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Every exit is an entry somewhere else.

– Tom Stoppard

Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.

– Charles Mackay

Management is always an exercise in battling entropy. Order tends to disorder and the application of energy is required to restore order. It’s an immutable law of the universe and it’s a law of management. In tough times, the disorder comes at you a whole lot faster and requires a lot more energy to manage.

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The most important distinction in the investment world does not separate individuals and institutions; the most important distinction divides those investors that have the ability to make high-quality active management decisions from those investors without active management expertise. Few institutions and even fewer individuals exhibit the ability and commit the resources to produce risk-adjusted excess returns.

– David Swensen

A country does not choose its banking system – rather it gets a banking system consistent with the institutions that govern its distribution of political power.

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There’s nothing intelligent that can be said about the price of oil or gold in the short-run. Assets that don’t produce cash flow can’t be valued.

Howard Marks

Many investors – especially equity and growth equity investors – have a positive bias. People tend to look at negative developments and characterize them as isolated. They ignore contagion and second order consequences. In positive periods, investors engage in selective perception – they only see the good and skewed interpretation – whatever happens, people interpret it positively in a bull market. In recent years, the central bank, by pushing rates to zero, mandated that people – we can think of them as handcuffed volunteers – indulged in highly risky behaviour. The market eventually reached a tipping point where the reality could no longer be ignored.

Howard Marks

What the wise man does in the beginning, the fool does in the end. That’s the nature of the investment business – every trend gets overdone – in the investment business, the most important, single-biggest decision a strategist has to make is whether to play offense or defense. When do you turn aggressive? We just try to figure out when the negatives are being over-emphasized. It’s feel – there’s no science. Everybody should understand their own psychology – are you generally an optimist or a pessimist? Personally, I’m more conservative – but my caution is overcome by the desperation I see around me. When everybody thinks there’s no hope, I find it easier to turn bullish. If the fundamentals are a little worse, but the psychology is drastically worse, that results in cheap prices and one can be less cautious.

– Howard Marks

Fixed income investing is a negative art – all that matters is avoiding the downside and excluding the securities that won’t pay what they claim they will pay. However, avoiding the losers is not sufficient if you want to exceed fixed income returns. You have to take some chances.

Howard Marks