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Mastering the Market Cycle

Mastering the Market Cycle

by Howard Marks

Investors who disregard where they are in cycles are bound to suffer serious consequences. In order to get the most out of this book, an investor has to learn to recognize cycles, assess them, look for the instructions they imply, and do what they tell him to do.

Investors need to study thr...

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  • The likelihood of permanent capital loss
  • Opportunity risk, the likelihood of missing out on potential gains

Risk is all about uncertainty. Even though many things can happen, only one will happen.

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A: Recovery from an excessively depressed lower extreme, toward the midpoint.

B: The continued swing past the midpoint, toward an upper extreme or high.

C: The attainment of a high.

D: The downward correction from the high back toward the midpoint.

E: A continuation of the...

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The output of an economy is the product of hours worked and output per hour. Thus the long term growth of the economy is determined by fundamental factors like birth rate and the rate of gain in productivity.

Long term trends have given the economy and stock market a strong uptrend over sev...

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Central bankers have dual responsibilities that are in opposition to each other:

  • Limit Inflation: which requires restraining the growth of the economy.
  • Support Employment: which calls for stimulating economic growth.

Governments

...

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The mood swings of the securities markets resemble the swing of a pendulum. They swing between the following:

  • Between euphoria and depression
  • Between celebrating positive developments and obsessing over negatives
  • Between overpriced and under-priced
  • Between greed...

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  • Investing is basically “bearing risk in pursuit of profit.”
  • The ability to understand, assess, and deal with risk is the mark of the superior investor and an essential requirement for investment success.
  • The way investors are collectively viewing risk, and behaving in regard ...

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Superior investing doesn’t come from buying high-quality assets, but from buying when the deal is good, the price is low, the potential return is substantial, and the risk is limited. These conditions are much more the case when the credit markets are in the less euphoric, more stringent part of ...

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If the market were a disciplined calculator of value-based exclusively on company fundamentals, the price of a security wouldn’t fluctuate much more than the issuer’s current earnings and the outlook for earnings in the future.

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Three stages of a bull market:

  • A few forward-looking people begin to believe things will get better.
  • Most investors realize improvement is taking place.
  • Everyone concludes things will get better forever.

Three stages of a bear market...

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The investor’s goal is to position capital so as to benefit from future development. The Key to accomplishing this goal is:

  • To know where the pendulum of psychology and the cycle in valuation stand in their swings.
  • To refuse to buy when too positive psychology and the willingne...

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There are three ingredients for success:

  • Aggressiveness
  • Timing
  • Skill

If you have enough aggressiveness at the right time, you don’t need that much skill. Good timing in investing can come from diligently assessing where we are in a cycle, and then doing the ...

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There are six main components (or three pairings) to the formula for investment success:

  • Pair 1: Cycle Positioning and Asset Selection
  • Pair 2: Aggressiveness and Defensiveness
  • Pair 3: Skill and Luck

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