In this podcast, Motley Fool analysts Andy Cross and Maria Gallagher discuss:
- Stocks investors should consider trimming.
- Two stocks to throw out altogether.
- Stocks that spark so much joy Marie Kondo would be proud.
- Potential comebacks for online retailers.
- Why Zscaler (ZS 5.23%) and Disney (DIS -0.47%) are stocks to hold for the long term.
- Actual cleaning tips!
Motley Fool senior analyst Bill Mann talks with Oaktree Capital (OAK) co-founder Howard Marks, author of Mastering the Market Cycle: Getting the Odds on Your Side.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
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This video was recorded on April 15, 2022.
Chris Hill: Roll up your sleeves and be prepared to get a little dirty. It's time to do some cleaning, Investors-style. Motley Fool Money starts now.
Speaker 2: Everybody needs money, that's why they call it money.
Speaker 3: From Fool global headquarters, this is Motley Fool Money.
Chris Hill: It's a Motley Fool Money radio show. I'm Chris Hill and I am joined by Motley Fool Senior Analyst Maria Gallagher and Andy Cross. Good to see you both.
Maria Gallagher: Nice to see you.
Andy Cross: Hey, Chris.
Chris Hill: It's our spring cleaning special. We're using spring break as a chance to lean into the theme of spring cleaning. Because it's not just our closets and our yards that benefit from spring cleaning, our portfolios do as well. Maria, I'm going to start with you. In terms of trimming the hedges, so to speak, what is a stock that you think investors should consider trimming back on?
Maria Gallagher: There's a lot of questions and not that many answers about iBuying as a practice in general, but specifically with Opendoor. We see that Opendoor has been buying and selling homes for an average 17 percent more than they paid for the house within a 72-day turnaround. Because of this, there are a lot of different ideas of what that's going to look like in a regulatory sense. North Carolina, the Real Estate Commission has taken some disciplinary action against it, and other states are talking about doing the same. With such a hot real estate market, this type of increased scrutiny, I want to understand and watch these dynamics a bit more throughout the industry, and see how Opendoor is going to be impacted moving forward.
Chris Hill: Always interesting when regulators can involved. Andy Cross, what about you? Are stock, maybe investors should trim the hedges on?
Andy Cross: Team, I'm looking at wix.com, symbol W-I-X, the website host and creator of more than 220 million users. Stocks down 65 percent over the past year, now at $99, market cap of about 6 billion, growth has been slowing Chris, from competition heating up and COVID pandemic Tailwinds any, their Shopify, GoDaddy, Squarespace, all now in their quarterly revenue growth has been dropping really sequentially since peaking in 2020. Grew 18 percent last quarter in gross profits growth in less than 12 percent. Their subscription revenue business is approaching the growth, there is approaching the pre-pandemic levels. Really seen the business slowdown. There are business solutions, which is like payments and ad campaigns really dropped pretty dramatically last quarter, and the long tail, tailwinds that they do have are really on that side of the business, and margin pressure is starting to show up with gross margins that are five-year low. There's some good news there, Chris. The stock, because it has fallen is really the valuation on less than four times sales is pretty cheap for e-commerce player. They are still making progress with lots of their cohorts. They have new partnerships with DoorDash and others, so and the growth may have bottom. If you are looking for maybe some tax loss harvest in your one that just doesn't have quite as much confidence, wix.com is one that you might want to trim from for your portfolio.
Chris Hill: Thank you for mentioning that because it is one of those things that investors with a diversified portfolio can take advantage of. Selling stocks, maybe you've lost money on them but if you're selling some chains as well, it can diminish the tax that you're going to be paying there. Let's move to the closet that you go to the backdrop, Maria, and there's things where you're like, "Oh my gosh, is this still here? I got to throw this out altogether." What is the stock that investors might want to just consider throwing out all together?
