Insightful Quotes From Howard Marks’ “What Really Matters?” Memo

Here are a couple of noteworthy quotes from Howard Marks’ latest memo entitled, “What Really Matters?”.

On 22 November 2022, famed investor Howard Marks released his latest memo entitled, “What Really Matters?”

As usual, it was an insightful read. Marks talked about what really matters in the stock market for investors (and vice versa, what doesn’t matter).

Here are a couple of quotes in the memo that I thought would be worth highlighting.

Short-Term Events Don’t Matter

“One of the critical mistakes people are guilty of – we see it all the time in the media – is believing that changes in security prices are the result of events: that favorable events lead to rising prices and negative events lead to falling prices. I think that’s what most people believe – especially first-level thinkers – but that’s not right. Security prices are determined by events and how investors react to those events, which is largely a function of how the events stack up against investors’ expectations. “

“Macro events and the ups and downs of companies’ near-term fortunes are unpredictable and not necessarily indicative of – or relevant to – companies’ long-term prospects.  So little attention should be paid to them.”  

“It’s clear from observation that security prices fluctuate much more than economic output or company profits. What accounts for this? It must be the fact that, in the short term, the ups and downs of prices are influenced far more by swings in investor psychology than by changes in companies’ long-term prospects. Because swings in psychology matter more in the near term than changes in fundamentals – and are so hard to predict – most short-term trading is a waste of time . . . or worse.”

Trading Mentality Doesn’t Matter

“If you ask Warren Buffett to describe the foundation of his approach to investing, he’ll probably start by insisting that stocks should be thought of as ownership interests in companies.”

“To me, buying for a short-term trade equates to forgetting about your sports team’s chances of winning the championship and instead betting on who’s going to succeed in the next play, period, or inning.”

“Wanting to own a business for its commercial merit and long-term earnings potential is a good reason to be a stockholder, and if these expectations are borne out, a good reason to believe the stock price will rise.”

Short-Term Performance Doesn’t Matter

“Obviously, no one should attach much significance to returns in one quarter or year. Investment performance is simply one result drawn from the full range of returns that could have materialized, and in the short term, it can be heavily influenced by random events. Thus, a single quarter’s return is likely to be a very weak indicator of an investor’s ability, if that.”

Volatility Doesn’t Matter

“I define risk as the probability of a bad outcome, and volatility is, at best, an indicator of the presence of risk.  But volatility is not risk.  That’s all I’m going to say on that subject.”

“Volatility should be less of a concern for investors:

– whose entities are long-lived, like life insurance companies, endowments, and pension funds;
– whose capital isn’t subject to lump-sum withdrawal;
– whose essential activities won’t be jeopardized by downward fluctuations;
– who don’t have to worry about being forced into mistakes by their constituents; and
– who haven’t levered up with debt that might have to be repaid in the short run.”

“[I]nvestors should take advantage of their ability to withstand volatility, since many investments with the potential for high returns might be susceptible to substantial fluctuations.” 

“In many cases, people accord volatility far more importance than they should.”

Hyper-Activity Doesn’t Matter

“”When I was a boy, there was a popular saying: Don’t just sit there; do something. But for investing, I’d invert it: Don’t just do something; sit there. Develop the mindset that you don’t make money on what you buy and sell; you make money (hopefully) on what you hold.”

What Matters In the End?

“What really matters is the performance of your holdings over the next five or ten years (or more) and how the value at the end of the period compares to the amount you invested and to your needs.”

I think most people would be more successful if they focused less on the short run or macro trends and instead worked hard to gain superior insight concerning the outlook for fundamentals over multi-year periods in the future.  They should:

– study companies and securities, assessing things such as their earnings potential;
– buy the ones that can be purchased at attractive prices relative to their potential;
– hold onto them as long as the company’s earnings outlook and the attractiveness of the price remain intact; and
– make changes only when those things can’t be reconfirmed, or when something better comes along.

“Of critical importance, equity investors should make their primary goals (a) participating in the secular growth of economies and companies and (b) benefiting from the wonder of compounding. Think about the 10.5% yearly return of the S&P 500 Index (or its predecessors) since 1926 and the fact that this would have turned $1 into over $13,000 by now, even though the period witnessed 16 recessions, one Great Depression, several wars, one World War, a global pandemic, and many instances of geopolitical turmoil.”

““Asymmetry” is a concept I’ve been conscious of for decades and consider more important with every passing year. It’s my word for the essence of investment excellence and a standard against which investors should be measured.”

