By Aprajita SharmaKNOWING WHERE YOU STAND IN THE EXCESS-
CORRECTION CYCLE WILL HELP YOU FIGURE OUT
AN IN-SYNC INVESTMENT STRATEGY.INVEST LIKE A PRO
ALL THAT goes up must come down, and vice versa. This is how
governments, economies, companies and financial markets work.
Be it stock, debt, credit or property market, the upswing and the
downturn always follow each other – nay, one event ‘causes’ the other.
Understanding that market ebb and flow and developing a suitable
plan will make you a better investor than most, says Howard Marks
in his latest book Mastering the Market Cycle. The investor-writer (he
is also the Co-founder of Oaktree Capital Management) explains how
a cycle in the financial market moves from aggressive buying to dis-
tress selling and how every time the community chanting ‘this time,
it is different’ has to eat its words. From dotcom bubble to global
meltdown, the examples are numerous and cannot be ignored.
In spite of the unbroken chain of cause and effect, ebb and flow, no
two cycles are the same; neither can one predict the zenith or the
nadir of a particular cycle. But in every market cycle, there are periods
of extreme exuberance and despondency which determine the flow of
investments. So, one’s best chance lies in getting the timing right be-
tween the two extremes. For instance, Oaktree Capital started buying
heavily in late 2008 when there was gloom all over. And this helped
the firm earn huge returns when the market peaked. Although Marks
and his partners could not see the financial crisis coming, they did
feel something was amiss. So, they kept raising capital and went on a
buying spree after the market crashed.
The writer also says that one must strive to know better than others
all things ‘knowable’ – fundamentals of companies and industries.
But it will not be enough to guarantee results. A fundamentally
strong company may go through a long spell of gloom if the
economy is in a bad shape. “I can’t say an understanding of cycles
is everything in investing or the only thing, but for me, it’s certainly
right near the top of the list,” he writes. History doesn’t repeat itself,
but it does rhyme – this popular adage attributed to Mark Twain
well describes what the book is all about, according to Marks. He
then shares a ‘guide to market assessment’, which is ‘non-scientific’
and ‘somewhat jocular’, but can help in ‘taking the temperature of
the market’. The book also contains the author’s popular memos
(even Warren Buffett reads them) and references to his previous
work. On the flip side, the content is somewhat repetitive. The book
does not throw up new ideas but does a decent job of hammering
home what is important and often forgotten.MASTERING THE MARKET CYCLE:
Getting the Odds on Your Side
BY HOWARD MARKSPublisher: HACHETTE INDIA
Pages: 336
Price: ` 699interesting reading, though. It puts
together a lot of information about the
controversial acquisition of Panaya
and leaves readers wondering how
such a failure could occur in an organ-
isation known for its ethical practices.
The author ends the chapter by posing
some relevant questions. But I would
have liked to know his take on corpo-
rate governance failure. After all, we
are increasingly witnessing the same
in many Indian companies which we
used to idolise. Does it happen because
the power is going to their heads?
Is it about hubris that destroyed the
legendary mountaineer Rob Hall
as overconfidence made him ignore
his own cardinal rule of safety? After
reading all 15 case studies, I felt like an
untrained onlooker of modern paint-
ing. I could not appreciate many of
the individual elements, but I possibly
got the overall sense that the painter
wanted to convey.
We have not yet figured out what
makes leaders succeed or fail because
the link between leadership behaviour
and performance is tenuous. Moreover,
performance is overwhelmingly used as
a proxy for good or bad leadership. But
that should not deter us from trying to
decode what else affects leadership be-
haviour, and Crash is a reasonably good
attempt at that. Interestingly, most of
the case studies have strong overtones
of backroom politics being the decisive
factor behind CEO exits.
The book is also replete with useful
tips on how to lead in a complex and
ruthlessly contested corporate world.
And the most important message for
smart CEOs? They must reflect on
how they have changed, whether their
relationships with influential stake-
holders have changed, and if such
changes would serve their organisa-
tions better or help fulfil their targets.
If one is in doubt, the author advises
the CEO to listen to his wife. Now,
which God-fearing man would not
agree with that?
The writer teaches post-graduate
and doctoral courses in Organisational
Behaviour and Human Resource
Management at IIM-Bangalore