Maria Gallagher: There's so much to say about Peloton, but that's going to be mine. If you still have it, I know a lot of people have turned it out already, but if you're thinking about it. We saw the sharp drop in demand for their at-home fitness. The supply chain headwinds, increased competition. They're expecting to see sales down over 7 percent for the year that ends in June, their stock is down over 80 percent. They have a new product coming out, which is called the Peloton guide, which is a camera that's used to track workouts. They said it was going to be $495, they've already slashed the price to $295. They're trying to make it a comeback story, I don't know if it's going to come back with all this increased competition with the supply chain constraints, with the pull-through that they saw for COVID. I would throw that one out all together.
Chris Hill: You don't think they could get another appearance on Sex and the City or something like that, maybe a little buzz marketing?
Maria Gallagher: Another really bad commercial that nobody likes which talks about a lot. [laughs]
Chris Hill: Andy Cross, what about you?
Andy Cross: You can stick with the closet metaphor, Chris because I'm going to Stitch Fix one I own. I know we've been selling it at some portfolios. The online personalized apparel retailer founded by Katrina Lake, who's now no longer the CEO. She used to own 15 million shares, has been selling down. Now owns 10 million, still almost 9 percent stake in the company. Growth has been slowing pretty dramatically from 20 percent now to single-digits, to where it's going to be and actually probably down this coming quarter. They've got a new user growth, which used to be above 20 percent. That was something that you said, "Watch closely." That's down to 4 percent now. It's just down from the previous quarters, and that's a real key metric. The new CEO, Elizabeth Spaulding, points to challenges like onboarding and conversion of clients, that's key to what they do. When I look at it, I just looked the stock is down almost 80 percent over the last 12 months, a mark up of 1 billion. Used to be all about their algorithmic designing, and now they're gone to a freestyle approach where you can buy right away on the website. When I look ahead going forward, Chris, the business is a challenge, I don't think they have really this lasting competitive dynamics we might have thought over on point. Competition continues to heat up and costs are increasing. I just don't think they have the pricing power to be able to sustain going forward. That's one I think we can look to cut pretty cleanly out the closet.
Chris Hill: Early in Stitch Fix career as a business, even before it went public, and there were people asking the question that usually I ask about any business, which is, how big is the addressable market here? How many people actually want something like this? Is part of what Stitch Fix is running into is just almost like a lower ceiling than they are or anyone else thought in terms of who actually wants this as a service?
Andy Cross: I think so. That's part of it, Chris, they continue to look toward kids and men, which was a bright spot, and might still has some exciting bits but I think are potential. But overall, I think you're right. They maybe early, but certainly Amazon is right doing very similar things in their algorithmic apparel, designing. Others are living into this space, they are now Stitch Fix, is now spending a lot more on advertising. They used to, to recruit those clients. I mean, converting those clients is just getting harder and harder. The magic sauce, they might have had at one being one of those first movers, this is not sustainable going forward, I don't think.
Chris Hill: All right, let's flip this around, Maria. In the spirit of Marie Kondo. What is his stock that sparks joy in you?
Maria Gallagher: Trex Decking spark so much joy for me. It's the world's largest manufacturer of composite decking, which is the wood alternative for outdoor products. One-five hundred square-foot deck has a 140,000 plastic bags. It's one of the largest polyethylene film recyclers in North America. It's this really amazing environmentally conscious company. What they do is they are actually the global market for composite decking is going to double over the next five-years. They're ramping up capacity to meet demand. It's incredibly well-known in this space, it's really top-of-mind when it comes to composite decking, it's really been verbed like we talk about it, if you say. You want not a wood deck, people automatically go to Trex. I think it's just going to keep growing and it's just a company that makes me very excited.
Chris Hill: This is one of those stocks that I can't believe I don't own. Particularly since a year ago, we invested in a new deck and it's Trex and it's fantastic and just added to the list of stocks I should own but don't. Andy Cross, what about you?
Andy Cross: I'm right there. I got a Trex on my backyard, and I don't want to stock either. But what I do own as Microsoft, this one brings back tears of joy and regret. Because I owned it for years, sold it right before Satya Nadella became the CEO, then bought back into it later on with the price lot higher obviously, but at least I got back into it, which is what brings me joy here. Microsoft, as they say in their 10-K Chris, is a technology company whose mission is to empower every person in every organization on the planet to achieve more. The stock is up 320,000 percent since IPO in 1986, about 36 years ago. It's up 36 percent in the last five years, pay 17 billion annual dividends and buys back 29 billions of stock. I don't have to list out all the things they do. They are one of the most important companies in the world at $2.3 trillion of mark cap. Satya Nadella became CEO in 2014. When that cloud business Chris, it was big but it was an afterthought, it was like a second fiddle really, third fiddle maybe. Now Cloud is a $60 billion business and growing 40 percent or higher. They are going after the gaming market. There are smarter acquire, we'll see how the activation and acquisition works out with them. But a smart acquire or things like good GitHub and Nuance Communications, LinkedIn, which is coming along. I think some of us may have smiled a little bit when they made that acquisition, but I think they really are using it and building out that as an asset. Even though it's still so large, Chris, I think Microsoft is just going to be a continued dominant player in the years to come. Will probably continue to deliver nice moneymaking gains for investors.
Chris Hill: You're not alone, Andy. I owned it for years. I sold it right before Nadella became CEO, and it took me years to buy it again, [MUSIC] and I'm a happy shareholder. Coming up after the break, we will take a cicada mindset to investing. Details next, you're listening to Motley Fool Money.
Chris Hill: As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill is here with Andy Cross and Maria Gallagher. It is our spring cleaning special. We're recording this one a little early. Hopefully, nothing changes was any of the stocks we're talking about. Andy, springtime is about renewal, reburse. What is a stock or industry that you think is poised for some renewal like come back?
Andy Cross: Well, Chris, MercadoLibre, symbol M-E-L-I, the large Latin America e-commerce platform for their MercadoLibre, Mercado Pago, and their logistics business, Mercado Envios, $61 billion market cap. It's more than 40 percent off its high. It has a little bit of rebounding only down about 10 or 11 percent this year. There are worst performers out there, but I look at this opportunity they have in Latin America, revenues were up 80 percent last quarter, boast the most envious and valuable Latin America e-commerce assets I think. Latin America has a population of more than 660 million, twice the size of the US yet e-commerce penetration is still only about five percent, it's much less than what we have in the US. MercadoLibre's gross merchandise value is selling across all their platforms up more than 50 percent per year. Reached more than seven billion in 2020. Items per buyer is up 17 percent last quarter and more than 50 million in their FinTech users across their Mercado Pago and their FinTech platforms. They are in all stuff, banking, financial services, Chris. The logistics network they are building out is really impressive. When I look at the opportunity for this stock at about $1,100 and of its high I just think the growth opportunity MercadoLibre and their CEO and founder, Marcos Galperin driving continued to be pretty impressive. It's one that I would buy today and hold for a long time.
Chris Hill: Maria, what about you?
Maria Gallagher: I'm going to look at an industry really quickly. Online retailers had a pretty bad start to the year. You see the RealReal down about 33 percent, Poshmark down 23 percent at [inaudible] over 35 percent. But all of these really work within the resale environment. Which I think is really interesting. Resale is growing 11 times faster than traditional retail. In the US alone, over 33 million consumers bought secondhand apparel for the first time in 2020, and the resell market is projected to double in the next five years, reaching 77 billion. I think the combination of popularity among millennials and Gen Z combined with this positive environmental impact is something that is being overlooked in how these stocks are being treated recently. I think they are poised for a strong comeback.
Chris Hill: A year ago at this time, particularly here in the greater Washington DC area, we were dealing with the Brood X cicadas, the cicadas that appears every 17 years. Andy, with that in mind, what does the stock you would be willing to hold and not touch for 17 years?
Andy Cross: Chris, just looking at the cybersecurity market, I think companies like Zscaler, CrowdStrike, for example also are very positive. Zscaler, its symbol ZS, is 40 percent off its 52-week high, founded by Jay Chaudhry, who's the CEO and owns almost 40 percent of the company, it's a leader in Cloud-based cybersecurity, started in the Cloud, built for the Cloud. Basically, created this thing called zero-trust exchange, which really allows it. It replacing VPNs and traditional firewalls for so many corporations out there, large companies continues to grow very fast from 63 percent last quarter. It's the fastest rate in three years, it was up 11 percent sequentially. Chris, looking at the next 17 years, I just think cybersecurity is going to be continued new, we're seeing more and more interesting and more and more demand from Chief Information Officers to make sure they have the best security out there. Zscaler really is leading the way there.
Chris Hill: Maria, what about you?
Maria Gallagher: A company, I've loved for the past 17 years, I bet I'll continue to love for the next 17 years is Disney. Between their 194.6 million consumers in streaming, their parks have reopened, they're back to capacity. They have over 6,000 trademarks with some of the strongest IP that exists. It's just such a strong company. It's now been around officially for a century and companies that I think could be around for another century. It's pretty high on the list. It has such an histology factor and they're really playing it into a saw. It pivot so well and grow so well with Disney Plus, I think that their innovation is going to continue to excite people for many years to come.
Chris Hill: If you look back over the last 15 years or so with Disney, a big part of the business story for Disney has been the acquisitions of some of the intellectual property you're referring to. Lucasfilm, Star Wars, all those franchises, Marvel obviously, Pixar as well. When you think out over the next 17 years, do you think acquisitions of intellectual property are part of the story? Maybe not to the same degree but is that part of the growth for Disney or do you look at what they have in-house right now and say now they're good.
Maria Gallagher: I think they're good but I think that they'll continue to grow with acquisitions of IP. I think that there are so many new things on the horizon that they're going to try and lean into to try and just build out the loyalty that their consumers already have. I think it'll be a combination.
Chris Hill: Because this is a Motley Show and we're not just about the money. We're not just about the stocks. We'd like to mix it up a little bit. This is our opportunity to share an actual cleaning tip. Andy, I'm starting with you. It can be specific, it can be general, but what is one actual cleaning tip you'd like to share with the dozens of listeners?
Andy Cross: Chris, I have actually read Marie Kondo's book. I don't follow every tip she has in there, but I've read her book. One of the ones that stuck out to me that I still follow to this day, probably the most important one that I follow is how to fold your laundry, your shirts, basically and your socks, things stand up vertically and you put them into your drawer. You can see them and they stand as if they are basically standing up by themselves and you stack them accordingly. It's nice in your chore is nice and organized. As opposed to, I think how most of us grew up or learned how to full laundry, which is the shirts, especially as you fold them and you put them flat into your drawer then you can't see them. You can see which ones you're trying to again if you're trying to look at your Motley Fool logo shirt, which one to get like you have my closet. Following Marie Kondo's folding approach, you can actually see the logo on which shirt to pick up.
Chris Hill: I love it. Maria, what about you?
Maria Gallagher: When I think of spring cleaning, I think of gardening and so I'm stealing a gardening tip from my mom, which is the worst part about gardening is all of the dirt under your nails. Before you go outside to garden, scrape your nails over a bar of soap so the soap is under your nails so that when you garden, you can just wash your hands the soap falls out, no dirt under your nails.
Chris Hill: That's brilliant.
Maria Gallagher: My mom is a very brilliant woman. She has a lot of these tips.
Chris Hill: Mine is along the lines of the outdoors out in front of my townhouse. Basically, there is an area that never gets any sun. Some mosses have been building up over time. I was doing some research, I was like how do I get rid of this? I was thinking in terms of chemicals, what chemical cleaner can I buy to take care of this? I found this YouTube video of a guy basically saying, just put some vinegar in a spray bottle on a sunny day, spray it, go back in a day or two and you can just scraper right off and it actually works. This is going to put someone out of business. If we can get rid of moss with just vinegar and spray bottle you pick up at the dollar store boom prompt soft.
Maria Gallagher: I will say my mom does that too.
Andy Cross: Vinegar and lemon are like the math installed or like the magic household cleaners. I guess baking soda too.
Chris Hill: Andy Cross, Maria Gallagher. Thank you both so much for being here.
Maria Gallagher: Thanks for having us.
Andy Cross: Thanks, Chris.
Chris Hill: Up next we've got the conversation with the one and only Howard Marks. Stay tuned, you're listening to Motley Fool Money.
Chris Hill: Welcome back to Motley Fool Money, I'm Chris Hill. Warren Buffett said of Howard Marks, "When I see memos from him in my mail, that's the first thing I'd open and read." Howard Marks is the co-founder of Oaktree Capital, where he's put up market bidding returns for his investors. A few years ago, Motley Fool Senior Analyst, Bill Mann had the chance to talk with him about Mark's book, Mastering the Market Cycle, getting the odds on your side. Bill kicked things off by asking him how investors can determine where we are in the market cycle.
Howard Marks: Well, I think you really have to understand what produces cycles. I go through examples of what led up to the tech bubble and the subprime bubble and the unwinding of the subprime bubble and so forth. I go through these progressions step-by-step to give an appreciation. As you say, it's not science, it's not numbers, it's not formulae. It's understanding developments in the real-world and how they occur, and how the elements combine to produce those cycles. Only by having an appreciation for the workings of these things, not by expecting to be given a formula that you can plug and play. Can investors perfect this essential skill?
Bill Mann: When I read this book, I saw or thought of one-word over and over, and you've used this also in your memos and that is temperament. I wanted a really fun conversation with Daniel Kahneman who won a Nobel Prize for his work in behavioral finance. He spoke about how he actually panicked during the financial collapse and sold everything.
Howard Marks: Right.
Bill Mann: How do you think that one becomes more unemotional about investing?
Howard Marks: Well, that's a great question. The first answer is, as they say in basketball, you can't coach height. No matter how good a best world coach is, his players are not going to get any taller [laughs]. The improvement has to be intentional. The first thing you can learn is why it's important to be unemotion, and why emotionality is the enemy of the investor. Why human emotion conspires to constantly make investors do the wrong thing. Than the second step is to do it. I think probably many more people can understand the need for it than can actually apply it. But you don't have to apply it perfectly, you only have to do a better job than you used to do. I think most people should be able to attain that skill.
Bill Mann: I think the very interesting thing when you think about market cycles is that they're very real things of course. But it's not like these things of, they're not naturally occurring. They are entirely driven by human behavior. Maybe a good piece of background would be for you to describe what you think actually causes market cycles.
Howard Marks: Sure. To reinforce what you just said, let me point out that starting at the University of Chicago in the '60s, even before the computer age, figured out what the return on stocks had been. Since 29 to 62, I think they did the work 9.2 percent then it's been extended since then. Stocks return 9, 10 percent a year on average for long periods of time. We know that.
Bill Mann: I think they've never actually returned exactly 9.2 percent. [laughs]
Howard Marks: That's right. The point I was going to make is that they rarely return between 8 and 12. Many more observations are outside of the 8-12 range than inside. My first observation is that the average is not the norm. Why is it if stocks returned 12 percent a year on average, why don't they just return 10 percent? I don't know if I said 12. If stocks return 10 percent a year on average, why don't they just return 10 every year? The biggest answer is emotional excesses to the upside, which then require correction to the downside. If you think about the value of a company and what it's going to be worth in 50 years. That does not change very much from day-to-day, week-to-week, month-to-month, even year-to-year. It's pretty stable. The changes in this year's or this quarter's earnings are not that important. But people react excessively to these things. We want to be on the right side of those reactions and not the wrong. When things are going well and the economy is humming and corporations are doing well, they're reporting earnings which exceed on the upside. The media are issuing only positive reports and interpreting the news positively. The prices are going up every day. People feel terrific. They love the things they hold, they want to go out and buy more. The only people who are unhappy are the people who don't hold they want to buy for the first time. All of these things together produce rising optimism and rising euphoria and greater self-satisfaction, and consequently higher prices. As the prices rise, the emotion turns more positive. Until you reach the top when the price is at its maximum and the emotion is at it's maximum. Now that's when you want to be selling, when the price is high. By definition, very few people do because they are feeling so positive. Of course the reverse is true in the opposite direction and I will not be labor it. But at the bottom, the price reaches its minimum, at the same day that the investors are the most depressed and the most unlikely to buy. We must do the opposite. We must stand against the herd, we must stand against mass psychology. We must sell when fundamentals are at their peak, and emotions are the most positive. We must buy when fundamentals are at the trough and people are most depressed. The goal is to buy low and sell high. More people buy high than buy low. We want to be different from most people. We have to understand what's going on. We have to understand why people are doing what they're doing. You have to understand what's wrong about it, and you must be able to stand against it.
