I like this idea of studying market cycles as a way to understand people.
November 4, 2019
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âI like this idea of studying market cycles as a way to understand people.â
[James and howard]
[Billionare investor](
Where Has James Altucher Been?
has a history of crazy stunts⦠but we never expected anything like[this.](
Honestly, we feared the worst.
Turns out he was hard at work cracking [this strange market phenomenon.](
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âDo you hate being introduced as a billionaire?â
âI do,â he said.
âI apologize.â
But I couldnât NOT mention it. Howard Marks is worth $1.9 billion. Heâs #374 on the Forbes richest list. And co-founded Oaktree Capital.
He said itâs OK. âOn the one hand, people want to hear it. And it gets you more attention, but on the other hand they donât say, âHereâs Howard Marks, tennis player,â or âHoward Marks, father of two.â I donât think how much money I have sums me up. And I donât think itâs the greatest thing about me.â
So I dove into that. Because money is a cause of so many peopleâs stress. And suffering. Some people think money = wellbeing. And in some ways it does. But in a lot of ways, it doesnât.
I told him about a theory I haveâ¦
Having multiple billions doesnât make your life any easier or better than having $10 million. Or even less.
When I search for ways to make money, Iâm searching for ways to create more freedom in my life.
And Iâve found that loving what you do and having contentment is much better way to gain freedom than having $1 billion.
Howard agreed.
âThereâs no question.â
He told me his favorite quote. Itâs from a guy named Christopher Morley (an English writer):
âThereâs only one success⦠to be able to live your life your own way.â
I asked Howard how he did thisâ¦
How did he create life the way HE wants it to be?
Hereâs what I learned:
THINK IN LAYERS
Howard writes about something he calls âsecond-level thinking.â
Second-level thinking is how he mastered:
- A) Market cycles, and
- B) Personal cycles.
He broke it down for me. He told me what he knows. And what heâll never know.
Iâll explain.
He said, âIn the investment business, we sometimes know whatâs going to happen. But we never know when. We should never act with extreme conviction⦠The world is too uncertain to permit certainty.â
Acting without âextreme conviction.â Thatâs key.
Meaning, rather than wondering, âWill it fail? Will I fail?â he thinks.
He takes a step back.
DONâT BELIEVE YOUâRE RATIONAL / UNDERSTAND YOUR UNDERSTANDING
People always talk about failing fast. And risk.
Risk requires thought.
Howard doesnât take blind risks.
He relies on universal factsâ¦
- You canât predict the future.
- No one can.
- Thereâs always an element of the unknown in everything.
And then he evaluates the psychology of people. Because markets arenât run by money. Theyâre run by people.
Howard puts this idea in his new book, âMastering the Market Cycle: Getting the Odds on Your Side.â
People are often irrational.
And not just âotherâ people. You, too. I need to know Iâm irrational.
This will help me from taking risks that hurt me. It will help me zoom out. And think in layers.
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THEREâS ALWAYS A POSSIBILITY YOUâLL LOOK STUPID
The market cycle can be described as a pendulum. So when the pendulum is moving in one direction, more and more energy is going in that direction. Until finally, thereâs no energy left.
And then, just when it seems like things are going to go on forever⦠the energy runs out.
The pendulum goes back to the middle. And then all the way in the opposite direction.
And Howard uses the pendulum analogy to describe investor psychology. And then he uses that psychology to invest.
Iâll give you an example.
The crash of â07â08 was a total devastation to millions of people. They didnât see it coming.
And the people who did see it coming (like Howard) didnât know a key factorâ¦
When!
And Howard has a lot of quotes about this in the book like this one from:
âHistory doesnât repeat but it rhymes.â â Mark Twain
But he relied on the pendulum theory.
If everything was going great, eventually itâd have to go back the other way.
So he got to work. He raised $10 billion. Then, when the timing was right, he invested it in distressed assets.
And because the government intervened with bailouts, the pendulum swung back to the good side pretty fast.
It couldâve taken 100 years. It couldâve taken 20. But Howard got lucky. He couldnât predict WHEN the market would rebound. But he could predict that it would eventually. And he invested in that.
And all of this (mastering market cycles) relates to mastering your personal cycles. If you know yourself as a pendulum, you can see which way youâre swinging.
You can see âOh, Iâm feeling depressed right now. Or anxious.â And then you can predict that youâll swing back to the middle.
 I like this idea of studying market cycles as a way to understand people. And vice versa.
This way youâre not thinking in tunnel vision. This way you can think deeper. And connect the dots.
Howard filled his book with brilliant ideas. And theyâre all well-explained. He gives quote after quote from brilliant mathematicians, writers, economists and so on. And with each one, I kept thinking, âOh, this quote sums up the book perfectly.â
And then Iâd read another.
Then he came on the podcast. And gave me quotes of his own.
I like this one:
âInvesting is a competitive game. You are in there trying to find the cheap assets. And so is everybody else. You are in there trying to hold more at the right time and less at the wrong time. And so is everybody else. So to some extent you have to learn how to think different than everybody else and better. Thinking different isnât enough if itâs worse. Or has to be different and betterâ¦â
[Billionare investor](
Sincerely,
[James Altucher]
James Altucher
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