For those who are interested, you can access the full memo here.

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10 Interesting Facts About Bear Markets

Bear markets are very common.

A bear market (a market decline of at least 20% from high to low) is a common occurrence in the stock market.

I recently read 10 facts about bear markets written by Tsai Capital, an investment management firm.

Here’s a summary of what I read:

1. Bear markets are defined as a fall of at least 20% from peak to trough. A new bull market occurs when there’s a 20% gain from the most recent trough. Bull markets usually start during periods of maximum pessimism.

2. Bear markets are common. Since 1928, there were 26 bear markets in the S&P 500 index, a US-centric index that consists of major companies like Apple, Alphabet, and Amazon.

3. Bear markets occur, on average, every 3.6 years.

4. Bear markets are usually short-lived since the average length of a bear market is about 9.6 months. That’s way shorter than the average length of a bull market, which is 2.7 years.

5. Bear markets have been less frequent since World War II.

6. During a bear market, stocks lose an average of 36%.

7. 50% of the market’s strongest days in the past 20 years occurred during a bear market. Another 34% of the best days occurred in the first two months of a bull market, when we may not even know that we are past a trough. That’s why we shouldn’t time the market.

8. A bear market doesn’t equate to an impending recession. Since 1929, there have been 26 bear markets but only 15 recessions.

9. Over a 50-year investment horizon, you can expect to go through around 14 bear markets. This shows that market downturns are a normal part of the investment process.

10. Bear markets are painful, but overall, markets have been rising most of the time. Over the last 92 years, bear markets made up only 20.6 of those years. In other words, stocks have been on the rise 78% of the time. This is despite pandemics, recessions, inflation, deflation and wars.

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We Are More Powerful Than We Think We Are

2 episodes, 2 brief moments, 1 lesson.

“Daddy, that’s a policeman!” shouted my three-year-old son (V) to my wife and me, as we were waiting for our taxi to arrive at Terminal 2 of the Singapore Changi Airport.

“Shall we go and say Hi?” my wife asked V.

Without hesitation, V dragged his mother to the two armed policemen and waved “Hello!” at them.

The policemen reciprocated with a smile and a wave.

A ponytailed girl was playing with her brother at the playground as I was walking back home in my Navy No. 4 after ending my in-camp training (ICT) for the day.

“Are you a soldier?”, the young girl, who looked like she was around five years of age, blurted out innocently.

“Yes”, I said, proudly.

After a while, she waved me goodbye.

Two separate episodes. Two brief moments.

But both powerful.

As a father, I felt happy that the policeman made my son’s day, when he could have chosen to ignore.

As an uniformed personnel who wears my No. 4 only once a year during ICT, I felt elated to make the girl happy, when I could have just walked as if I didn’t hear anything.

Sometimes, we don’t need to do much to make a fellow human being happy — we just need to be present and reciprocate.

Coffee With Sudhan And Brian Feroldi

Brian Feroldi is an investing advocate with over 361,000 followers on Twitter. Here’s an interview with him.

Brian Feroldi is a financial educator, author, speaker, and YouTuber. He has an MBA in finance and has been investing since 2004.

Brian is the author of the best-selling book, Why Does the Stock Market Go Up?

Brian’s career mission statement is “to spread financial wellness.” He loves to help other people do better with their money, especially their investments. He has written more than 3,000 articles on stocks, investing, and personal finance for The Motley Fool.

You can connect with Brian through his website and Twitter account.

Sudhan P (SP): At what age did you get started in investing? 

Brian Feroldi (BF): I started investing at the age of 22 and I’ve never looked back since. Now, I am 40.

SP: How did you get interested in investing, and who inspired you to get started?

BF: I first got interested in the world of finance after reading “Rich Dad, Poor Dad” by Robert Kiyosaki back in 2004. That kicked started my fascination with money and investing.

SP: What was your life like before investing and how is it now?

BF: Investing has literally changed my financial life. My investments have allowed me to pay off all of my debts. It has also become my career.

I simply love investing.

SP: How do you choose the stocks to invest in? What are some of your strategies?

BF: I keep a giant list of potential stocks. From there, I take them through my investing framework. I then buy the ones that score the highest on my checklist at the best valuations.

I plan to rinse and repeat for decades.

Some of the stocks I own are Adobe (ADBE), Fiverr (FVRR), and Zoom (ZM). The full list of stocks I have in my portfolio can be found in my The Motley Fool profile.

SP: What are some of the investing mistakes you have made and what are the lessons learnt?

