Howard Marks: Everything Is Cyclical
Human psychology is at the root of it
By Stepan Lavrouk
Cyclicality is a common theme that runs through the philosophies of many great investors. Gurus like Warren Buffett (Trades, Portfolio), Ray Dalio (Trades, Portfolio) and Howard Marks (Trades, Portfolio), while practicing distinctly different styles of investing, all fundamentally believe cycles govern market behavior. In his book "The Most Important Thing," Marks explains that human psychology lies at the root of these cycles.
He wrote that while investing is inherently highly uncertain, there are two rules he believes hold pretty steadily:
“Rule number one: most things will prove to be cyclical. Rule number two: some of the greatest opportunities for gain and loss come when other people forget rule number one.”
Economies, markets and companies naturally go through cycles. Bull runs yield to bearish corrections, and then the pendulum swings back. For many people, however, this is a difficult concept to grasp. There is a point during every protracted bull market where someone declares this is the new normal. Similarly, during depressed periods, many people are fearful of investing as they believe asset prices may never recover. It is this human variability that causes cycles in the first place. Marks wrote:
“The basic reason for the cyclicality in our world is the involvement of humans. Mechanical things can go in a straight line. Time moves ahead continuously. So can a machine when it’s adequately powered. But processes in fields like history and economics involve people, and when people are involved, the results are variable and cyclical. The main rea-son for this, I think, is that people are emotional and inconsistent, not steady and clinical.
Objective factors do play a large part in cycles, of course—factors such as quantitative relationships, world events, environmental changes, technological developments and corporate decisions. But it’s the application of psychology to these things that causes investors to overreact or underreact, and thus determines the amplitude of the cyclical fluctuations.”
Good times create profligate spenders. When consumers come to believe the boom is here to stay, they tend to spend more and save less. They increase their leverage and use debt to fund non-essential aspects of their life. Ironically, it is this behavior that brings about the end of the cycle. As Marks noted:
“All of these things are capable of reversing in a second; one of my favorite cartoons features a TV commentator saying, 'Everything that was good for the market yesterday is no good for it today.' The extremes of cycles result largely from people’s emotions and foibles, nonobjectivity and inconsistency.”
Although there is a certain grim inevitability about all of this, investors should cheer the cycle. Human variability is the reason why stocks can become mispriced in the first place.
Calvin comments:
Indeed, it was by Investing in Cyclicals that Howard Marks became a billionaire. Another great Investor in Cyclicals is Peter Lynch. His Magellan Fund beat Berkshire for 13 straight years by investing into Cyclicals
Last two years got 2 Great Outsized Cyclicals: Bull Run of 2019's OGSE when Petronas gave Rm30 billions for Upstream Capex.
Top size maintenance OGSE gone up 300% to 500% in Outsized gains. Many were pre occupied with lesser value shares then.
Then March 18 2020 Malaysia went into a lock down due to Coronavirus that triggered the Once in a Century Glove Super Bull run when Glove share prices up as high as 1,000%
Again there were those who totally missed the Glove rally with other inferior stocks they got sidetracked or preoccupied with
THIS TIME NOW?
THIS TIME IS VERY VERY CLEAR AND APPARENT:
PALM OIL CPO PRICES GONE UP FROM RM2,000 TO RM5,000 BREAKING ALL HISTORIC RECORDS
SO BULL RUN FOR PALM OIL?
Not yet.
Why?
Because EPF is selling Palm Oil Stocks across the Board
Good or bad?
Good if you are longer term investor but bad for traders as prices are choppy due to EPF selling
See the Buying pattern matched by EPF selling in Tsh Resources
As we can see While Insider Boss of Tsh was buying Epf has been selling as well. That pares down Tsh prices.
BUT WHY TSH INSIDER BOSS KEPT UP BUYING AND BUYING IN THE FACE OF EPF RELENTLESS SELLING AND SELLING?
ANSWER:
HE MUST HAVE SEEN SOMETHING GOOD YET AHEAD OF TSH
What is so GOOD?
We can calculate the Earnings ahead
For July, August & Sept 2021 (3 months of Cpo prices averaged Rm4,417 a ton)
Production cost of Cpo is Rm1,600 more or less. So there is a HUGE OUTSIZED PROFIT Of Rm2,817 or 176%
THIS PROFIT IS IMMENSE IN COMPARISON TO PHARMANIAGA'S RAZOR THIN PROFIT OF 2% To 3%.
Many others like Food, Poultry are hardly making any money due to high food ingredient costs. Those good industries made 10% to 12% considered good while some Tech stocks chased up the sky showed losses (no profit)
THEN WHY SHOULD PALM OIL MAKING MORE THAN 150% BE UNLOVED AND STILL SO CHEAP?
