Howard Marks’ Most Iconic Interview Ever (Must Watch)

because usually the market goes up usually it's easy to make money the challenge is to make money at the same time that you control risk and uh a a portfolio which has the opportunity to make money but with the risk under control is in my opinion the mark of the professional investor so the question is how do we do that Howard marks is universally regarded as one of the greatest investors of all time outperforming the US Stock Market by a staggering 2,471 over the course of his career if you want to learn about investing in

how to make money you need to be listening to what he has to say please don't just take my word for it this is coming from legendary investor Warren Buffett Buffett has said quote when I see memos from Howard marks in my mail they're the first thing I open and read I always learn something make sure to stick around to the end of the video because I have a special treat for those that watch this entire video let's get into it in our business it's very hard to figure out what is the most important thing

I wrote a book about 10 years ago called uh in Spanish loas import the most important thing but there is no one important thing there are many things that that an investor has to to consider but the truth is the most important thing is risk and I believe that it is the job of the professional investor to control risk for the clients the go the job is not to make a lot of money because usually the market goes up usually it's easy to make money the challenge is to make money at the same time that

you control risk and uh a a portfolio which has the opportunity to make money but with the risk under control is in my opinion the mark of the professional investor so the question is how do we do that now I have three different presentations that I make and at the suggestion of my hosts I have combined for you some aspects of all three so you'll see the the dividing lines in the presentation first the truth about investing most investors cannot see the future better than anybody else and trying to predict the future will not produce

investment success my one of my heroes John Kenneth GTH said we have two kinds of forecasters the ones who don't know and the ones who don't know they don't know the truth is the future is uncertain and yet what is investing but deploying money for the future now most investors act as if they can see the future and they base their investment decisions on their view of the future either they think they can or they think they have to pretend that they can for their business now I think it's dangerous because if it turns out

that they really can't as I believe then then there's a problem there was a behaviorist named Amos fski at Stanford University and he said something that I thought was brilliant he said it's frightening to think that you don't know something but more frightening to think that by and large most people go around acting as if they do we have an American humorist Mark Twain who said it even better it's not what you don't know that gets you into trouble it's what you know for certain that isn't true and this is extremely important I can't emphasize

enough the importance of of keeping this in mind if you if you if everything you say as for me if every sentence you say starts with the words I may be wrong but or I don't know but then you're unlikely to to get into trouble the way you get into trouble is thinking that you really do know what the future holds and of course in my opinion being wrong now in our business once in a while somebody gets famous for a particularly brilliant prediction but it usually turns out that they can't repeat that and so

I say that our business is full of people who got famous for being right once in a row and of course being right once in a row doesn't do any good because you never know if the next one has any value but that's the way it is and almost nobody is Right much more than once in a row and everybody in our business makes predictions of what's going to happen and if you look at the great investors of the world virtually none of them got famous by being able to predict the future of what we

call macro and what I'm talking about forecast today I'm talking about the macro economies markets currencies uh interest rates these are the big picture factors they're very important everybody would like to know what they imply but they just can't and Warren Buffett said to me one time for a piece of information to be desirable it has to satisfy two criteria it has to be important and it has to be knowable and the macro is extremely important and everybody says to me how can you not base your investment approach on macro it's so important I say

yes but it's not knowable and if it's not knowable then trying to base your approach on macro is really a waste of time or worse now one of the main reasons for the difficulty of making predictions is the enormous influence of Randomness and you know things often we know how it should go but it something else occurs instead impossible things happen all the time and things that are extremely likely to happen fail to happen all the time now let's go back in my country exactly 2 and a half years to November of 2016 there were

two things that were considered certainties not probable certainties number one Hillary Clinton would be elected president and number two if by some Quirk of Fate Donald Trump won the market would collapse and so instead Trump won and the market went straight up and if that's not enough to convince people that they don't know what the future holds then I don't think I can but that's what happened and uh so so nothing is more common than investors who are right for the wrong reason and they get famous but of course we shouldn't follow them that's the

importance of Randomness I think that investors should accept the fact that they can't see the macro future and restrict themselves to doing the things that are within their power hey just a quick Interruption Howard Marx's investment strategy has delivered incredible returns and now you can use his exact framework that's why we've handpicked his most powerful lessons into the ultimate Howard marks risk management guide to help guide your decisions and avoid expensive mistakes download it at the link in the description because it's my free gift to you for supporting the channel now back to the video