BF: I have made many mistakes in the past and I’ve compiled them in a Twitter thread. Do check it out!

SP: What led you to start your own social channels (Twitter, YouTube, etc)? 

BF: Twitter was started as a way to share my investing philosophy with the world. YouTube was started because I wanted an excuse to talk to my business partner, Brian Stoffel, each week. There was no grand plan at the start. It just happened and I’ve been consistent with both.

SP: What advice would you give to beginners who want to start investing?

BF: Stock prices and business profits are not at all linked in the short-term, but they are 100% linked in the long-term. Watch the business, not the stock.

And “do nothing” is almost always the right move.

I’ve compiled those tips and more in a Twitter thread that beginners should read.

SP: What do you think is the biggest misconception people have about money?

BF: That it’s either all that matters or that it doesn’t matter at all.

Money hugely impacts our lives, so you should take the time to learn about it.

But, it’s far from the only thing that matters. It’s important to develop a healthy appreciation for money, but maximizing a number on a spreadsheet shouldn’t be your #1 priority in life.

SP: If you could summarise your whole life in one word, what would it be?

BF: Grateful

SP: A parting shot for the readers…

BF: When it comes to investing, we should bear in mind to think for the long term.

How to Begin Your Investment Journey?

A handy guide to starting investing in Singapore.

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Investing is a journey, not a day trip, so we need to prepare ourselves for the long haul.

In our previous article, ‘What are REITs? Are they just for retirees?’, we covered some key characteristics of a REIT.

In this article, we will be sharing how to start investing. Here are some questions individuals should ask themselves before investing:

  • Have I already set aside a rainy-day fund? (About six months‘ worth of living expenses is a good gauge.)
  • Am I making my money work hard enough for me to beat inflation?
  • What is my investment horizon; can I set aside some money to invest?

Investing should not be a daunting affair or complex matter. In this article, we want to provide some easy steps on how to start investing.

Open either a CDP account or custodian account

If you are located in Singapore, you need either a Central Depository (CDP) account or Custodian account before you can invest.

A CDP account, which is operated by the Singapore Exchange (SGX), acts as a safe for all your stocks and bonds purchased. Every time you invest in stocks and bonds, they are deposited into your personal CDP account. The advantage of going for a CDP account is that you are the legal owner of the stock you purchase and will enjoy direct interaction with the company (e.g., receiving invites to the annual general meetings, entitlement to voting rights, etc). However, the CDP clearing fee and SGX trading fee are slightly higher compared to custodian fees.

Setting up a CDP account:

  • Ensure you have a bank account with a local bank.
  • Apply for your CDP account here. If you have these information and supporting documents ready on hand, the process will just take approximately 15 minutes.
  • Once you have opened your CDP account, you can log in to the SGX Investor Portal via SingPass to view your stock portfolio and account statements.

Conversely, if you want to invest in overseas stocks, you will have to go for a custodian account instead, as the option of storing investments in CDP accounts is only applicable for Singapore-listed securities. Custodian fees tend to be lower than CDP and SGX clearing and trading fees, and custodians will help to pass on communication from the company to investors while representing them at AGMs and other investor meetings.

A number of brokerages today operate on a custodial basis. This means that the broker will own the shares on behalf of investors. Some examples of such brokers include moomoo, Tiger Brokers, Interactive Brokers, Saxo, Standard Chartered and FSMOne.

Open Your Brokerage Account

A brokerage account allows you to buy and sell investment products such as stocks, REITs, exchange-traded funds (ETFs) and certain bonds.

When selecting your brokerage, consider the following:

  • Market access

Does it allow you to invest in foreign exchanges? If you are looking to invest in overseas stocks, this would be a key factor of consideration.

  • Trading/Commission fees

How do they compare in terms of minimum fees and trading fees? Here is a helpful comparison of brokerage fees compiled by SingSaver. Also consider which brokerage type would suit your needs best – cash accounts, pre-funded accounts, or broker-assisted trading accounts?

Other factors to consider when choosing your brokerage account include the user-friendliness of the web/mobile app interface, availability of useful charting tools, speed of live information, and access to analyst reports and other investor education resources.

There is no limit to how many brokerage accounts you can have with different brokerage houses, so it is possible to test several before settling on one as your primary account.

In the next article, we will discuss the importance of portfolio diversification, and how you can go about doing so.


This article first ran on Manulife US REIT’s thought leadership column, Viewpoints, which publishes regular content on the U.S. economy and the office sector. The article has been re-published here with permission.

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