There's been a lot going on this week in the investing world.
Trump's tariffs continue to dominate headlines. Meanwhile, the US earnings season kicked off last night, with America's largest bank, JP Morgan Chase & Co (NYSE: JPM), first off the rank.
It's been a lot to process.
In such times, it can be useful to take a step back and reflect on the bigger picture.
One person worth listening to is legendary investor and founder of Oaktree Capital, Howard Marks, who has navigated market cycles for decades. In his 2022 memo What Really Matters, Marks explored factors that matter and do not matter in investing.
Here are the key lessons.
Lessons from Howard Marks
In his memo, Marks suggested the majority of investors are unable to forecast macroeconomic events. He suggests they are even less likely to accurately predict the market's reaction to them. So, any success in applying this strategy is due to luck and not skill. Investors are unlikely to get it right on a consistent basis, so shouldn't even try. Instead, investors should focus on fundamental analysis. This means deciding how much money a company is likely to make, its competitive position, and the risks it faces.
Marks also explored investors' inability to handle volatility. Based on his observations, the majority of investors struggle to handle volatile markets, often acting irrationally and selling their positions early. This is particularly relevant this week, with the ASX reporting extremely high trading volumes.
Marks also discussed trading mentality. Over time, investors have come to think of shares as a tool to earn profit rather than business ownership. Instead, he suggests investors only buy shares in businesses they wish to own, not just because the share price is in an upward trend.
Marks recited a conversation with legendary investor Charlie Munger, who said that "carefully weighing long-term merit should produce better results than trying to guess at short-term swings in popularity."
The memo concluded with 10 pieces of timeless advice to investors. Key themes included focusing on the long run and recognising that psychology swings much more than fundamentals. Another key piece of advice was to avoid the macro but "study the micro like crazy". This allows investors to develop an information advantage to swoop in and buy wonderful companies at attractive prices.
Marks weighs in on the current environment
In an interview with Bloomberg last week, Marks said recent events had led to the biggest change in the investing environment that he'd seen in his 50-year career.
He also acknowledged that the stock market had become cheaper before adding a major caveat. "Will they go down further? Nobody knows", Marks said. That uncertainty is what makes this moment so tricky. "The world order… has been shook up like a snow globe by the events of the last days. And nobody knows what it's going to look like".
Foolish takeaway
Some investing lessons are timeless. Despite being written in 2022, Marks' memo What Really Matters is equally relevant today. Ultimately, according to Marks, if you invest in quality businesses, don't trade based on macro predictions, and avoid panic selling, you're likely to do just fine.
