Published: 2025-04-18

Howard Marks - Structural Inefficiency and Cyclical Inefficiency

In the 1978 Moody's rating manual, the definition of a B-rated bond was as follows: "Lacks the characteristics of a desirable investment." In other words, B-rated bonds were far from prudent.
- That was Biases. If there is an asset that 99% of people won't buy at any price, isn't that asset actually on sale?
40–50 years ago, it was a very foolish world. No one knew anything. Now, there is so much you can know with a Google search. The phrase "I know nothing" no longer exists. If everyone knows about every asset class and can understand it, where can structural inefficiency be found? Very hard. I call this the process of becoming more efficient.
The prejudice that people do not know about the asset, do not understand it, do not try to buy it, and think it is not something a professional trustee should do created inefficiency, and I call this structural inefficiency.
In 1978, if you talked about buying junk bonds, people would say, "Hey, young man, you can make a lot of money that way, but isn't that improper? It doesn't seem like something a trustee should do." But now, people will do anything for a dollar. In other words, the Biases has disappeared.
It is increasingly difficult to find these inefficiencies. If we can resist these psychological errors, we can find assets that are on sale.
In the process of moving to assets that are substitutes for each other, like oil and gas (Dialectic), or in the process of selecting another asset, price delays occur, and here we can occasionally find cyclical inefficiency, even though structural inefficiency is hard to find. In other words, there are times when we lose objectivity and value assets too low.

Topics: Information Gap
Source: Link
Category: Scrap/Video

Published: 2025-04-18

Howard Marks - Structural Inefficiency and Cyclical Inefficiency

In the 1978 Moody's rating manual, the definition of a B-rated bond was as follows: "Lacks the characteristics of a desirable investment." In other words, B-rated bonds were far from prudent.
- That was Biases. If there is an asset that 99% of people won't buy at any price, isn't that asset actually on sale?
40–50 years ago, it was a very foolish world. No one knew anything. Now, there is so much you can know with a Google search. The phrase "I know nothing" no longer exists. If everyone knows about every asset class and can understand it, where can structural inefficiency be found? Very hard. I call this the process of becoming more efficient.
The prejudice that people do not know about the asset, do not understand it, do not try to buy it, and think it is not something a professional trustee should do created inefficiency, and I call this structural inefficiency.
In 1978, if you talked about buying junk bonds, people would say, "Hey, young man, you can make a lot of money that way, but isn't that improper? It doesn't seem like something a trustee should do." But now, people will do anything for a dollar. In other words, the Biases has disappeared.
It is increasingly difficult to find these inefficiencies. If we can resist these psychological errors, we can find assets that are on sale.
In the process of moving to assets that are substitutes for each other, like oil and gas (Dialectic), or in the process of selecting another asset, price delays occur, and here we can occasionally find cyclical inefficiency, even though structural inefficiency is hard to find. In other words, there are times when we lose objectivity and value assets too low.

Topics: Information Gap
Source: Link
Category: Scrap/Video