Blowing apart investment myths
Howard Marks shows why making a profit does not prove an investor made a good decision, writes Michel Pireu
In a letter to Oaktree Capital clients in 2015, Howard Marks listed a number of time-honoured investment maxims and asked them to think about which they believed in and which they didn’t. Included in the list: • The market is "efficient", meaning asset prices reflect all available information and thus provide accurate estimates of intrinsic value. • Because people are risk averse, risky deals are discouraged and the market awards appropriate risk premiums as compensation for incremental risk. • Risky investments produce high returns. • Adding risky assets to a portfolio makes it riskier. • Sometimes the outlook is clear and sometimes it is complicated and unpredictable. You have to be careful when it is the latter. • Correct forecasts lead to investment gains. • The earning of a profit proves the investor made a good decision. • A low price makes for an attractive investment. • Assets that are appreciating deserve your attention. • Contrarianism will bring consistent success. • Asse...
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