Howard Marks: Money Maze Podcast (2025)

It's hard to achieve singular success

by joining the herd. The only way to be

uniquely successful is do things that

nobody else is doing and have them turn

out well. Welcome to the Money Maze

podcast. If this is your first time

joining, I'm your host Simon Brewer.

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watching and listening, and enjoy the

show. When Warren Buffett singles you

out for praise, as he has done with our

guest today, it might be fair to say

that they have summited the investment

equivalent of K2, Annapurna, and

Kangchenjunga, most challenging peaks to

scale. In a capricious investing world

where success is often transient,

reputations easily tarnished, and hubris

punished, to have not only stayed the

course for 55 years, but thrived, built

Oaktree Capital into one of the largest

investors in distressed securities

worldwide, and cemented a vast and loyal

following is extraordinary. His

investment memos written over the years

are world-class, engaging, lucid, and

approachable. There's been so much

wisdom imparted, I actually wasn't sure

where to start when preparing for this

today's conversation. So, for our

listeners and viewers, you'll see why

it's such a privilege today to be

talking to Howard Marks. Howard, welcome

to the Money Maze podcast.

It's a pleasure to be on with you. Well,

we love to start by just jogging back to

the early days. I I I understand you

were born in Queens, New York, and I

remember you told Nikolai Tangen, who's

one of the great friends of the show,

that you were a left-brain person,

logical and liking symmetry. And I

wondered, how and when did that show up

in your childhood?

Prominently, I would say when I was

16, and for some unknown reason, I took

a course in high school in accounting.

And of course, uh

the soul of accounting is the

double-entry bookkeeping system, which

is

uh the most symmetrical thing in the

world, and and it just clicked with me

intuitively. I I just I just understood

every principle uh without even having

to think about it. So, I guess that was

the first first big clue.

So, I know you go to Wharton for a BSc

in finance, then you go to Chicago where

you do an MBA in accounting and

marketing. It just struck me that today

we hear a lot about the CFA, slightly

less about the accountancy degree. And

if you were choosing equal equal

individuals, and one had the accounting

versus the CFA, which one do you think

might be more valuable? I think that

accounting

is to the person in business

as a good course in English is to

somebody who wants to write a book.

These are the languages of the

respective fields, and I think they are

essential.

Uh necessary,

uh but not sufficient,

but absolutely necessary. Then,

mastering the lessons of finance

uh through either an MBA or MS in

finance or a

uh CFA charter, this is the next step.

Uh but of course, you wouldn't want to

start writing a novel

in English if you didn't know English.

Right.

So, your journey starts at Citibank. As

I was just saying before we started, you

joined in 1969, I joined the year you

left. Um some might laugh at that, that

was 1985. And I know you started in the

world of equities, and then a few years

later you were asked to look after

converts and high yield. We don't talk a

lot about converts these days, and yet

they're a fascinating instrument. And I

wondered, as a bridge to the world you

ended up with, what did they equip you

with? Well, first, it's not that I was

asked to look at converts, I was asked

to leave the equity department uh

because the bank had been a Nifty Fifty

investor, and the performance was so

terrible that everybody

uh associated with that

uh activity kind of got removed. But I

was fortunate in that the American

corporation in those days pretty much

gave lifetime employment. So, I wasn't

fired.

I was asked to move to the bond

department, which was Siberia. But my

But the chief investment officer was

pretty creative, and he had had a good

experience at a private previous

employer with convertibles. So, he asked

me to start a convertible bond fund,

which Citibank didn't have.

So, I went from a very large and

organizationally important bureaucratic

position with a big budget and a big

staff and all kinds of committee

memberships to the bond department,

where I didn't have any of that. No

subordinates, no budget, no committee

memberships. And I was ecstatic, because

all I had to do was study 40

securities

and understand them better than anybody

else.

And

you know, for me, that was what it was

all about. And at some point, I've heard

you say your boss then said to you, "Go

figure out what Mike Milken was doing in

high yield." And he's been a guest on

the show and just even a fantastic

source of, you know, inspiration as

well. Why were you asked to that?

Well, number one, because I was probably

underemployed. Uh

you know, I was pulling down a big

salary at the time and only studying

40 securities and investing

$15 million or something in convert. So,

so I was probably viewed as idle hands.

But also, the other thing is that

traditionally,

uh I think proper bond analysis

consisted of studying history and

current assets and

income,

and not conjecturing about the future.

But if you're going to stray into Mike

Milken territory and lend money to

non-investment grade companies, you

better think about the future.

And with my background in equities,

in equities, that's all we do, is think

about the future. So, I think that uh

it was the

it was the uh

turning point when

forward-thinking

bond analysis stopped being an oxymoron.

