The below one is excerpts from Interview of Howard Marks with MOI:

But, where does inflation come from? Demand pull comes from too much money chasing too few goods. I don’t think we have that or will anytime soon. The cost push comes from an escalation of the cost of the factors of production.

I think it is unrealistic and maybe hubristic to say, “I don’t care about what is going on in the world. I know a cheap stock when I see one.” If you don’t follow the pendulum and understand the cycle, then that implies that you always invest as much money as aggressively. That doesn’t make any sense to me. I have been around too long to think that a good investment is always equally good all the time regardless of the climate.

You asked earlier where inefficiencies come from. Largely they come from people who say, “I do this, and I don’t do that.” What they are basically saying is, “I don’t do that regardless of how cheap it is.”

The most important thing is realistic expectations. Because I think that people tend to get in trouble in investing when they have unrealistic expectations, especially when they have the expectation that higher returns can be earned without an increase of risk. That is a very dangerous expectation. Which is the thing which is most dangerous to omit? I think it is risk consciousness. I think that the great accomplishment in investing is not making a lot of money, but is making a lot of money with less than-commensurate risk. So you have to understand risk and be very conscious of it and control it and know it when you see it.

The great investors are the people who have made a lot of investments over a long period of time and made a lot of money, and their results show that it wasn’t a fluke — that they did it consistently. The way you do it consistently, in my opinion, is by being mindful of risk and limiting it.

The interesting thing about investing is what I call the perversity. The point is that it is so not intuitive. It is so not obvious — investing. A great example lies in the fact that, people think that to be a good investor, you have to understand companies. But the market has an understanding of companies, and if you understand the company the same as the market does, even if the market and you are right, you are not going to make any special profits.

But if you only hold popular positions, you can’t do better than average, by definition. And I think you will be very wrong at the extremes.


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