Thursday, June 21, 2018

Howard Marks' New Memo: Investing Without People

Oaktree Capital's Chairman Howard Marks has penned his latest memo.  It is entitled Investing Without People and talks about the evolution of the markets with the increasing presence of index/passive investing, quant strategies, and machine learning/AI.

Marks writes,

"When people invest more in certain stocks than others, the prices of those stocks rise in relative terms. And when everyone decides to refrain from performing the functions of analysis, price discovery and capital allocation, the appropriateness of market prices can go out the window (as a result of passive investing, just as it does in a mindless boom or bust). The bottom line is that the wisdom of investing passively depends, ironically, on some people investing actively. When active investing is dismissed totally and all active efforts cease, passive investing will become imprudent and opportunities for superior returns from active investing will reemerge. At least that’s the way I see it."

He then concedes that computers can do many things better than investors. But at the same time he notes that, "Computers can do an unmatched job dealing with the things that can be counted: things that are quantitative and objective. But many other things – qualitative, subjective things – count for a great deal, and I doubt computers can do what the very best investors do."

Marks' Upcoming New Book

Also, it was recently revealed that Marks has a new book coming out in a few months entitled Mastering The Market Cycle: Getting The Odds On Your Side.

Marks' Latest Memo

Embedded below is Howard Marks' new memo, Investing Without People

You can download a .pdf copy here.

Monday, June 18, 2018

Julian Robertson Interview: FANG Stocks Not Frothy At All

Tiger Management founder Julian Robertson was recently interviewed by CNBC.  Here's a summary and the full video below:

- When asked about Paul Tudor Jones' recent comments about stocks heading higher into year-end, Robertson said that, "I think there's a very good chance of that happening (in the next year) and I'm positioned accordingly."

-  He thinks it's possible that interest rates go up so high so fast that the Fed would have to ease up a bit.  But doesn't think rates will go 'wildly' up

- Says the President has done a reasonably good job, but could do with a dose of humility

- Tax cuts have helped corporate earnings but also the earnings of the middle class tremendously

- Feels a slowdown is at least 6 months and 'hopefully' 2 years away

- Tech stocks: he doesn't think FANG stocks are frothy at all, especially relative to the rest of the market. This is one area where he feels he differs in opinion from a lot of market participants.  Adds Microsoft (MSFT) to that bunch as these stocks have growth rates similar to their multiples

-  He likes the management at many of these companies, Facebook etc

-  Air Canada at 3x next year's cashflow is not an expensive stock and is 'beautifully run'.  Also likes Ryanair in Europe.  Doesn't really have any airline favorites in the US right now

-  Loves the banks, thinks they're very reasonably priced in relation to earnings.  Huge cashflow yields next year and thereafter.  Thinks they're in terrific shape, likes JPMorgan (JPM) and Bank of America (BAC)

-  Would tell grandchildren to own FB, BAC, JPM, probably Citigroup (C), which is 'reasonably priced'

Embedded below is the video of Julian Robertson's CNBC interview: