The Tsinghua PBCSF Financiers Forum was held on 22 October 2019 at Tsinghua PBCSF. Oaktree Capital cofounder Howard Marks was invited to attend the event and delivered a speech titled “Mastering the Market Cycle: Getting the Odds on Your Side”. Li Keping, a director of the National Council for Social Security Fund and former general manager of China Investment Corporation, as a guest of the forum, had a dialogue with Howard Marks. Rachel Chao, General Manager of Oaktree Overseas Investment Fund Management (Shanghai) Co., Ltd. and co-head of its Asia Pacific operations, was also invited to attend the event. The forum was presided over by Hao Zhou, Unigroup Chair Professor of Finance and Associate Dean of Tsinghua PBCSF, and Vice Chair of the National Institute of Financial Research, Tsinghua University.
Howard Marks explained in details how to seize investment opportunities amid cyclical economic changes. “Investors shall learn to integrate different information and views, but also understand finance-related arts as well as sciences,” Marks said. He took the high-yield bond market for example and explained the causes of a cycle. In an economic system, especially in investment and financial circles, most positive development trends are prone to excessive development, which will finally be corrected automatically or passively.
Marks also delved into the issue of credibility of cycles. He holds that a cycle is caused by three elements, i.e. over-optimism of investors, a general lack of risk aversion awareness among investors and a surplus of funds. First of all, over-optimistic investor sentiment may lift asset prices above the level that should be reflected by fundamentals. Risk aversion means that investors will make some conservative assumptions and raise more exacting requirements in respect of safety and risk compensation when they are risk-averse. The appearance of risk aversion will make the market keep safe and rational overall. Last comes the impact of the amount of investable funds. When too many funds in the market chase too few investment targets, asset prices will be pushed up excessively high.
Finally, Marks shared his experience as to how to seize investment opportunities in a cycle. He said, when the market is in an uptrend, with economic fundamentals improving and corporate profit rising continuously, along with positive media coverage, the market will hit a peak featuring high asset prices and risks but low expected returns. That is the time when investors shall remain cautious. Then, the market will fall back, so will investors’ mood of optimism and expectations. When the market is at a low, with low asset prices, high expected returns and low risks, investors can choose to be aggressive. It is essential that investors understand the psychological cycle of market participants and take a contrarian approach.
Then, Li Keping had a dialogue with Howard Marks. When sharing his insight into cycles and investment decisions, Li Keping expressed that successful investment does not mean a clear prediction of the future, but mastery of the probability of events occurring and understanding of the role of cycles.
During the Q&A session, Howard Marks and the audience discussed Oaktree Capital’s operations in China, performance of the US stock market and new growth drivers for the world economy, among other hot issues.
The dialogue session
Howard Marks was specially invited by global asset management program of Tsinghua PBCSF to spoke at the Tsinghua PBCSF Financiers Forum.
A scene of the event