My Amazon Review of Howard Marks' "Mastering the Market Cycle: Getting the Odds on Your Side"

Understanding Cycles

Howard Marks of the very successful Oaktree Capital Management has written a way too long and very repetitive book on understanding market cycles. Where was his editor when we needed him/her? Nevertheless his “Mastering the Market Cycle” is an important book that will give disciplined investors great insight. Discipline is the operative word, because without it Marks’ insights are of limited value.

Marks cites five critical cycles: 1) economic, 2) profits, 3) stock market 4) credit and 5) risk. An investor has to know where we are with respect to each of those cycles and most important is the risk cycle which is determined by the psychology of investors. Simply put are they greedy or are they fearful. Although this sounds easy in theory it is very difficult to implement. For example it is very hard to be bearish when the whole world is bullish, this I know from experience, and conversely it is even harder to be bullish when the whole world is bearish. It is at the extremes where the most money is to be made and where discipline is most needed.

The problem with implementing Marks’ ideas is that it is difficult to know how long a cycle will go on. Marks’ cites Greenspan’s famous “irrational exuberance speech of late 1996, only to witness the late 90s bull market to roar on for another three years. Although Marks was brilliant in backing up the truck in the credit markets at the height of the Lehman crisis in 2008, even he admits it was a close run thing and his success was dependent upon the efforts of Paulson, Bernanke and Geithner in stemming its worst effects.

Putting Marks’ ideas to use today I find that the current economic upswing is much closer to the end than the beginning, profit growth is certainly peaking, the credit market is wide open to most borrowers on very favorable terms and aside from the past few days in early October most investors remain bullish after a ten year bull market that quadrupled the major stock market indices, and investors seem oblivious to global macro and political risks. Thus the way I read Marks it is at least time to be cautious and consequently a time to de-risk portfolios.

Making one last point, I wish Marks cited the late Hyman Minsky who noted that stability leads to instability and although he didn’t directly state the converse, instability leads to stability. That would be Marks in a nutshell. Although too long and too repetitive “Mastering the Market Cycle” is worth the read. There is much wisdom here.

For the full Amazon URL see: https://www.amazon.com/review/R2WH5246HCRNPE/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv