How should investors get recession-ready? Howard Marks has the answer

Market Outlook

“I don’t think so,” is Howard Marks, co-founder of US distressed assets manager Oaktree Capital Management, answer to the investors’ question if they should tweak their portfolio as recession fears mount.

Marks advises investors not to pay attention to short-term phenomena like recession and stick with their investments.

In a July 26 memo to his clients, Marks said it is the time spent in the market that makes money and not timing the market.

“Since 1920, there have been 17 recessions as well as one Great Depression, a World War and several smaller wars, multiple periods of worry about global cataclysm, and now a pandemic. And yet, the S&P 500 has returned about 10½ percent a year on average over that century-plus,” he wrote.

Many economists, including those at the International Monetary Fund, have said there is a real possibility of the US slipping into a recession this year.

Similar warnings have been issued about Europe, which is seeing a war after several decades. Adding fuel to the fire is record high inflation in most major economies, prompting central banks to increase interest rates at a rarely-seen-before pace.

These macro headwinds have triggered volatility across markets, including in India. The Sensex and the Nifty are down 11 percent from their all-time highs hit in 2021.

The short term is even shorter

Marks, who started his career in 1969 and has made his name by investing in high-yield bonds, said the so-called short term had drastically changed from the 1970s.

“At the beginning of my career, we thought in terms of investing in a stock for five or six years; something held for less than a year was considered a short-term trade,” he said. “One of the biggest changes I have witnessed since then is the incredible shortening of time horizons.”

Marks added that no strategy–and no level of brilliance –will make every quarter or every year a successful one.

Also Read: Time is ripe to snap up bargains, says debt investor Howard Marks

He blamed some of it on clients and fund managers getting to know the performance of the funds in real time. Moreover, money managers tend to highlight their recent returns prominently when talking to prospective investors.

Rather than taking capital away from underperformers, they should consider increasing their allocations in the spirit of contrarianism, the 76-year-old said.

“If you wait at a bus stop long enough, you’re guaranteed to catch a bus, but if you run from bus stop to bus stop, you may never catch a bus,” he said, referring to investors who keep shuffling money between funds.

Also read: IMF cuts India’s FY23 growth forecast by 80 bps to 7.4%

Dare to be different

People who do things in an average way will get average returns, Marks said. To be above average, people have to depart from “consensus behaviour”. “You have to overweight some securities, asset classes, or markets and underweight others,” he stressed.

“If you seek superior investment results, you have to invest in things that others haven’t flocked to and caused to be fully valued.”

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