Bill Mann: I think we would maybe best describe the market as being one-part psychology and the other part path dependency.
Howard Marks: Probably right. The psychology part is very important. The people who learn financial analysis in school don't learn much about psychology. But this is the thing that's really going to determine whether you have good days or bad days.
Bill Mann: I love that you said that because as I've looked through your background, and I've read your memos for decades now. They are an absolute gift to me. But as I was reading this book, I'm reminded of the fact that you have a fairly formal traditional finance education, having gone to Walden and the University of Chicago. But when I read this book and when I read your memos, I feel like I'm reading the worse of a history major. In particular in your focus of tenancies over predictions.
Howard Marks: Yeah. Well, I started 50 years ago this summer, and I've seen a lot. I've seen a lot of mistakes made. If you have your eyes open and you're conscious of what's going on, you learn from mistakes and you put together a view of the world which can be helpful. I started in 68 at Citibank. In Citibank, and most of the banks were what we call Nifty Fifty buyers. They bought the stocks of the 50 greatest, fastest-growing companies in America to which nothing bad could happen. But number 1, a lot of the companies to which nothing bad could happen had bad things happen, so much for predicting the future. But number 2, because the companies were so highly rated, they were extremely highly priced. If you joined when I did in 68 and you bought those 50 stocks and you held them diligently for five-years, you lost almost all your money. Not because in every case the companies were troubled, but because in every case they had been overrated. Psychology had been too positive, leading to excessive pricing, which then the air went out of the balloon. It's not what you buy that makes you a successful investor, it's what you pay for it. What matters most is not the quality of the asset, but the relationship between the price and the intrinsic value. You get bargains, you get easy safe profits by buying things for less than they are worth. If you pay more than they're worth, you're going to have a trouble wringing out at a profit. Relationship between price and value, what determines that? Emotion. Not what's going on, but how are people reacting to what's going on? How much are they paying for the fundamentals that are present in that situation? I think it's extremely important to understand the, I sum it up with the word emotion, but that's an oversimplification. You want to understand what's going on in people's minds and emotions when they price assets and you want to buy the ones they're underpricing and sell the ones they're overpricing. You want to buy the market when it is underpriced, and you want to sell it when it's overpriced.
Bill Mann: I love that you've made this point. I do want to challenge something because a lot of people who will be reading and listening to this will think that what you were talking about is market timing. But you're not, you're not talking about getting in and out of the market at the right time. You're not talking about reading the tea leaves and thinking about the trade sanctions in China and pulling out of certain parts of the market. You are talking about focusing on the areas where there is opportunity based on what is out there, and where the market is at any given point in time.
Howard Marks: Exactly.
Howard Marks: Nothing in the book. Nothing that we do at Oaktree is based on forecasts. I'm strongly opposed to facing investing on forecasting. What I'd say is, we never know where we're going, but we sure as hell ought to know where we are.
Bill Mann: Yeah.