These include gaining insight into what I call the knowbles companies Industries and securities and those are things where you can know more than the other person if you work hard and have skill and wisdom and the other thing we can do is we can behave in what I call a contrarian or counter cyclical way and that's most of what I'll talk about this morning how do you prepare for the future if you don't know it and the answer is we may not know what lies ahead but we should understand where we are today and what

that implies for the cycle and I think it's it's possible to improve investment results by making tactical decisions based on where we stand today and whether it calls for more aggressiveness or more defensiveness and these decisions do not have to be made on the basis of guesses about the future they can be made based on an understanding of the present where are we today and what does that imply for the future and what does that imply for how we should behave so the thing that gets most people into trouble in investing is not the inability

to see the future it's the inability to control their own emotions and we'll talk a lot about that today investors swing like a pendulum between fear and greed and optimism or pessimism risk tolerance and risk aversion and usually they swing in the wrong direction and they warm to things as things go well and prices rise and they get afraid as things go poorly and prices fall and we want to try to do the opposite most investors behave procyclically they follow the cycle rather than antic cyclical as I will describe and it's essential in my opinion

to behave counter cyclically the cyclical ups and downs do not go on forever usually they feel like they will they feel like there's is a virtuous circle that will make things go well forever or a harmful Circle that will make them go badly forever but usually that's not the case usually we have ups and downs and 45 years ago some body did me the favor of explaining to me gave me the the greatest gift the greatest regalo the three stages of the bull market and if you understand this you you're almost ready to become a

professional the first stage when only a few exceptionally bright people understand that there could be Improvement the second stage when most people understand that Improvement is actually taking place and the third stage when everybody believes that things will get better forever so if you buy in the first stage when most people don't see a better future when there's very little optimism included in asset prices you get a bargain and you can make a lot of money if you s do it in if you buy in the second stage when everybody understands that Improvement is taking

place you don't get a bargain you do okay you follow the cycle you buy in at a fair level but if you buy in the third stage when everybody thinks things will get better forever and when asset prices reflect a great deal of optimism you pay high prices which set you up for substantial losses so it it it the interesting thing about investing is it's not what you do it's when you do it it's not what you buy it's when you buy it under what conditions and at what prices so the key to investing is

not buying good things it's buying things well you have to understand the difference between a Bueno and bienn and it's buying bienn that makes for Success when I started at City Bank which was uh uh 50 years ago this month the bank bought the stocks of what we called the nifty50 the 50 best and fastest growing companies in America companies that were so terrific that it didn't matter what price you paid that was the official Theory and they were selling at very high prices because they were such wonderful companies and if you came in and

you held them for five years my first five years in the business you lost almost all your money investing in the best companies in America so buying highquality assets is not the key because they were buying in the third stage the key is to understand where you are and to buy Assets in the first stage and be careful in the third stage that's a big part of today's message so it's important to practice what is called contrarian behavior and to do the opposite of what others do at the extremes because the others are primarily wrong

uh and there's a belief that things are safe when things are going well actually that's the riskiest thing the riskiest thing in the world is the belief that there's no risk since this makes prices very high and sets the stage for bad experiences we must sell when others are buying most aggressively and buy when they're selling most aggressively and Buffett says it great as usual he says the less prudent with which others conduct their Affairs the greater the Prudence with which we must conduct our own Affairs when other people are unafraid and forcing prices High

we must be cautious when other people are terrified and selling and pushing prices down we should turn aggressive and it's it's it's that that's the bottom line uh of course if only it was that simple now the second second part of this presentation comes from one called mastering the market cycle getting the odds on your side and that's the name of uh my new book which came out in October in the states and is now available here in Spanish and I must say that both of my books have been translated into Spanish and you can

only imagine how frustrating it is because I have no idea what it says I have I have no idea the quality of the translation and uh you know I I'd like to believe that my ideas are portrayed accurately but kabi so and I believe that there are cycles and that they're extremely important to understand I believe there always will be Cycles I have followed cycles for 50 years I've think I've been able to help our clients by dealing with the cycles and halfway through writing the book a thought occurred to me why are there Cycles