And with my equity background, I was

well-positioned to to do it. So,

uh hopefully I got the job on the merits

and not just the fact that that I was

available. But you know, it was

it was a great thing for me to be tapped

to join the high-yield bond industry

at its beginning.

Yeah. Now, we're going to refer to a

number of your great memos. One, the

most important thing, and I'll quote

you, although you know it cuz you wrote

it, is if you don't know the difference

between buying good things and buying

things well, you should not be in this

business. It's not what you buy, it's

what you pay that counts. And I

wondered, when you first learned that?

Well, I learned it again, because I was

part of the Nifty Fifty administration,

and we bought the best companies in

America.

And if you bought them the day I

reported to work in September of 1969,

and if you held them tenaciously for 5

years,

you lost about 95% of your money.

So,

there's a lesson in that, and I I think

that

you know, if if I were to describe how I

got to where I am in life, I would say

that

I

was conscious of the lessons as they

arose.

You know, one of my favorite sayings is

that experience is what you got when you

didn't get what you wanted. And uh

you have to learn painful lessons in the

investment business, and it's better to

learn them early, but it's very

important that you pay attention.

So, here we are, investing in IBM,

Xerox, Kodak, Polaroid, Merck, Lilly,

Hewlett-Packard, PerkinElmer, Texas

Instruments, Coca-Cola, AIG,

and on and on,

and losing almost all the money.

So, it can't be

buying good things

that holds the secret to success. It has

to be buying things well.

And

so, '78,

I'm managing money in high-yield bonds.

And now,

I'm

investing in the worst

public companies in America,

and I'm making money safely and

steadily.

Because investing in them through the

format of bonds on the basis of

forward-looking credit analysis

enabled us to buy things well.

And that's when that

difference struck me,

and that's when I wrote it down.

And were you and Mike Milken a very

small tribe of people who were looked at

with great suspicion?

Uh well, let's say skepticism.

Skepticism.

But yeah, I think so. And you know, our

business uh was called junk bonds.

And not only were they considered junky

quality,

but you know, people would actually say,

you know, "Well, young man,

uh I'm sure you could make money doing

that, but it wouldn't really be proper."

And so, there there was skepticism

around what we were doing. But there

always is when you do something that

nobody else is doing.

You know, what what what do they say?

It's it's the pioneers who get the

arrows. Um

but

what I've learned

and that was one of the great object

lessons

was that in investing

the main way

you gain unusual success

is by doing things other people don't

want to do.

It's hard

to by definition, if you think about it

mathematically

it's hard to achieve singular success

by joining the herd. It's It's It's like

a contradiction in terms.

That if you do the same thing everybody

else, you'll be uniquely successful.

It's It's impossible. The only way to be

uniquely successful is do things that

nobody else is doing and have them turn

out well. Of course, that latter point

is important, too. Just being a

contrarian is not enough. So, when

you've been a contrarian, you've

positioned yourself advantageously, and

then the cycle, momentum, the healing,

you know, comes to play.

One of the big challenges is, of course,

how long you ride the wave. And that

whole question over selling is so

difficult. And I wondered when, you

know, what have you learned specifically

about exiting positions in because that

down wave is coming?

Well, if I may

interpose my view

the great challenge of the after you've

done something unusual isn't figure out

figuring out when to get off it.

It's figuring out how long you can stay

on before it works.

Because if you do something and it

doesn't work for 6 months or for a year

or for 2 years or for 3 months

might you be wrong?

And commercially

can you endure?

Et cetera.

So, this is the first challenge. Not

figuring out when to get off of a

winner, that's that's that's a minor

problem. Figuring out how long to stay

with something that that isn't working,

that's a big problem. And, you know, I I

use all these sayings in the memos in my

books and that I've learned from other

people and I've learned so much. The

first of the great sayings that I ever

learned in the early '70s was that being

too far ahead of your time is

indistinguishable from being wrong.

So, as remember what I said, to be a

unusually successful investment investor

you have to see something other people

don't see.

Or you have to see something differently

from the way the masses see it. So, you

see something

you think this is better than most

people think you invest in it

but that doesn't mean they're going to

change their minds the next day and say,

you know, Howard, you were right and bid

it up. And

it that process can take a long time.

How do you last?

And

uh

so

that's the first question. And, of

course the answer is you need a strong

stomach, good constitution uh not too

much emotion

and the resolve to stay with it. But,

you know, if you stay with it for 20

years and it doesn't work, then you're

an idiot and you're out of business. So,

there has to be some happy medium there.

That's what I wanted to say in response

to your question. Now, I'll get

respond to your question. When do you

get off? And it's interesting because of

all the books that have ever been

written about investing and all the

words

I would guess that less one less than 1%

have been have been written about

selling.

