Mastering the Market Cycle, by Howard Marks

My chapter-by-chapter summary, with notes and reactions

This is a chapter-by-chapter summary of Mastering The Market Cycle, a book written in 2016 by legendary investor Howard Marks. I’m reading this book in May 2022 because, for the first time in my career, the technology industry is entering a serious down cycle. As an entrepreneur there’s not a ton to do other than play it safe and try to remain profitable, but intellectually it’s interesting to me. And as an investor I would love to make the most of this time.

This obviously informs my agenda in reading this book, and will therefore shape the information I choose to highlight and what I choose to exclude. Specifically, I want to see if this book can help answer the following questions:

  1. How long is the current down cycle going to last?
  2. How far down will the market go?
  3. What causes down cycles?

Many people will tell you these questions are unanswerable. You hear it all the time: “it’s impossible to time the market and you shouldn’t try.” But this book basically argues that while you can’t predict with 100% certainty when the market is going to rise and fall, you can significantly improve your odds of making good investments with some sense of timing. 

It might seem foolish, but Warren Buffett, Charlie Munger, Bill Gurley, and Ray Dalio all blurbed his book, and seem to think it’s smart. Plus, the proof is in the pudding: according to his Wikipedia page, Marks’ investments have averaged 19% compound annual return over the long run, which is pretty great. He attributes much of this to understanding what part of the market cycle he is in and adjusting his investment strategy accordingly.

So let’s go through each chapter of the book and summarize the main arguments. I’ll provide some of my own color commentary as we go along, too.

Table of Contents

  • Introduction
  • 1. Why Study Cycles
  • 2. The Nature of Cycles
  • 3. The Regularity of Cycles
  • 4. The Economic Cycle
  • 5. Government Involvement with the Economic Cycle
  • 6. The Cycle in Profits
  • 7. The Pendulum of Investor Psychology
  • 8. The Cycle in Attitudes Toward Risk
  • 9. The Credit Cycle
  • 10. The Distressed Debt Cycle
  • 11. The Real Estate Cycle
  • 12. Putting It All Together — The Market Cycle
  • 13. How to Cope with Market Cycles
  • 14. Cycle Positioning
  • 15. Limits on Coping
  • 16. The Cycle in Success
  • 17. The Future of Cycles
  • 18. The Essence of Cycles
  • Afterword 

Introduction

It’s useful for investors to understand how cycles work and to develop a sense for where we are in the current cycle, because it allows them to position their portfolio for what’s next. 

Patterns are a natural part of nature. Some are easy to predict, like seasons and tides. Market cycles are harder to predict because they depend on human psychology. But if you pay close attention you can use them to your advantage, rather than suffer from the chaos they can cause.

Nathan’s Note:

  • I wish he had more stories here of actual decisions he faced in his career and how he used his sense of cycle timing to make the call. Did he make bad calls in his career that were formative learning experiences? Were there any particular triumphs he’s most proud of? This is all very abstract and impersonal.


1. Why Study Cycles

Imagine a jar with 100 balls in it, some black and some white. Investing is like sticking your hand in the jar and betting what color you’re going to get. 

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