Howard Marks
Taking the temperature
Don't forecast, locate
The Most Important Thing; Mastering the Market Cycle
He refuses to forecast and still bought two generational bottoms. What replaces the forecast is a reading of where we are standing now.
What actually happened?
Marks gives up on prediction: nobody knows the macro reliably, so he stops trying. Then he changes the question. We may never know where we're going, but we'd better have a good idea where we are. The cycle cannot be forecast; your position on it can be measured. He calls it taking the temperature — is credit loose or tight, are buyers begging their way in or sellers begging their way out, are the sceptics or the believers louder. Two rules sit underneath: nothing runs one way forever, and the mood swings like a pendulum that barely pauses at the midpoint.
What forecasting can't answer, location can
Nobody knows what next year does. But where you sit on the arc has readings you can take today: how hard it is to raise money, how thorough diligence has become, how bad news gets absorbed. That will not date the turn. It tells you whether to lean forward or back.
You cannot call the sector's inflection. You can count whether investors chase founders or founders chase meetings, and that already says whether to store grain.
The extremes give the cleanest readings
Mid-arc the thermometer is vague; at the ends it is obvious. Universal fear and universal fearlessness are both easy to recognise. The hard part is acting on the reading, because the action it calls for is the exact opposite of how the moment feels.
How often this time it's different and it will never come back reach the headlines is itself a reading. Whichever you keep hearing, check your position against it.
Being early is the fixed cost of this method
Acting on position means being early almost by construction: you turn cautious past the midpoint and the pendulum runs on for another year. Marks says being too far ahead of your time is indistinguishable from being wrong. That stretch is the ticket price.
Trimming on the thermometer and then watching everyone else earn for another year is the standard script. Write that year into the plan or you will abandon the plan inside it.
How do I use it today?
Where you are: you cannot call which way this goes, so you have stopped moving.
Ask first: forget direction — what is the position? What do funding, sentiment and behaviour say about where on the arc we are standing?
Where it goes wrong: turning location back into timing and demanding that you catch the turn; or taking the temperature and then not acting on the reading, which wastes the whole exercise.
Lines to keep
Trees don't grow to the sky, and few things go to zero.
The mood swings of the securities markets resemble the movement of a pendulum.
Same situation, other people are asking
Everyone agrees it's a good bet. Is that already in the price?It's obviously overheated. Why does it keep going up?Am I early, or am I just the last one in?Everyone is piling in · all 3 questions →If this one named what you are going through,
send it to someone who needs it, or keep it somewhere you will find it again.