Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 92

Howard Marks on the unpredictability of commodity prices

Howard Marks of Oaktree Capital Management gave Cuffelinks exclusive permission to reproduce this presentation on risk in September 2014, following a meeting with Chris Cuffe.

He spoke at the Goldman Sachs Financial Services Conference in New York on 9 December 2014 to update his views. Oaktree Capital is a major distressed-debt investor, and Marks told the conference that he is buying bonds of energy companies as the oil price falls. High-yield bonds of energy companies have fallen by about 12% in the last few months, although he acknowledged that some leveraged companies will struggle to service their debt.

At the New York conference, Marks said:

"Six months ago, you wouldn’t have said there are opportunities to invest in the energy industry. It looked like a booming industry. Today, there clearly are, and they may get better from our standpoint ... I pretty much tend to the big picture. And I think that the most important single question that any fund manager or portfolio strategist has to answer at any point in time is whether to be on offense or defense and how aggressive, how defensive. And I believe that if you get that question right, then you don’t have to get security selection and selection of strategies and managers exactly right. And vice versa, if you get that wrong all the security selection you do in the world isn’t going to help you, probably. So, I tend to spend my time on the big picture. And while one of the tenets of our philosophy is that you can’t see the future, we believe that by judging from what’s going on around us at the present time we can make some appropriate adjustments.”

As Marks said in his previous presentation on risk, he prefers to stay out of positions with a higher likelihood of unforeseen risk. “The world can adjust to the things it can think about, but there’s always the possibility of the unforeseen. And I’m the dead-set against the efficacy of forecasting. And if you need any evidence, think back six months. Where were the people who predicted that oil would go down 40%? I would imagine that oil was $110 and the bulls said it would go to $112, and the bears said it would go to $108, where are the people who said it could go down 40%? We shouldn’t think we know what’s going to happen in the future. Mark Twain said, “It’s not what you don’t know that gets you into trouble; it’s what you know for certain that just ain’t true" ... I put out a memo on gold about this time in 2010, and I said there’s nothing intelligent that can be said about the price of gold. And you can’t predict the price level of a good that does not produce income. And I think it’s true in gold and I think it’s true in oil. And what’s a low price for oil? What’s a high price for oil? Who knows? Why was oil at $110 six months ago? And aren’t those reasons still true today, with it at $60? And the people who at $110 said, oh, I missed my chance to buy oil at $100. I’m kicking myself. I hope it gets backs there. Have they bought oil at $65? The answer is, no, because there’s no place you can get comfort on the price of a commodity, in my opinion."

 

Comments taken from a transcript of the talk. This extract is for general information purposes only and does not address any investor's personal circumstances. 


 

Leave a Comment:

     
banner

Most viewed in recent weeks

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Latest Updates

Retirement

Stop treating the family home as a retirement sacred cow

The way home ownership relates to retirement income is rated a 'D', as in Distortion, Decumulation and Denial. For many, their home is their largest asset but it's least likely to be used for retirement income.

Property

Hey boomer, first home buyers and all the fuss

What is APRA worried about? Most mortgagees can easily absorb increases in interest rates without posing a systemic threat to the banking system. Housing lending is a relatively risk-free activity for banks.

Property

Residential Property Survey Q3 2021

Housing market sentiment has eased from record highs and confidence has ticked down as house price rises slow. Construction costs overtook lack of development sites as the biggest impediment for new housing.

Investment strategies

Personal finance is 80% personal and 20% finance

Understanding your own biases and behaviours is even more important than learning about markets. Overcome four major cognitive biases that may be sabotaging your investing and recognise them in others.

Where do stockmarket returns come from over time?

Cash flow statements differ from income statements and balance sheets, and every company must balance payments to investors versus investing into the business. Cash flows drive the value of the business.

Fixed interest

How to invest in the ‘reopening of Australia’ in bonds

As Sydney and Melbourne emerge from lockdown, there are some reopening trades in the Australian credit market which 'sophisticated' investors should consider as part of their fixed income portfolios.

Shares

10 trends reshaping the future of emerging markets

Demand for air travel, China’s growing middle-class population, Brazil’s digital payments take-up, Indian IPOs, and increased urbanisation are just some of the trends being seen in emerging economies.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.