Howard Marks is one of the finest minds in the investing arena. His memos to his investors are a great insight into this brilliant mind. You can subscribe to email alerts for his latest memos by clicking here. Howard Marks has been a good teacher and his second order thinking has helped me a lot.
Below are the highlights from his 2019 letter to investors.
Economic reality – IT describes the ways in which economics defines and constrains reality in business, investing and everyday life. Economics establishes the rules of the game and the boundaries of the playing field, and these things can’t be ignored. They can be altered but not without consequences.
The realities of economics are stark and consistent, but also logical. They aren’t absolute, like the laws of physics (e.g., gravity), but they reliably establish tendencies and limits.
Political reality – I’ve always gotten a kick out of oxymorons – phrases that are internally contradictory – such as “jumbo shrimp” and “common sense.” Ill add “political reality” to the list. The world of politics has its own, altered reality, in which economic reality often seems not to impinge. No choices need be made: candidates can promise it all. And there are no consequences. If something might have negative consequences in the real world politicians seem to feel free to ignore them. . .
In this globalised world, that means Americians can’t enjoy both the high-paying manufacturing jobs they used to have and the low-cost goods they’ve been buying of late. The imposition of tariffs can’t solve that conundrum.
Economics reality is complex, in large part because it consists mainly of dividing resources amonh participants, not of creating more for everyone. As economists like to say, “There’s no such thing as a free lunch.”
A lot of left’s economic apporach is based on closing the income gap, not just by making things better for people at the bottom, but also by pulling down people at the top.
A great deal of America’s economic progress has resulted from people’s aspiration to make more and live better. Take that away and what do we have? The people at the bottom won’t have as many at the top to resent. But without the contibutions of those who aim for the top, everyone will have less to enjoy. This is why I worry about the rise of negative sentiment toward capitalism and antipathy towards those who succeed under it.