that's really an important question why do Cycles occur if the US GDP grows about 2% a year on average well why doesn't it just grow 2% every year why sometimes three and sometimes one and sometimes four and sometimes negative in a recession the SNP average of stocks uh returns about 50% uh 10% a year on average and it has done so now for about 90 years almost 10% a year why doesn't it just give 10% every year and in fact if you look at the history rarely is the return between 8 and 12 it's usually

much better than 12 or much worse than eight so why is the average not the norm and uh this is a very important question to understand because of in order to deal with cycles and the answer is simple that the positive Trends in the economy or the market eventually go to excess remember the third stage and those excesses correct on their own or are corrected that's the most of what I'm going to talk about for the rest of this section and so rather than thinking of the cycle in terms of ups and downs which I

always did and most people do I think it's better to think of excesses and Corrections excesses when things go too strong and Corrections when they go too weak so and why do we have excesses because of the involvement of people this is not mechanics this is not physics this this is an area where people have a very strong impact and Richard finman who was a great physicist said physics would be much harder if electrons had feelings we walk in this room we turn on the light switch and the lights go on every time why because

the electrons flow from the light switch to the light fixture every time the electrons never say not today I'm tired the canado they never go in the wrong direction they never go on strike and they always do what they're supposed to do but people rarely in my opinion do uh what they're supposed to do and especially not at the extremes and because economies and markets are made up of people and people have feelings we get Cycles so for example positive feelings can make this directors of a company anticipate big demand and build a factory and

hire workers and and and produce for inventory and if they all do it at the same time then we get a period of above average growth from the factory building and the inventory producing and then that we have an what's called a an upcycle in the market positive investor psychology causes stock prices to grow faster faster than the value of companies is growing the value of companies May grow 6 8 10% a year on average but in the 1990s for example stocks in the US the S&P 500 appreciated 20% a year so the value of

companies was growing like this the the price of stocks was growing like this that's dangerous because that creates an excess and then eventually the excesses can be corrected so if every Factory management builds a new Factory and hires workers and produces for inventory in anticipation of strong demand we may get to a point where there are too many factories and too much in inventory and earnings are disappointing and then they close the factories they lay off the workers they sell from inventory rather than produce and we have a period of below average economic growth or

may be negative economic growth which becomes a recession likewise if prices outstrip the value of companies for long enough and become too high they can't stay up they can't go up further they have to flatten out or decline that's a period of Correction so bullish periods are followed by bearish periods so it's the creation of excesses and Corrections and I think it's better to think of cycles that way than ups and downs now the next question that's important is the cycles that I've been talking about are they Dependable or not and the best way to

understand the answer to that question is another quote from our friend Mark Twain who said that history does not repeat but it does Rhyme very important this is a theme that runs through my book the details of Cycles are always different from one to the next the The amplitude of the fluctuations the length of the cycle and the speed of the fluctuations always different and also different are the causes of the cycles and the effects of the Cycles the ups and downs and people nowadays say to me well this cycle which cycle from the past

is it like and it has some characteristics of others but it's never quite the same history does not repeat but there are certain underlying themes that do repeat or do re do rhyme from one cycle to the other and if we can learn about them and recognize them then we can be ahead of the game so for example in my period in this business I've lived through about a half a dozen uh important bull markets and in general that they have certain themes that that do repeat and here they are too much optimism too little

risk aversion and too much Capital availability and if you if you look at those and you think about those those three things in themselves are a pretty good recipe for a bull market and it's pretty hard to imagine having a bull market without them so these are the themes that we should associate with a bull market which is to say a period of appreciation to excess now let's talk about the three first of all optimism most people think or many people think that that asset price Rises are produced by good events but the the connection

is not just between events and prices it's events and psychology it's events and how they are perceived that produce changes in asset prices and the role of perception or psychology in the setting of asset prices is extremely important all things being equal a high level of optimism will cause things to be priced High relative to their fair value or what we call the intrinsic value so it's the job of the Prof professional in my opinion to figure out for each stock company or building what is the intrinsic value and I'd like to buy when the

price is below the intrinsic value and sell when it's above I think that's a simple recipe for how an investor should behave so we have to figure out the intrinsic value but clearly in a period of great optimism regarding the future prices will tend to be high relative to the intrinsic value we want to know that and the higher the optimism most of the times the higher the price and as I say here if I could know only one thing about every investment that I was considering it might be how much optimism is priced into