THAT PRESENTS VALUE INVESTORS A WONDERFUL OPPORTUNITY TO BUY WHILE THE BUYING IS SO CHEAP
AND HOWARD MARKS WAS BUYING OUTSIZED POSITIONS WHEN HE SAW BARGAINS IN HIS TIME. SURPRISING THING WAS. WHEN HOWARD MARKS WAS BUYING SOME FUNDS WERE LIQUIDATING
FOR WHATEVER REASONS EPF & OTHER FUNDS ARE LIQUIDATING PALM OIL SHARES DUE TO ESG CONCERN PRICES OF PALM OIL COMPANIES ARE NOW TOO CHEAP TO IGNORE
THAT IS WHY INSIDERS ARE BUYING AND BUYING APART FROM TSH INSIDER BOSS
See
See DIRECTORS/INSIDERS OF PALM OIL COMPANIES BUYING BELOW
1) TSH RESOURCES
THE CHAMPION ACCUMULATOR LATELY
2) WTK HOLDINGS
Dr Neoh Soon Kean of Dynaquest in Top 30 holders of WTK. Also in JTiasa & THPLANT
3) KUALA LUMPUR KEPONG
KLK SO BULLISH? KLK BOUGHT OVER IJMPLANT AT RM3.10 WHILE INSIDERS GOBBLING UP OWN COMPANY SHARE
4) UMALACCA
WHAT HAPPENED? July 15 bought only 3,000 shares & in August 2nd walloped 143,600 shares?
5) UNITED PLANT
6) KM LOONG
7) TDM
8) AZRB
9) GENTING PLANT
NOTE: GENTING PLANT GOT RM800 MILLIONS IN CASH HOARD & READY FOR M&A (NEW TAKEOVERS LIKE KLK TAKING IJMPLANT?)
10) BATU KAWAN
11) FGV taking over FGV
12) MHC PLANT
13) MKH
14) TAANN
15) IJM PLANT
NOW TOO LATE TO BUY IJMPLANT AS IT IS OVER RM3.00 (EPF MISSED IJMPLANT BY RELENTLESSLY SELLING)
16) SIMEDARBY PLANT
17) IOI CORP
IOI CORP ANOTHER ONE GOING FOR M&A WITH OVER RM2 BILLIONS CASH RAISING PROPOSAL. WILL IOI FOLLOW KLK SOON?
18) RSAWIT
19) SOP
20) SWKPLANT (Top Holder is TAANN)
21) INNOPRISE (TSH RESOURCES IS TOP 2ND HOLDER OF INNO)
Fong Siling or ColdEye is in Top 30 of INNO
THE MARKET CYCLE IS LIKE A PENDULUM SWING
IT SWUNG TO THE LEFT AND PRICES WERE VERY WEAK FOR A PERIOD UNTIL ALL HAVE GIVEN UP HOPE FOR PALM OIL FOR GOOD AND NO LONGER PAY ATTENTION TO IT
THEN IT SWINGS BACK TO THE MIDDLE AND FROM THERE IT SWINGS TO THE UTMOST RIGHT FOR A FULL CYCLE FROM TOTAL DESPAIR TO TOTAL EUPHORIA
SAVVY INVESTORS LIKE PETER LYNCH & HOWARD MARKS SAW THIS AND TOOK ADVANTAGE TO BUY EARLY AT THE FIRST SIGN OF CHANGE FOR UPTURN. HANG ON TO IT TILL IT TURNS INTO EUPHORIA AND THEN TOOK PROFIT
MASTERING THE ART OF CYCLICALS THEY BECAME LEGEND
TO KNOW IS EASY. TO DO IS HARD
WHY HARD?
BECAUSE IT GOES AGAINST HUMAN PSYCHOLOGY
WILL PALM OIL MAKE YOU 200%, 300% or 500% or EVEN MORE?
YET TO BE SEEN
BUT THIS WE KNOW.
FCPO PRICES HAVE BREACHED RM5,000 BARRIER - FIRST TIME EVER FOR THE LAST HUNDRED YEARS
SO WE ARE IN UNCHARTED TERRITORY
WARM & BEST REGARDS
Calvin Tan
Jurong West
Republic of Singapore
FROM UTTER PESSIMISM TO MAXIMUM EUPHORIA
BUY CYCLICAL AT BOTTOM WHEN 99% OF THE PEOPLE ARE BEARISH
SELL AT AT PEAK EUPHORIA WHEN 99% OF THE MASSES ARE IN TOTAL FRENZIED EUPHORIA
EQUALS TO OUTSIZED GAINS
calvintaneng
Pendulum Swing of Thplant shows its highest price to be Rm2.49 when Cpo was Rm4000
Now with Cpo over Rm5,000 it should go even higher at its next peak
See STOCK PRICES FROM STOCK PERFORMANCE GUIDE BY DYNAQUEST
2015 Year Edition
Year ..........Price Range
2006,,,0.70....1.13
2007...0.98....1.54
2008...0.78....1.59
2009...0.98....1.48
2010...1.17....1.76
2011...1.54....1.90
2012...1.60....2.49
2013...1.60....2.00
2014...1.40....2.18
2015...1.53....1.70
2021-10-15 04:42