Knee-jerk Dismissiveness

“Broad observations about historic calculations are not a sufficient foundation for market opinions today”

This quote comes from the latest Howard Marks memo, which is the best thing he’s written in a long time, maybe ever.

Marks is known for being a value investor, which requires a heavy dose of skepticism. This serves investors very well in certain market environments, and less well in others, like today for example. In “Something of Value,” Marks takes a deep look inwards at some of his biases. I don’t say this in an accusatory way, I cannot give him enough praise for this piece. We all have biases. We don’t all take the time to recognize them.

Here, Marks writes about his experiences as a value investor:

Many of the great bonanzas for value investors have come in periods of panic following the bursting of bubbles, and this fact has probably led value investors to be very skeptical of market exuberance, especially when concerning companies whose assets are intangible. Skepticism is important for any investor; it’s always essential to challenge assumptions, avoid herd mentality, and think independently. Skepticism keeps investors safe and helps them avoid things that are “too good to be true.”

But I also think skepticism can lead to knee-jerk dismissiveness. While it’s important not to lose your skepticism, it’s also very important in this new world to be curious, look deeply into things, and seek to truly understand them from the bottom up, rather than dismissing them out of hand. I worry that value investing can lead to the rote application of formulas and that, in times of great change, applying formulas that are based on past experience and models of the prior world can lead to massive error. John Templeton warned about the risk that’s created when people say “it’s different this time,” but he also allowed that 20 percent of the time they’re right. Given the rising impact of technology in the 21st century, I’d bet that percentage is a lot higher today.


Something of value

Josh and I got into this and much more in our latest episode of What Are Your Thoughts?

Subscribe to the channel, you’ll get a notification as the show is about to premiere each week.

Josh and Michael use YCharts when creating visuals for this show, as well as for many aspects of their business. What Are Your Thoughts viewers can get a 20% discount for YCharts by clicking here (new users only):

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.