How To Time The Market (Or Not)

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Howard Marks isn’t crazy about the title of his book, Mastering the Market Cycle. He actually said this in an interview. He thinks it promises too much. But his publisher told him to go with it, “because everybody will think they’ll figure out how to get rich.”

I share this anecdote because A) it’s hilarious, and B) it speaks to the central paradox of Marks’ thinking. Here is a man that explicitly attributes a great deal of his success (and there has been a lot of it; this is a guy who Warren Buffett reads for advice) to timing the market, but he doesn’t believe in predictions. He manages $120 billion in assets and talks at length about achieving superior returns by “positioning a portfolio for what’s ahead” but in practically the same breath says his favorite quote is “there are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”

If I were a different kind of writer, I would probably just stop here and make fun of the guy. But the more I thought about the paradox, I went through a sequence of emotions that culminated in something like enlightenment. First I was annoyed that the book wasn’t giving me what it promised. It didn’t tell me how to call the bottom or top; he said it was impossible to do so. This was frustrating because, just as his publishers predicted, I was reading this book because I would like to be rich. Specifically, I would like to know what to do with my money right now. But then once I allowed the frustration to pass over and through me, what remained was curiosity. What was the actual point he was trying to make? How can you simultaneously reject predictions about market timing and claim that knowledge of market cycles is critical to improving your odds as an investor? I had to chew on this for a while, like a koan of capitalism. Only then, just as I was ready to give up, did enlightenment come.

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Investing is, as Marks explains it, like reaching into a jar full of balls and betting on what color you’ll pick out.

(Huge missed opportunity to go with a “like a box of chocolates” Forrest Gump reference, if you ask me.)

The contents of the jar changes depending on which part of the market cycle we’re in. In a bull market, prices are high, and the odds are stacked against you. In a bear market, prices are low, so it’s much easier to make money.