add or subtract a bit as they think is appropriate. Lastly, real "sea changes" are extremely difficult to foretell..."

(3) "...'if someone has made a potentially valuable forecast with a high probability of being right, why is it being shared with you?' Think how profitable a correct market forecast could be. With very little capital, a good forecaster could make many times more in the futures market than in salary from an employer. Okay, let's say he likes to work for other people -- than why does his employer give his forecasts away rather than sell them? Maybe the thing to ask yourself is whether you would write out a check to buy the forecast you're considering acting on..."


(1) You can only make money in stock market by being non-consensus and right.

(2) That is a reason why a lot of value investors shun DCF. Nothing wrong with DCF per se, but most DCF is just trend extrapolation which adds no value.

(3) You can start creating a spam filter for all your analyst reports sent to you by your broker via email.

You can read Howard Marks' full memo here.

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Mark Lin

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