They're almost all about buying. When to

invest, what to invest in, how to choose

what to invest in. And I wrote a memo

uh by the way, this is a good time to

say that if anybody's interested in

reading the memos, they're all available

at the Oaktree Capital website under the

heading of insights

memos from Howard Marks.

And they're all free, so the price is

right.

Uh so, I wrote a memo

Mhm.

Sometime around 2016 or '17 called

selling out.

When do you sell?

And

you know

most people I say

half facetiously, I say that most people

sell for two reasons. They sell things

because they went up

and they sell things cuz they went down.

They went up and they say, I better sell

some because if it goes back down and I

haven't harvested any profits

I'll kick myself and I'll look like an

idiot.

Or

they they buy it and it goes down and

they say, well, I've I've bought it and

I lost half my money, I better sell it

before I lose the other half.

And I'll feel like an idiot. So

a lot of selling

is designed not to do the smart thing,

but to avoid feeling like an idiot. Now,

if you if you accept that people sell

things cuz they're up and sell things

cuz they're down, then by definition

they can't be both right.

Because taking the same action

in response to two diametrically opposed

events how can they both be right? And

the answer is neither is right.

You shouldn't sell things just cuz

they're up

because

if they were a good buy in the first

place, maybe they have further to go.

And you shouldn't sell things just cuz

they're down cuz if they were a good buy

in the first place, maybe they're better

now that they're cheaper.

So, selling cuz something's up or

selling cuz cuz something's down,

neither one is right on its face. Right.

There can be personal

situational

reasons to sell, like you need the

money.

Or, you know, you need $10 million to

retire and you're at 15.

And if you go back to

six, now you don't have enough money.

So, there are legitimate reasons to sell

which are unrelated to the merits of the

investment.

But if you're free from those and you're

just concerned about the merits of of

the investment, then obviously there's

only one reason to sell

which is

you reanalyze it.

You examine your prior thesis. You You

look to see if your prior thesis is

still correct. You look to see if there

is still room for appreciation under

your prior thesis. You

maybe reformulate your thesis to update

it.

And then you say

is it an investment I would make today?

And if the answer is absolutely not

then you probably shouldn't hold it.

But you know, most people who are

doctrinaire who are

I would say smug

say everything's either a buy or sell.

I don't think that's true. I think there

are things that are legitimately hold

help legitimately holds. That is to say

you bought it when it was 10.

Now it's 20.

You update your thesis.

When you When it was 10, you thought it

was going to go to

20.

You update your thesis.

And you Now you say, I think it can go

to 25.

Well, maybe you don't want to buy it for

the trip from 20 to 25, but

maybe you're

feeling good enough about the trip from

20 to 25 that it's still worth holding.

So, there's some some more juice in the

orange.

So, you've written terrifically on

mastering the market cycle. I've been

listening on Spotify to to to your work

there. And at some point in your work,

you have quoted, which I hadn't come

across and of course, he didn't actually

say it in English, he would have said it

in French. You said about Voltaire,

Voltaire said history never repeats

itself, but man always does.

So, you have these opportunities created

by this polarity of greed and fear. And

would it be fair to say that actually

that's an enduring condition and that

leaves one always hopeful that markets

will react and overreact and therein

lies opportunity?

I think that's right and I think I go on

and

by the way, if you want to really

perform a public service by

cite my book. You should cite my book so

people will go out and buy several

copies each, hopefully. But, I wrote a

book in 2018 called Mastering the Market

Cycle.

And basically, it concludes that there

will always be cycles

because cycles

arise from excesses

and then corrections of the excess.

And

the excesses are usually emotional,

psychological, whatever you want to call

them. They're not, you know, I mean, if

you if you look at economies don't

fluctuate that much. Up one, up two,

down one, up three.

Companies fluctuate a little more, up

five or 10 in profits or down five or

10.

Mainly because companies are subject to

the economy, but they're levered. They

have operating leverage and financial

leverage. But, stock prices

fluctuate like mad, up 50, down 50, up

100, down 100, et cetera. Why so much?

Emotion.

People get too excited.

And then they get too depressed.

And uh I wrote a memo called On the

Couch around 2017 or '16 cuz or '15,

maybe, because I said that you know,

every once in a while the

market needs a trip to the shrink. And I

said there

or maybe in the next follow-up memo,

which was called What Does the Market

Know? I said that in the real world,

things fluctuate between pretty good and

not so hot.

But, in investors' minds, things

fluctuate between flawless and hopeless.

And when people think it's flawless,

that's an excess.

And it corrects

cuz it you shouldn't think that. But,

then the way thing people operate it

it's goes through reason

and ends up at hopeless.