the shares and that's an important element in considering every bull market secondly risk aversion risk aversion is not a concept that most people think about every day but it's extremely important and most people are afraid of losses that is to say they are risk averse and uh for most people if they make a th000 Euros they're okay but if they lose a th000 Euros they feel terrible so the losses count more than the gains for most people so most people are biased towards risk aversion and risk aversion is a very very important ingredient in the

markets when people are risk averse as they should be then what happens if they consider an investment they study it thoroughly they make only conservative assumptions they are rigorous in their analysis they demand a margin what we call a margin of safety I want to be sure that if things go poorly I'll be okay and they demand risk compensation if they're going to do something which is risky they demand an exceptional return as a potential reward so when we have risk aversion and we have conservatism and caution and diligence and and demands for uh risk

premiums then we can say that the market is safe and sane but when people get excited about the future and they get excited about what's been going on they forget to be risk averse they become risk tolerant they become accepting of risk and when they do what happens they say well it's not so important to do due diligence and to make conservative assumptions because if I'm too careful then I will miss something and my friend will get it and you know there there there was a there's a book by a man named kindleberger who says

there is nothing worse for your mental condition than to watch a friend get rich and eventually in the market fear of missing out takes over from fear of losing money and then people do bad things so we have to understand whether the market is based on risk aversion or on risk tolerance and when it's risk tolerance because people are excited then we have to understand that the Market can be a dangerous place number three the impact of capital availability the market is an auction place especially for a good way to think of it is the

loan Market you know you you want to borrow some money you go to some banks Each One Bank tells you what they'll do to provide you money but if there's too much capital in the hands of people and they're too eager to get to put it to work because they're afraid of missing something then the bidding goes too high and the price becomes excessive at which point the perspective return is low and the risk is high and we want to know that when there's too much money chasing too few deals those are the seven worst

words in the world too much money chasing too few deals and it happens from time to time and I wrote I wrote a a memo in I write memos to the clients and uh uh the people from the bank can help you get them if you're interested and I wrote one in February 07 before the global crisis entitled the race to the bottom Because the bidding was too strong which meant that the winners of the auction were winning the opportunity to make bad loans and buy overpriced Securities we can figure out when that's the case

if we have exceptional judgment and we can act accordingly so I'm going to sum up on the subject of Cycles by taking you through a typical one and I hope this is helpful on the way up let's say so we start off and there's been a bad experience and we're at a low point and then things start to head up and on the way up economic fundamentals are improving and earnings are increasing and beating expectations and the media are reporting only good news because that's what they do and as a result investor expectations for the

future rise psychology gets stronger people perceive only favorable developments capital is readily available asset prices rise the holders of assets are happy and want to buy more and the people who haven't been in the market are unhappy because of jealous Y and begin to buy everybody wants to buy nobody wants to sell risk aversion evaporates and what do people say they say risk is my friend the more risk I take the more money I make and any anyway I don't see much to worry about and when that becomes the case then prices go too high

and eventually we reach something that investors professionals call a top the top the maximum the price be which Beyond which the market will not go and at the top asset prices are high prospective returns are low or negative and risk is high this is the time for caution but most people are unable to be cautious at the top since the high in prices corresponds with the high in Emotion no one's willing to bear the risk of selling and missing out on the future gains and that's human nature eventually the top is passed and now we're

on the way down excuse me and on the way down economic fundamentals deteriorate earnings Decline and fall short of expectations and the media report now only bad news and as a result investors expectations decline psychology gets weaker people see only undesirable invest uh developments asset prices fall holders of assets are chagrined and sell and the people who haven't held assets Pat themselves on the back for their wisdom but of course refuse to buy now risk aversion grows and investors flee from risk saying bearing RIS risk is just another way to lose money I don't care

if I ever make a euro in the market again I just don't want to lose anymore get me out and the worse things go and the lower prices go the more people want to sell and that's human nature all you have to do is understand human nature and at the bottom asset prices are low and prospective returns are ultra high and risk is low this is the time to be aggressive in the market but most people are terrified at this point because the low in prices corresponds with the low in Psychology and they just can't

