Burton Malkiel’s Review of Howard Marks’ Mastering the Market Cycle

An article in The Wall Street Journal offers Burton Malkiel’s review of Howard Marks’ new book, Mastering the Market Cycle. According to the article, the book focuses on Marks’ belief that “If we study past cycles, understand their origins, and import, and keep alert for the next one…we can master these recurring patterns for our betterment.”

The article says the book “comes down to the insights of behavioral finance,” and that Marks (of Oaktree Capital Management) “acknowledges that there are no real cycles in the market, and he has no illusions that he can make macroeconomic forecasts.” But the book does reflect Marks’ confidence in his understanding of changes in investor attitude toward risk—he argues that price declines tend to increase their aversion to risk, sending them running at a time when share prices are lowest. The opposite is true, writes Marks, when prices rise. “The greatest source of investment risk,” he says, is not “negative economic developments” but rather the period when investor caution evaporates.

While Malkiel (author of A Random Walk Down Wall Street) says the book is “wise,” and that “a careful reading can make us better investors and protect us from the all too frequent errors that ruin investment results,” he also expresses concern that the book may encourage some to attempt to time the markets. For many readers, concludes Malkiel, the takeaway should be “Don’t try this at home.” He suggests that one of the smartest things can investor can do is to “engage in periodic rebalancing of a diversified portfolio.” While it may not equate to “mastery,” says Malkiel, “it will generally reduce risk and often enhance a portfolio’s return.”