Rational investors can profit from big swings: US investment guru

Price collapses may be due to perceptions and not actual conditions: Howard Marks

- Angela Tan

Senior Business Correspondent Stock markets often overreact, opening up opportunities for rational investors to make a profit, said American investment guru Howard Marks in his latest memo.

During big market moves like the one seen in early August, there are few effective rules for investors to follow, said the billionaire co-founder and co-chairman of Oaktree Capital Management, the world's largest investor in distressed securities.

"Superior investing always comes down to skilful analysis and superior insight, not adherence to formulas and guidelines," he said.

When markets are volatile, no one performs rational analysis because of psychological swings, he said.

"What this means is that in good times, investors obsess about the positives, ignore the negatives, and interpret things favourably. Then, when the pendulum swings, they do the opposite, with dramatic effects," said Mr Marks, whose memos are widely followed by the global investment community for his investment strategies and insight into the US economy.

At the start of August, the S&P an index which tracks the stock performance of 500 of the largest companies listed in the US - fell on three consecutive trading days, tumbling a total of 6.1 per cent on a combination of factors, before rebounding as quickly as it had fallen.

Singapore's Straits Times Index too caved under pressure in early August before recovering in the ensuing weeks.

The global market rout prompted a team of economists at the Bank for International Settlements (BIS) a bank for central banks to do a comprehensive dig into what triggered the meltdown. They found that nothing has changed.