Experienced Voices

The Legendary Teacher 02: Returns & Risk

“Return alone – and specially return over short periods of time – says very little about the quality of the investment decision.” Howard Marks

Return, Return & Return! the obsession of investors with return is not unknown. When an investor is exposed to the simplified Security Market Line like below, People more often then not come with two interpretations: 1. Riskier assets give higher returns or 2. For higher returns, people need to take higher risks. Unfortunately none of them are the absolute truth. One person, who has been educating the aspiring investors about the right ways to think about the returns & risk is Howard Marks, Another Legendary Teacher.

Howard Stanley Marks is an investor, thinker, and writer. He is the co-founder and co-chairman of Oaktree Capital Management, which he founded in 1995 along with three of his colleagues. Recognized as the largest distressed securities investor and one of the largest credit investors worldwide, Oaktree specializes in alternative investment strategies. Over the years Mr Marks has largely been responsible for overlooking the firm’s key investment principles, communicating closely with clientele regarding products and strategies, and contributing his experiences and knowledge relating to investments.

Mr Marks has built up his career on the mantra- “You can’t predict. You can Prepare.” As of 2020, the 74-year-old investor known for his insightful assessment of market opportunities has a net worth of $2.2 Billion and in 2019, he was ranked 370th on the Forbes 400 rankings of the wealthiest Americans. He has been a pioneer in the field of investments, Oaktree Capital in its three decades+ history has beaten their respective indexes by a huge margin. The overall TWRR for their closed ended funds have been in high teens. [Check the Link]

Howard Marks was born and raised in Queens, New York. He holds a B.S.Ec. degree cum laude from the Wharton School of the University of Pennsylvania with a major in finance and an M.B.A. in accounting and marketing from the Booth School of Business of the university of Chicago, where he received the George Hay Brown Prize. He is also a CFA charter holder. His first job after university was in investment research for Citibank. He then went onto TCW, the US asset manager, before Oaktree. He is also a published author of books: “The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor” & “Mastering the Market Cycle”.

Howard Marks propagates that Investment success doesn’t come from “buying good things,” but rather from “buying things well”. One of his success traits would be making money off finding situations where he can buy low, especially distressed assets, then sell high. Timing your buying is more important than the quality of what you buy, he says. He has been contributing towards the development of next generation of thoughtful value investors by writing his investor memos. His memos are worldly acclaimed and are widely anticipated for their detailed investment strategies and insights into the current economic conditions. Currently, Mr Marks is assessing the unprecedented times through a pandemic as an investor, though he remains hopeful. In his recent memo, he says “I’m writing to take a closer look at the market’s rise and where it leaves us. The goal, as usual, isn’t to predict the future but rather to put the rally into perspective.” One can reach his memo’s published over last 30 years easily on the website of Oaktree capital. (Link to Memos)

Bottom Line: there’s no such thing as a good or bad idea regardless of price!” Howard encourages everyone to go ahead and take their set of risks in life as risks mean more things can happen than will happen. Though those risks should be a conscious decision and approach should be to get the odds in your favor.

Happy Investing & Keep Learning!

On the Teacher’s day Sep 5′ 2020, I decided to share the list of such legendary teachers to help you on your investment journey. Look out for this section for more legendary teachers on Investing & learn a thing or two from them. The article was prepared with the help from Nawaal Kareem.

Experienced Voices

Have Patience & Be Realistic!

“Hoping for the best is not an issue, Issue is to lose the touch with reality.”

One thing that helped me in my investment journey is learning from the experiences of other fellow investors. Investors, who have traveled the path ahead of us in their investing journey, and can share how their decisions have shaped their outcome.

Today, I am going to share the experience of Sandeep Nangrani. He is in mid to late forties, An engineer and a MBA by education. He had worked in various corporates like Godrej & Boyce, ICICI Bank, EXL Service, TCS, Oracle etc. He has an investing experience of ~20 years and have a first hand experience navigating through the earlier episodes like dot com bubble, 9/11, financial meltdown in 2007-09, Demonetization etc. In 2009, he won the zonal round of “Hunt for India’s smart investor” a wealth management show on ZEE business and successively represented Bangalore in national semifinals. (Link)

Below are some of his leanrings:

First, There is no alternate to reading. There are always things you do not know when you start your investing journey. It is imperative to have the plan or understand the basics before jumping on the investing band wagon in lure of huge profits. He has spent a significant time with magazines like Outlook Money & early websites like Value Research etc to build his foundation. Investing in any product, which you do not understand is just gambling.

Second, Having patience in investing can do wonders. Warren buffet has often mentioned that stock market is a machine to transfer money from impatient to patient people. If your cash flows are steady and the ability to invest in not hampered then you should not run away from the falling market but continue to invest or if possible increase your investments. More you invest in falling market, higher the chances of wonderful returns you have in future.

Third & last, Be realistic in your return expectations. Investing with the expectation to hit a jackpot or 70-100% returns every year is not a realistic expectation. In reality the expectation of 2% equity risk premium over the risk free investing is good outcome. If the FD returns are 8%, then 10% is a pretty good return. Make sure if you are lucky and make exorbitant returns on your investments like in the 2014 or 2017, You should book the profits and reduce the equity exposure in your portfolio.

Sandeep has recently paused his corporate career to be a full time investor and helping other people to manage their investments in an efficient manner. He can be reached on his facebook page.