Billionaire investor Howard Marks says there’s no easy way to play the market these days and anyone telling you otherwise is full of it, as the length and breadth of economic carnage coming from the COVID-19 crisis is far from clear at this point.
“There's just no justification for having a confident view at the present time, in my opinion,” said Marks, co-founder and co-chairman of Oaktree Capital, speaking to Yahoo Finance on Tuesday.
“On the one hand, people like to have information but what good is it if its probability of being correct is as low as, in my opinion, it usually is? The point is, nobody knows. I don't think you should rely on so-called data, because there is no data with regard to the future. In the face of uncertainty, my approach is to hedge my bets, not to go all in or to stay all out. Even now,” Marks said.
“Most forecasters are saying that GDP will decline by 15, 20, 25 per cent in the second quarter which I imagine would be the worst quarter in history. So these things are not going well at the present time,” he said.
Markets rallied in a big way on Tuesday, where the S&P/TSX Composite Index gained almost 12 per cent, the largest jump in decades, and the Dow Jones’ 11.3 per cent rise was its best day since 1933.
The surge was worldwide as markets in Europe, China and Japan also posted huge gains, despite the fact that the coronavirus pandemic is far from under control in most parts of the world and economies globally are struggling to stay afloat.
Governments in both the US and Canada are preparing major stimulus and aid packages, with the White House and US Senate agreeing on Wednesday morning to $2-trillion in business loans, direct payments to families and unemployment insurance benefits and Canadian Parliament finally passing on Wednesday emergency legislation allowing for an $82-billion aid package.
Marks said during volatile times such as these in the markets, the best investing approach recognizes both downside risks of staying in the market as well as the potential of missing out on potential gains from a market replete with stocks at a discount.
“When most people say manage risk what they mean is avoid the potential for loss. But there's another risk, which is the risk of missing out on gains,” Marks said. “If you say to somebody there’s a 60 per cent probability of a decline [in the market], it’s easy to say, ‘Well then you should get out of the market.’ But what do you do about the 40 per cent probability that it goes up?”
“I prefer to think of risk as the probability of having undesirable outcomes. Not just losses but also gains that you miss out on,” Marks said.
Marks said that along with the enormous unemployment and business challenges brought on by the pandemic, the health concerns need to be dealt with first and foremost — and on that measure, Marks thinks the United States hasn’t acted strongly enough.
“I don't think you can buy the virus off. The point is the economy will stay closed for some period of time. Exactly how long we don't know but if we attempt to bring it back too fast I believe we'll have an echo rebound in [COVID-19] cases,” Marks said.
“The US is has not taken the draconian actions that a Singapore Korea, China and Italy have taken and, you know, people are still socializing — I still shudder at those pictures of college kids on the beach. And what happens when they go home from the beach to their home communities where until now there haven't been outbreaks?”