move ahead because they're depressed and they're cautious so that's a cycle and you can see how the events conspire to cause people to do it wrong there's nothing that says sell at the top other than your own mentality and there's nothing that says by at the bottom and we see this all the time but this is human nature and it'll never change now the subtitle of the book is getting the odds on your side and that's very important we never know what the future holds remember what I said you can't do anything which is sure

to be right or or or anything close to certainty all you can do is get the odds of a favorable future on your side so the way I think of this and this is described in the book at length cuz think it's important is the future is like a lottery there's a bowl and it's full of lottery tickets and the lottery tickets are the possible future outcomes and there are many of them and it's because there are many possible future outcomes that the world is uncertain and investing is risky and something fate or whatever you

want to call it reaches into the bowl and pulls one ticket all the tickets in the bowl or the possible outcomes and the one that is selected is the actual outcome and we never know which one it's going to be you reach in the bowl you get a ticket it could be any of the tickets in the bowl and there are many now does that mean that we can't know anything about the future that we can't deal intelligently with the future and no it doesn't mean that what we can know is the mix the character

of the tickets in the bowl sometimes there are a lot of good tickets and not too many bad ones and sometimes there are a lot of bad tickets and not too many good ones so you want to invest when the odds are in your favor when are the tickets in the bowl most favorable when are the odds in your favor when we it a low when are the tickets in the bowl unfavorable when are the odds against you when we're at a high so the question is can we figure out the difference so when are

the odds against you when are there more losing tickets in the bowl than winners and the answer is if you put all the things together that I've said so far when there's a high level of investor optimism when investors are spurred on by greed and excitement and jealousy of other people's good results when there have been good results in the market to date because that reassures people when investors are happy with their gains or jealous of the gains of others when there is unwise risk tolerance and when there's eagerness to supply capital and when are

these things seen at cyclical highs you can't see these things at lows there's no optimism there's no greed there's no willingness to provide Capital at lows if if those things existed we wouldn't be at a low these things are the fear uh the greed and so forth they're seen at highs and when are the odds in your favor what causes there to be more winning tickets in the bowl than losers the answer is when there's a lack of optimism a high level of fear poor recent market performance widespread losses excess of risk aversion and reluctance

to supply capital and if you see these things then clearly people are going to be upset and fearful and as a result prices are going to be low and when are these things seen at cyclical lows now where are we now well I thought you'd never ask the the line moving through the chart is the fair value the intrinsic value the central value the norm the right value whatever you want to call it and then of course with Market fluctuates around it excesses and Corrections so as depicted here I think that we're somewhat above the

intrinsic value it's hard to say exactly where we're where we are but I think we're above intrinsic value and uh you know this I I'll talk a minute more uh about the where we are but that's how I would sum up now what's going to happen tomorrow let's assume that I'm correct let's assume that that the market really is somewhat above the intrinsic value what does that apply for performance tomorrow by which I don't mean tomorrow tomorrow I mean over the next year and the answer is who knows the fact that something is overpriced does

not mean that it's going to go down because if you could if you look back at the last H the if you look back at the last cycle the last time we were at the same place you can see that it went much higher so the fact that we're a little bit overpriced doesn't mean we're not becoming more overpriced these Trends continue until they stop but the question is what's the where are the odds and it is true that from this point in the cycle we can have up or flat or down all three are

possible does that mean that they're equally possible and the answer is no we're more likely to have a decline than a gain the odds are against us when the price is uh above the intrinsic value but not to the point where we should have certainty knowing where we stand in the cycle and knowing the odds of success can deliver one of the greatest advantages in investors's world but it's not perfect so now if we if we have established I have established to my satisfaction I don't know about yours the fact that we're a little bit

overpriced today now I'm going to talk about how one goes about investing in what I call an a low return World which is where I think we are in looking at today's market conditions and by the way my these remarks do not apply just to Spain or just to Europe or just to the us or just to China or just to stocks or just to bonds these are General comments about all the markets but when I look out today I see that the uncertainties are unusual in terms of their number and level that prospective returns

in many asset classes are relatively low that asset asset Prices range from Full to excessive and risky behavior is common the bottom line for me of these four things is that we are are living in a low return high-risk world but our money has to go someplace and the rest of this presentation will be about how we figure that out now I look out at the environment of the last couple of years and what do I see we're in the 10th year of an economic recovery in the states and the longest recovery in history ran

