The best quotes from chapters 1 and 2 from Howard Marks’ Mastering the Market Cycle (plus a great investing idea book at the end of the article)

This article takes a uniquely limited look at the very beginning of legendary money manager Howard Marks’ Mastering the Market Cycle. Just direct quotes with no commentary from The Review Source on this one. Also, are you a short term trader? If so, the link at the end of the article takes you to the best book we know of for short term (get rich more quickly?) traders.

“The odds change as our position in the cycles changes…we can increase our bets and place them on more aggressive investments when the odds are in our favor, and we can take money off the table and increase our defensiveness when the odds are against us.” — Pg. 9

“If we have the same informations as others, analyze it the same way, reach the same conclusions and implement them the same way, we should expect that process to result in outperformance…thus, I dismiss macro prediction as something that will bring investment success for the vast majority of investors…I think we can most gainfull spen our times in 3 general areas:”

Summarized 3 areas:

i) Trying to know more than others about ‘the knowable’

ii) Paying a better entry price than the masses

iii) Deciding how to strategically position our portfolio’s for the unknown

• The above from pages 10 and 11.

“Risk is the likelihood of permanent capital loss. But there’s also such a thing as opportunity risk: the likelihood of missing out on potential gains…risk means more things can happen than will [actually end up happening.]” — Pg. 13

“(W)here we stand in the various cycles has a strong influence on the odds…In short, the movement through the cycle repositions the probability distribution governing future events.” — Pg. 19

“(T)he outlook for returns will be better when investors are depressed and fearful…and worse when they’re euphoric and greedy…If we don’t change our investment stance as these things change, we’re being passive regarding cycles; in other words, we’re ignoring the chance to tilt the odds in our favor. But if we apply some insight regarding cycles, we can increase our bets and place them on more aggressive investments when the odds are in our favor, and we can take money off the table and increase our defensiveness when the odds are against us.” — Pg. 21

“Cycles oscillate around a midpoint [similar to a pendulum]…Cycle swings come in many forms and relate to a wide variety of phenomena, but the underlying reasons for them — and the patterns they produce — have a lot in common, and they tend to be somewhat consistent over time…It’s the oscillation of things around the midpoint or secular trend that this book is largely about.” -Pg. 25

“Cycles niether begin nor end. Better questions might be “what caused the current leg-up to begin?” or “how far have we gone since the beginning of the up-cycle?” or “are we close to the end of the down-leg?” You might even ask whether we’re close to the end of a cycle, as long as you define it as running from one peak to the next, or from trough to trough.”

“The mid-point of a cycle [average, is known as the] ‘happy medium….’ The extremes of the cycle, on the other hand, are thought of as aberrations or excesses to be returned from, and generally they are [returned from]. While the thing that’s cycling tends to spend much of the time above or below it, eventual movement back in the direction of the mean is usually the rule.”

“It’s important to recognize and accept the dependability of this patters

• Both the above from Pg. 27 and 28

“The events in the life of a cycle shouldn’t be viewed merely as each being followed by the next, but-much more importantly-as each cause the next. For example (examples summarized):

• when the phenomena swings to the extreme, it begins storing up momentum energy; it reaches a maximum extreme beyond which it can not longer proceed
• …when it reaches that point is pulls back in the other direction with the energy stored
• the swing often has so much momentum that it doesn’t stop at the midpoint, but rather blows right through the midpoint

The above from Pg. 30 and 31

Regarding ‘boom’ cycles: “The air goes out of the balloon much faster than it went in.” — Pg. 35

“Securities and markets that have benefitted from fabulous appreciation are much more likely to succumb to a cyclical correction than they are to appreciate [endlessly].” -Pg. 37

“…we usually see only one major cycle per decade.” — Pg. 37

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