Howard Marks: Where is the market in its cycle? Is it depressed or elevated? When it's depressed, the odds are in the buyer's favor. When it's elevated, the odds are against him. It's really as simple as that. Your listeners should distinguish between markets that are high in their cycle and markets that are low. They should vary their behavior on that basis. They should take more risk when the market is lower in its cycle, less risk when the market is higher in its cycle. This is not saying who's going to win the election? [laughs] What will the earnings be? When will rates be increased? So many people ask me for so many years, "What month is the interest rate increase going to take place?" I would say, "Why do you care?" [laughs] That's not what matters. What matters is whether interest rates are going up or down, whether it's going to go up a lot or a little, and people don't understand how money is made. They think that knowing which month the interest rate increase is going to take place [MUSIC] is going to make money and that's not what it's about. It's about investing more and more aggressively when the market is propitious and less and more conservatively when the market is precarious.
Chris Hill: Coming up, Howard Marks explains it's not what you buy as an investor, it's what you pay for it. You're listening to Motley Fool Money. [MUSIC] Welcome back to Motley Fool Money, I'm Chris Hill. Let's get back to Bill Mann's conversation with Oaktree Capital co-founder, Howard Marks.
Bill Mann: Assuming there is so much voodoo that gets thrown about when it comes to the markets. I'm going to take a little bit of a risk here, and I believe that we perhaps can read spirits. But it drives me to the point of insanity when pundits who ought to know better either credit or blame the performances of the stock market or the credit markets based on who happens to be sitting in the Oval Office.
Howard Marks: Right. Absolutely.
Bill Mann: How do you think that people should put either political conditions or macroeconomic events into the context of market cycles themselves?
Howard Marks: Well, it's obviously complex. By the way, let's go back two years ago to October of '16. Everybody in America or I shouldn't say everybody, but most people believe two things. Number 1 that Hillary Clinton would win the presidency and number 2, if Donald Trump did, the market would collapse. Instead, Hillary lost, Donald won and the market soared. I think that mere fact should be enough to convince most people that they don't know what events are going to happen and they don't know how the market is going to react to the events that happen.
Bill Mann: You would think. [laughs]
Howard Marks: You would think. But having said that, how do you factor in politics? All things being equal, it is more favorable for the market that we have a president who is extremely pro-business. I think clearly Donald Trump is and his administration and Hillary would not have been to the same extent and Hillary would've been under pressure from the progressive wing of her party to actually somewhat pass a little business. This is going to continue with the Trump administration. All things being equal, that'll be a positive. Now, that doesn't mean it's all good.
Bill Mann: Or that it's not already in the market, correct?
Howard Marks: Exactly. I was just going to say that, but you're absolutely right. One of the biggest mistakes that most people make, and you and I were talking a minute ago about the voodoo. One of the biggest mistakes people make is they sit here and they say, "I think there will be positive events," which means I think the market will go up. That identity is not dependable because maybe there will be positive events, but maybe they're already priced into securities in which case there will be a big one. Or maybe there will be positive events, but not as positive as were factored in when stocks were priced, which means you'll get a positive event and the stocks will go down. As I say, predicting these events and predicting the market's reaction to them is very dotty.
Bill Mann: Do you think that there are opinions or beliefs in the market that you find to be particularly unhealthy for investors?
Howard Marks: The first thing, and I try to make this clear in the book and it's essential if people are going to be able to deal with cycles. Everybody wants an easy answer. Everyone wants to say, how long does an upswing last? The first step is you must dispense with any concept of regularity. The whole book is based around Mark Twain's statement that history does not repeat, but it does rhyme. When he says it doesn't repeat, he's saying that in our case, he was talking about the market, he was talking about history. But the truth of the matter is, market cycles vary one to the next in terms of their amplitude, their speed, their violence, their duration, it's all different. People want to know how long is an upswing? The answer is we absolutely can't tell. Expecting regularity and thus predictability is wrong. Then you can go from there to the whole concept of predictions. What makes the market go up or down. To a small extent, it is what I call fundamental developments in the economy and the companies, but to a large extent, it's psychology or let's say popularity. [MUSIC] It should be clear by now to everyone that the swings in popularity are unpredictable.
Chris Hill: Howard Marks's book is Mastering the Market Cycle. You can find it wherever you find books. That's going to do it for this week's Motley Fool Money radio show. I'm Chris Hill, thanks for listening. We'll see you next time.