10 years in fact we're in the 11th month of the of the 10th year so by historic standards we're getting very late in the cycle there is no rule that says because the there's never been a recovery in the states that went Bel Beyond 10 years this one can't either there's no gate that comes down on the 10th anniversary and says the recovery has to stop but what what are the odds what are the odds that the economic recovery continues for another 5 years or what are the odds that it stops relatively soon but certainly

not today we're in the longest bull market in history stocks have risen you know the the the low was reached on March the 9th of uh 09 so we're more than 10 years into the bull market it's more than any other in history there are a few super stocks called the fangs Facebook Apple Amazon Netflix Google uh which are moving way way way up getting everybody excited some some group of what I call superstocks is present in every bull market there's very strong demand for corporate credit I wrote a memo in September entitled too much

money chasing too few deals that has been the case in my opinion in corporate credit there's money flowing into Emerging Market debt and in normal cautious risk averse times the M the money is not so eager to get into the Emerging Markets but in in bullish aggressive excit times it is and by the way back in I guess it's now two years back in May of 17 uh the world was prepared to buy hundred-year bonds of Argentina uh at 9% and you know Argentina had uh I think five devaluations in the prior Century so what's

the probability that Argentina is going to get through the next Century without a devaluation not not high and yet people were willing to lend Argentina money for a hundred years that's a sign of optimism and aggressiveness on the part of most investors we have record financing for private equity w- which is piling up money which is a statement that if you if you buy corporate assets and you buy it with borrowed money uh you'll make a lot we have an onrush of capital for technology and Venture investing which of course requires great bullishness because it's

all about big gains in the future everybody knows that eight or nine out of every 10 Venture Investments fail but they're seduced by the opportunity to make a 100 times your money in Uber or Lyft and so the money is now flowing in and finally investment in cryptocurrencies and I see that Bitcoin has now doubled in the last few months of course it's it's down uh about almost two-thirds from the high at the end of 17 but there's excitement about crypto so you take all the things together and by the so I think one of

the most important words that I'd like to teach you today in English is the word inference the important thing is not what happened these are the events that have occurred or are occurring the important thing is what do they mean what should you conclude what message should you take away from the events that are occurring and in my opinion when you see these things what it tells me you look at that list it says to me the things that are governing the market today are optimism trust in the future faith in investing and investors a

low level of skepticism risk tolerance not risk aversion the question is do you agree that these are the proper inferences and if they are what do they tell you about the market what they tell me is that this is not a positive climate for prospective returns and safety in this kind of climate safety and returns are not made easy they're made hard to get now let's talk about why prospective returns are low uh we mentioned risk aversion and I said as I said to you it's an extremely important concept it's not one that most people

are familiar with but I was very fortunate back in the middle 60s to go to graduate school at University of Chicago where they were teaching a new investment Theory and what it taught was that there's a line like this that connects return on risk and as you can see the line slopes up and to the right and what that means is that as as Pro as perceived risk increases perceived return increases that's where people get this belief that the more risk they take the more money they make but it can't be that easy because if

it was true that you could depend on risky assets to make you a lot of money then they wouldn't be risky so there must be something wrong with that expectation no what that means is that assets that are perceived as being risky have to be perceived as offering higher returns or else nobody will make those Investments but they don't have to deliver and you have to understand the difference between expectations and and events but it anyway there is an expectation that riskier assets will produce higher returns and that is embodied in the line that goes

up and to the right and it starts with something called the risk-free rate uh here which is the return on the safest Investments which is 30-day treasury bills and it proceeds from there up and to the right and all asset classes fall into line so if you go back a reasonable period of time it looked like this so you have the risk-free rate then you have treasuries then you have which are a little riskier then you have high-grade bonds still riskier quality stocks aggressive stocks high yield bonds private equity and the line slopes up into

the right as it should every investment which is a little riskier should appear to offer a little more return or else the market is not rational and that's the way it was I'm going to say you know 10 or 20 years ago and and that's the way it should be the the issue is that when we got into the global financial crisis the central banks of the world uh were afraid about the economic future and so they lowered the risk-free rate and when they lowered the risk- free rate everything else fell with it the return

