Extreme volatility this year has kept investors on edge, but market veteran Howard Marks believes none of the near-term risks should matter. Oaktree Capital Management’s Marks wrote a memo to his clients this week, urging them to ignore short-term swings in asset prices. His memos have gained a large following on Wall Street, and even legendary investor Warren Buffett has said that he reads them regularly and always learns something from them. “Investors should find a way to keep their hands off their portfolios most of the time,” Marks said in the memo. “Macro events and the ups and downs of companies’ short-term fortunes are unpredictable and do not necessarily indicate, or are relevant to, companies’ long-term prospects. Therefore, little attention should be paid to them.” The market has been in turmoil in 2022 as the Federal Reserve implemented a series of aggressive interest rate hikes in an effort to bring down inflation that is at its highest levels since the early 1980s. Many fear the adjustment could push the economy, which is still recovering from the pandemic, into a recession. The S&P 500 is down nearly 16% this year. The 76-year-old investor believes that price fluctuations are much more influenced by changes in investor psychology than by companies’ long-term prospects. “Because changes in psychology are more important in the short term than changes in fundamentals, and are so hard to predict, most short-term trades are a waste of time…or worse,” he wrote. Marks said investors place much more importance on volatility than they should, citing Buffett’s comment: “We prefer a patchy 15% return to a smooth 12% return.” “Investors who prefer the opposite, who prefer a soft 12% to a lumpy 15%, should ask themselves if their aversion to volatility is primarily financial or emotional,” Marks said. Long-Term Performance Matters Marks said what really matters is the performance of investors’ holdings over the next five years or more and how the value compares to initial investments. He said investors should hold onto their shares as long as the company’s earnings outlook and price appeal remain intact. Buffett has long recommended that investors put their money in low-cost index funds that track the broader market. “Consistently buy a low-cost S&P 500 index fund,” Buffett said in 2017. “Keep buying it through thick and thin, and especially through bad.” Marks noted that the S&P 500 has returned 10.5% annually since 1926, even through 16 recessions, a Great Depression, several wars and a global pandemic. “Think about participating in the average’s long-term performance as the main event and active efforts to improve it as ‘stitching around the edges,'” Marks wrote.
Source: news.google.com