Motley Fool Money - Howard Marks on the Stock Market Rarely Being Average

Episode Date: March 17, 2020

The average return of the stock market is 9-10%. So why does the market rarely hit that number in a given year? Legendary investor Howard Marks explains.   Learn more about your ad choices. Visit megaphone.fm/adchoices

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app, which makes it so much easier to stay on track. And you can get unlimited expert help at no extra cost, even on nights and weekends during tax season. Visit turbotax.com to get matched with an expert today, only available with TurboTax full service experts. With a motley full money extra, I'm Chris Hill. The recent sudden drop in the stock market notwithstanding, investing in stocks really is the best way to build one's wealth over the long term. Someone who knows that well is Howard Marks. A legend in the investing world, Marx is the co-founder of Oak Tree Capital, one of the biggest money management firms in the world. In the fall of 2018, he spent some time talking with my colleague Bill Mann about how the average return, of the stock market rarely happens in a given year.

Starting at the University of Chicago, in the 60s, people, even before the computer age, figured out what the return on stocks had been. And since 29 to 62, I think they did the work 9.2%. Then it's been extended since then. And so stocks return 9, 10% a year, on average, for long periods of time. We know that. They rarely return between 8 and 12. many more observations are outside of the 8 to 12 range than inside it.

So, you know, my first observation is that the average is not the norm. And so why is it? If stocks return 10% a year on average, why don't they just return 10% every year? And the answer, the biggest answer is emotional excesses to the upside, which then require correction to the downside. We all have emotions. Sometimes they get the better of us. And when that happens in investing,

well, that can hurt us. But to Howard Mark's point, the more investors can control their emotions over a long period of time, that average return is there for the taking. I'm Chris Hill. Thanks for listening. We'll see you next time.