Easier Said Than Done, But Here’s Howard Marks on Forced Liquidation

  • Posted by on October 15th, 2014 at 12:48 pm

Most investors—and certainly most nonprofessionals—know little about technicals. These are non-fundamental factors—that is, things unrelated to value—that affect the supply and demand for securities. Two examples: the forced selling that takes place when market crashes cause levered investors to receive margin calls and be sold out, and the inflows of cash to mutual funds that require portfolio managers to buy. In both cases, people are forced to enter into securities transactions without much regard for price.

Believe me, there’s nothing better than buying from someone who has to sell regardless of price during a crash. Many of the best buys we’ve ever made occurred for that reason. A couple of observations are in order, however:

• You can’t make a career out of buying from forced sellers and selling to forced buyers; they’re not around all the time, just on rare occasions at the extremes of crises and bubbles.

• Since buying from a forced seller is the best thing in our world, being a forced seller is the worst. That means it’s essential to arrange your affairs so you’ll be able to hold on—and not sell—at the worst of times.

This requires both long-term capital and strong psychological resources. And that brings me to the second factor that exerts such a powerful influence on price: psychology. It’s impossible to overstate how important this is.

Source: Marks, Howard (2011-04-19). The Most Important Thing: Uncommon Sense for the Thoughtful Investor (Columbia Business School Publishing) (pp. 26-27). Columbia University Press. Kindle Edition.

The Latest

  • Sometimes, Stocks Go To Zero
    Posted by on October 6th, 2014 at 9:21 pm

    GT Advanced Technologies – the company behind one of the hottest stock market stories in the past year, the next big growth name that was […]

  • Why Did Warren Buffett Buy An Auto Dealer
    Posted by on October 2nd, 2014 at 11:15 am

    This morning, we woke up to the news that Buffett is buying Van Tuyl Group, the nation’s largest privately held car dealership chain. Not only […]

  • Nike and Under Armour Continue to Dominate The Athletic Apparel World
    Posted by on September 26th, 2014 at 11:28 am

    Nike ($NKE) IPO-ed in 1980 by raising $5 million from the public. Today, some startups raise more money in their seed stage. $10,000 invested in […]

  • How To Trade Alibaba
    Posted by on September 18th, 2014 at 7:25 pm

    Over the past two weeks, I received more than ten emails asking me about Alibaba. I realize that most people in the U.S. think that […]

  • The 5 Secrets To Highly Profitable Swing Trading
    Posted by on September 14th, 2014 at 9:17 am

    There are two major ways to consistently make money in the market: 1) Hunt for several huge winners in a year. Build large positions in […]

  • The World Has Gone Crazy About Alternative Energy
    Posted by on August 28th, 2014 at 10:48 pm

    They say that the cure for high oil prices is higher oil prices. The so called alternative energy sources – solar, wind, biofuel, etc. did […]

  • Sand Is the New Gold
    Posted by on August 28th, 2014 at 11:02 am

    During the Gold Rush in the 1850s, merchants made a lot more money than gold diggers. During the fracking rush of our time, some of […]

  • Google – When Expensive Is Cheap And Cheap Is Expensive
    Posted by on August 22nd, 2014 at 8:36 am

    This week, Google marked 10 years since it became a public company. Here’s a quick reminder of the event from wikipedia: In October 2003, while […]

  • The Perfect Portfolio
    Posted by on August 7th, 2014 at 9:14 am

    Imagine if there was a way to know the best performing stocks of each year ahead of time? According to Patrick O”Shaughnessy from Millennial Invest, […]