1. 

   Ben

   November 24, 2021 at 8:06 am

   Hi Pon
   Know you read all Howard Marks letters
   This comment from the AFR this am http://www.afr.com FYI
   https://www.afr.com/chanticleer/why-howard-marks-has-a-warning-for-warren-buffett-and-quotes-cathie-woods-20211124-p59bn7
   It’s paywalled I think
   The captcha wasn’t working on the contact us on your website and I don’t have your email
   Cheers
   Ben

   Why Howard Marks has a warning for Warren Buffett and quotes Cathie Woods
   Howard Marks’ latest memo is largely concerned with how technology is changing the way investors think about stock picking and the macro environment.

   Nov 24, 2021 – 10.42am Even billionaires get the pandemic blues.

   “Each day seems like all the others,” grumbles Oaktree Capital founder and iconic debt investor Howard Marks in his latest memo.

   “Weekdays don’t feel that different from weekends (this was especially true pre-vaccine, when we rarely ate out or visited others). We’ve had only one one-week vacation in two years. The best way to sum it up is through a comparison to Groundhog Day: every day feels a lot like the day before.”

   Howard Marks of Oaktree Capital Management says change is coming at investors faster than ever. Sam Mooy

   This COVID-19 grind doesn’t appear to have done much for Marks’ mood, either. His latest memo is frankly a bit of a downer, despairing about the state of US politics (“Serious potential threats to our democracy exist, and no one can say what the future holds in this regard”), generational inequality (“The Baby Boomers have been and still are consuming more than their fair share of the pie. This will leave future generations saddled with substantial debt stemming from expenditures they didn’t benefit from proportionally”) and apparent expectation the Federal Reserve will run monetary policy, support markets and now fight climate change (“How many roles can one institution have and still maintain a coherent effort?“).

   There are some interesting ideas here, particularly when you think about the collision of US politics with the potential need to raise taxes or cut welfare spending as the population ages. What a mess that could turn out to be.

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   But for investors, it’s the top half of the memo that deserves the most focus, where Marks addresses investing and inflation, and the way technology connects these two ideas.

   Great investors are often scarred by events in their formative years, and the rise and subsequent fall of the original US growth stocks in the 1960s – a group called the “Nifty Fifty” – is a moment Marks regularly returns to.

   The parallels between the growth stocks boom then and the growth stocks boom now resonate with Marks. “This was one of post-war America’s first major brushes with newness,” he writes.

   “And – in a good example of illogicality – investors embraced these companies, with their revolutionary newness, but somehow assumed that a newer and better new thing could never come along to displace them.”

   Which, of course, is exactly what happened – almost half of the Nifty Fifty have either gone out of business or been acquired by others.

   But the difference between then and now, Marks argues, is that the world seemed to change much slower in the 1960s than it did now, heightening the opportunity for rapid disruption to today’s leaders.

   “Anyone who believes all the firms on today’s list of leading growth companies will still be there in five or 10 years has a good chance of being proved wrong,” Marks says.

   “For investors, this means there’s a new world order. Words like ‘stable,’ ‘defensive’ and ‘moat’ will be less relevant in the future. Much of investing will require more technological expertise than it did in the past. And investments made on the assumptions that tomorrow will look like yesterday must be subject to vastly increased scrutiny.”

   The use of the word ‘moat’ particularly stands out in this passage. While Warren Buffett isn’t mentioned by name here, he certainly popularised the concept of a company’s value being linked to an economic moat that gives it a competitive advantage.

   Warren Buffett is sitting on a huge pile of cash.
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   Marks’ message is that technology, and the pace of change in the modern world, means moats will be leapt much faster and more easily in the past. On the face of it, it seems to be a call for a different style of investor, who is perhaps less hung up on the tried and true methods of the past and more ready to understand the implications of technological developments.

   Perhaps we can even take Marks’ comments a step further, and ask whether investing for the very long term – those decades-long bets Buffett has been famous for – might become harder in this rapidly changing environment?

   But it’s not just Buffett thinking very long term in this market, of course. Buying a high-growth tech stock that trades on a stratospheric valuation is an implicit bet that that company will enjoy a long period of success, and grow into it multiple over time. Marks’ lesson from the Nifty Fifty is not that this is impossible, but that investors can fall into the trap of illogically assuming the same spirit of disruption and innovation that fuels today’s winners isn’t fuelling tomorrow’s rising stars.

   Which brings us neatly to one of the world’s most prominent and polarising investors in very long-term technology trends, Cathie Wood of ARK Invest, who makes a surprise appearance in Marks’ latest memo.

   Wood and ARK are having a rough trot at the moment, as rising inflation fears whack high-growth tech stocks; the ARK Innovation ETF, which has become something of a proxy for the hyper-growth, futuristic end of the market, hit its recent peak on November 1 and is since fallen 15 per cent.

   Marks starts by saying that Wood has possibly misquoted him by suggesting he sees the potential for technology to create a deflationary bust; Marks says he merely argued tech can be a deflationary factor.

   Cathie Wood has been taking investments out of China for a number of reasons.
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   But Marks is interested in Wood’s suggestion that not only can technologies such as automation and artificial intelligence act as a deflationary force, they can also provide a boost to productivity that Wood says will be bigger that anything we’ve seen “certainly in modern times”. The ARK view is that this productivity boom could lift US GDP to $US40 trillion by 2035, beyond linear estimates of GDP at $US28 billion.

   Marks is intrigued by this idea that technology could both reduce hours worked while also increasing output per hour worked. “In other words, technology has the potential to boost GDP while adding to unemployment.”

   His point is that while inflation is all the rage now – as Wood would know all too well from the pressure on her holdings – investors should not dismiss the potential for technology to act as a deflationary force over time.

   Reply
   • 

     Pon

     November 24, 2021 at 5:03 pm

     thanks for sharing – email is the same as the weekly email that you (may/are) receive.

     Reply

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