Marks is drawn to China, which has been rated by some strategists as uninvestable. For example, Macquarie’s Viktor Shvets argues that China’s national mission under Xi Jinping is on a path that is not driven by economy or efficiency.
You don’t buy anything on an uninvestable stack just because it’s there. But that’s where you look.
— Howard Marks, co-founder of Oaktree
Shvets says, “increasingly there is no valid justification for staying invested or even choosing one stock or sector over another.”
“In a world not driven by economics, who knows whether A stock should trade at $100 or $50 and, more importantly, how much intellectual energy investors are willing to expend on such decisions and how many guesses they are willing to accept.”
Marks has a solid answer to this line of thinking.
“I first made a career out of investing in things that were described as uninvestable, starting with B-rated bonds in 1978, and distressed debt in 1988, and emerging market stocks in 1990,” says -he.
“Who were all on the no-fly list. So I don’t invest in things just because others have described them as uninvestable. But it’s a good starting point in terms of where to look for bargains.
Investing in China may require ‘psychoanalysis’
“So we will definitely look at China. That’s the good news. The bad news is that investing in China may require what I call not economic or financial analysis, but political analysis or psychoanalysis. And I don’t think those things can be done definitively.
“In the meantime, I guess we will continue to invest in China as we have been doing – I think we will do so with caution.”
Marks says China is on the list of things investors “don’t know, don’t understand, don’t like, find unrespectable and pessimistic.”
“People say it’s uninvestable. There’s no doubt about it, but let me clarify: you’re not buying anything on an uninvestable stack just because it’s there. But that’s where you look. The things everyone loves will never be cheap. It’s an oxymoron to say that I found a bargain among the pile of things everyone loves.
He says China is in a crisis mood, a view backed by analysis released Friday by JP Morgan strategist Nikolaos Panigirtzoglou showing foreign ownership of Chinese stocks has fallen $160 billion since June to 370. billions of dollars.
Panigirtzoglou says these big market losses may explain foreign investors’ reluctance to sell Chinese stocks over the past year. But the estimate of the total size of foreign ownership of Chinese stocks indicates the potential sell-off that could take place if foreigners decide to exit their portfolios.
Marks says “when you have a hollow feeling, and it turns out to be unwarranted, that’s how you make a lot of money. I’m not saying that’s China today. But they’re on the [uninvestable] pile.”
“One of the wonders of the world”
Your rooster couldn’t pass up the chance to ask Marks about the Australian retirement income system created 30 years ago by the Hawke and Keating government. This was relevant, given that much of Oaktree’s $7 billion under management in Australia came from industry super funds.
“I think that’s one of the wonders of the world – the fact that you have the institutions, and it’s mandatory,” he says.
This prompts Marks to recall a note he wrote in August 2008 about the declining financial security of the typical American worker.
“In August 2008, a month before Lehman Brothers went bankrupt, things were pretty quiet, so I had the opportunity to write a memo, which talked about long-term thinking,” he says.
Retirement income – United States, Chile and Australia
“I said that when I was young the American worker had four legs under the financial security stool – savings, private retirement, social security and home equity.
“But now there’s not a lot of savings, most companies have closed the defined benefit pension plan and most people only pay interest, so they don’t have any equity in their property.
“And we’re on social security, and that’s clearly not enough.”
This prompts a transition to his observations on Chile’s pension system, which will not sit well with Federal Opposition Leader Peter Dutton.
“We have a lot of good customers in Chile, and in my opinion, Chile has been the largest economic structure in Latin America – and that’s partly because it was created by a group of economists from the ‘University of Chicago in the mid-twentieth century,’ he said. said.
“They had a retirement system, but you could take a vacation, you could leave for a period without investing, you could withdraw, you could do all those things.
“And now, or more recently, people have retired. And when the system was put in place, people were supposed to get, I think, 90% of their final salary, and they get 30.
“Actually, I think it led to the election of the left, if I remember correctly. It has to be mandatory. »
To illustrate his point, Marks tells the anecdote about marshmallows and children.
“One of the great experiments in psychology, I think it was in 1969, the psychologists took a group of four-year-old children, and they had a room, and a little chair, and a little table and a plate and a marshmallow,” he says.
“And they put this four-year-old kid on the chair, and they said, ‘You like marshmallows,’ the kid says, ‘Yeah, I like my piece’. ‘Good. You can have that marshmallow if you want. But I’ll walk out of the room for 10 minutes. And if when I come back he’s still there. I’ll give you two.
“And 80% of the kids ate marshmallows. Because they just can’t wait. And most people say I’d rather have a boat today than a bigger pension 30 years from now.
But the obligatory [contributions] – I mean I have unlimited admiration for the super system, it’s so wise.