on treasuries and high grades and quality stocks and high yield bonds and private Equity also declined that's what we call a parallel shift the line fell and threw out and so the Returns on other assets fell into line with the decreased return on uh the risk- free rate and that's approximately where we are today it would not make any sense if the risk free rate is very low and of course in in Europe there's trillions of dollars of bonds that have negative yields it wouldn't be wouldn't make any sense for for you know the risk-free

rate to be low or negative and other classes to be safely high so everything falls in line and it so because the rates are low look can we back up one yeah you can see that the people who used to invest here and get good returns with safety now have to go out here to highrisk behavior to try to get the similar return and so investors in many markets have taken on increased risk to try to get the returns they want too much money is chasing the limited opportunities in Risk markets and the race to

the bottom is underway and as I said before the seven worst words in the world are out there today in my opinion too much money chasing too few deals if that's true you want to know about it maybe you don't want to participate in that giveaway now as investment managers as we as your bank what can we do for you everything we do falls under one of two headings asset selection or cycle positioning asset selection means trying to hold more of the things that will do well and less of the things that will do less

well and cycle positioning means trying to have more money invested more aggressively when the odds are in your favor and less money invested aggressively when the odds are against you it doesn't mean in out people always say to me is this the time to get in or get out is it the time to buy or sell the answer is it's not black or white it's more aggressive sometimes and more defensive at other times and some people say well yeah there is no better or worse time to be aggressive or defensive and I think that that's

selling short because if you say that then you're up on the second of these features and I think the second Pursuit can be very valuable now I believe that there are times for aggressiveness and there are times for defensiveness when prices are low pessimism is widespread and investors are fleeing from risk most investors that's the time you should become aggressive or we but when prices are high and enthusiasm is every placed and investors are risk tolerant that's the time to be defensive I think it's very easy to see that it's not so easy to do

it's not so easy to understand it's not so easy to take the action but that's the very simple formula so if you agree then the question is which time is this are investments rich or cheap where do we stand in the market cycle how should we be POS position versus our normal risk posture is today if you have a certain normal risk attitude today should you be more aggressive or more defensive it's a very simple question should we emphasize offense or defense should we worry more about losing money or worry more about missing opportunity today

will there be a reward for money and nerve to invest or will there be reward for conservatism and risk control and our mantr today and recently last few years has been moved forward but with caution things are not so bad that we have to be terrified and not move forward not invest we are essentially fully invested today but with caution which means that our portfolio we are always cautious at oakry our portfolio is even more cautious than usual today we are fully invested with a cautious portfolio and I think it's a good formula for Success

now you should say well why not no Investments well the answer is we can't be sure that the future is bad why not fully invested well we can't be sure that it's good and the evidence to me is that it's not quite good so fully invested but with caution so here's the last slide as I said to you I think we're in a low return world and if so the options are limited you can invest as you always had and expect your historic returns but the truth is they're not out there because nothing yields what

it used to yield it used to be a bond yield five today it may yield negative so you can't get your historic returns by doing the things that you used to be do historically so maybe number two number two says you should invest as you always have and expect that the the that the returns will be lower and that is mature that's grown up it's not fun but it's the truth number three you can reduce the risk in your portfolio to prepare for bad times and accept a return which is even lower still and that

is cautious number four you can go to cash at at in your case a negative return and wait for a buying opport opportunity the trouble is it's it's tough to wait for a few years and if the market does well as it has in our country in recent Years you'll have a lot of regret or you can go the other way you can do five you can increase your risk in pursuit of high returns in the belief that you'll get higher returns if you do riskier things or number six you can put money into what

I call special niches and invest with what I hope are special people in the hope that you can do better now in my opinion none of these is entirely satisfactory they all have problems there's only one observation however this is all the choices there are when you're living in a high-risk low return world there's no easy way to make a satisfactory return so you really have to choose between these and by the way that means without number one cuz number one doesn't exist so to me the right things for today are a mix of two

three and six I wouldn't do four I don't think it's appropriate to go to cash the the Outlook is not so bad and the asset prices are not so high that you should go to cash and you shouldn't in my opinion certainly do number five I don't think this there's any point today in being aggressive so some combination in my opinion of two three and six and that's what I wanted to tell you today at the request of uh the bank as I thank you for making it this far in the video I have a

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