Wednesday, July 22, 2009

Howard Marks Re: So Much that is False and Nutty

Memory dims with the passage of time, but when I think back to the investment arena I

entered forty-plus years ago, it seems very different from that of 2003-07. Institutional

investing was done mainly by bank investment departments (like the one I was part of),

insurance companies and investment counselors – a pretty dull bunch. And as I like to

point out when I speak to business school classes, “famous investor” was an oxymoron –

few investment managers were well known, chosen for magazine covers or listed among

the top earners.


There were no swaps, index futures or listed options. Leverage wasn’t part of most

institutional investors’ arsenal . . . or vocabulary. Private equity was unknown, and

hedge funds were too few and outré to matter. Innovations like quantitative investing and

structured products had yet to arrive, and few people had ever heard of “alpha.”

Return aspirations were modest. Part of this likely was attributable to the narrow range

of available options: for the most part stocks and bonds. Stocks would average 9-10%

per year, it was held, but we might put together a portfolio that would do a little better.

And the admissible bonds were all investment grade, yielding moderate single digits.


We wanted to earn a good return, limit the risks, beat the Dow and our competitors, and

retain our clients. But I don’t remember any talk of “maximization,” or anyone trying to

“shoot the lights out.” And by the way, no one had ever heard of performance fees.

Quite a different world from that of today. Perhaps it would constitute a service if I

pulled together a list of some of the developments since then: