IIC 2021: Something of Value by Howard Marks, CFA

CFA Society India organized its annual marquee event “India Investment Conference 2021 (IIC 2021)” with theme of “Confronting Disruption”. Howard Marks, CFA presented a session titled “Something of Value“. The session was moderated by Sankaran Naren. The session was in the form of Q&A on wide variety of topics from the world of investing. Here are the key takeaways from the conversation between two sought after investment gurus in financial markets:

• In the context of market movements, it is hard to predict the markets. ” You never know where you will go. You should be aware where you are”. Where you are having implication on where you will go. Knowing where you are and being aware about the current state of financial state will enable to take next step. For instance, in 2006-07, investing world was too generous wherein risky deals were possible with ease. That is an indicator that next step is adopt to risk aversion. 2020 market movements are another example in this context.
• Expansion in central bank balance sheet through unlimited asset buying comes with its own worries. It is worrisome to burden only central banks to solve all the economic problems. This leads to moral hazard and tendency of investors to take very high risk wherein if they succeed they earn huge returns and if they fail, central bank will protect them.
• Events like Reditt/ Robin hood which happened in recent past are fall out of speculative activities by investors and completely delinked from fundamentals. It is very unlikely that this kind of behavior can bring meaningful movements given the limited resources with retail investors.
• On Bitcoin, open to get more information and researching about it. Bitcoin does not have intrinsic value and cash flow but so is true for other currencies. A currency has value because it is accepted. No conclusion as yet, but open to evaluate the case.
• In technology space, it is important to identify the best companies which will outperform in really long term. In long term investing, it is important to have patience to hold the winning stock because it is difficult to time the market correctly if you try to exit and enter again and again.
• Distressed debt investing create opportunity to earn high long term average return but returns can be extremely variable year on year i.e. not smooth. Same is applicable to emerging market distressed debt investing.
• Sometimes it is hard to measure the inflation as inflation does not factor increase in value addition provided by the underlying product when there is increase in price. A benign inflation in important for a vibrant economy.
• Modern Monetary Theory seems too simplistic and over optimistic. Debt of such a huge magnitude cannot come without consequences. So far, inflation has not been much despite the high debt level but it is yet to be seen.

A piece of advice in the end, “Great investors are not emotional”. Emotions make you to do wrong things at wrong time eg: buying at peak and selling at low. If one does not keep emotions in check, it is difficult to generate above average returns. There are two choices to be unemotional a) to be born unemotional b) to train yourself to be unemotional.