Which is also excesses excessive. And

and the truth is usually somewhere in

between, but as long as we have humans

involved in the pricing of securities

uh I think we'll have excesses

uh of optimism and pessimism. And that

will create

uh fluctuations for the

steady-minded person to take advantage

of.

And I guess that that's why you say that

and I'm paraphrasing it you would have

the following words removed from

investment committees. Never, always,

forever, can't, won't, will, and has to.

And what is it about those words that

make them the guilty men?

Well, what what they're absolute.

And they exude certainty.

And I believe

absolutely

that there is no place in our profession

for certainty.

Because we live in an uncertain world.

And

I have a slight idea what's going to

happen tomorrow.

I have a suspicion of what's going to

happen in in a year. But I absolutely

don't think I

know for sure.

And so how can anybody be certain about

anything?

And how can anybody say

has to?

Or can't?

Or always or never?

I just think that anybody

who thinks that way is getting into

trouble. You mentioned the quote from

Voltaire. Uh

Americans think that it was Mark Twain

who said that.

Mark Twain is purported There are a lot

of quotations attributed to Twain, but

usually with the word purportedly. Uh

he's purported to have said that uh

history does not repeat, but it does

rhyme.

He also is purported to have said

something extremely important, which is

that uh it ain't what you don't know

that gets you into trouble.

It's what you know for certain that just

ain't true.

And there's nothing wrong with not

knowing something.

And in fact

I had lunch with one of my colleagues

today just now. And

you know, I was talking about to him

about all the stuff I don't know. And I

think it's very very important for your

success and yourself protection

to be extremely brutally frank about all

the stuff you don't know.

And that way you never get into trouble.

You know?

Um the

if I had to drive from London to Leeds

what would I do? I would uh

I'd get a map.

I'd turn on the GPS.

I would ask directions.

And I would drive slowly to make sure I

don't pass my exit. But if I think I

know the way, I don't get a map, I don't

turn on the GPS, I don't ask directions,

I drive fast as hell cuz I'm confident

of the route.

And if it turns out I was wrong I end up

in Devon. And what is slightly scary

about what you just said, Howard, is

you've described me unfortunately rather

accurately. I wish I'd been given one of

your memos when I started at Citybank a

long time ago.

May I interject?

Yes, yes.

Someone said, I can't remember who,

two kinds of people get into trouble.

The people who know nothing and the

people who know everything.

So, it's not good to say I don't know

anything. Um

you know, because

if you if you feel you don't know

anything

you clearly can't

succeed

in a future-oriented business. Nassim

Nicholas Taleb, who wrote Fooled by

Randomness, would say you should become

a dentist.

Because there are no vagaries in

dentistry.

According to him.

So, it's very

you're not going to succeed if you know

nothing, but you're also not going to

succeed if you think you know everything

cuz then you don't take advice and you

don't uh hedge your bets and you plunge

and you

put all your chips on black.

And that's a good way to get carried

out. So,

uh I'm a big believer in

uh something called intellectually

intellectual humility.

And you know, intellectually humility is

just another word for the other person

could be right. Well, that leads us into

one of your really terrific papers, The

Illusion of Knowledge. A uh

friend of ours, senior portfolio manager

at Rothschild, Hugo Cable Cure, said to

me, "It's been a guiding light in their

approach." And I'll quote this one

sentence which you wrote, which is "No

amount of sophistication is going to

allay the fact that all of your

knowledge is about the past and all of

your decisions are about the future."

And I thought just for a few minutes

about that and I then dug up this

quotation from General Eisenhower, which

was "In preparing for battle, I've

always found that plans are useless, but

planning is indispensable." And I just

wonder what type of forecasting and

war-gaming and scenario planning you do

think is valuable.

Well, first of all, let me point out for

the benefit of the listeners that I

didn't say what you said I said. And by

the way, Yogi Berra, who was

great catcher for the New York Yankees

and the source of many of our greatest

sayings, nonsensical though they may

seem at first blush, Yogi said, "I never

said half the things I said."

But but

um that was a that was a guy named

Wilson who ran GE who said that.

And and it's a very very very important.

It's one of my favorite quotes. I wrote

a memo, I think it was 2002, if I'm not

mistaken, and the title was you can't

predict, you can prepare.

And I stole that. That was the tagline

from the advertisements of of the

Massachusetts a MassMutual Life

Insurance Company, one of our big good

life insurance companies. I think it's

very uh

provocative.

Because

there's a tendency to say, "Well, if you

can't predict, how can you prepare?"

Predicting is how you

understand what's going to happen.

And preparing

is making ready

for what's going to happen.

So, how can you prepare for what's going

to happen if you don't know what's going

to happen? And the answer is you're if

you think you know what's going to

happen, you're an idiot.

So, preparing

really means not preparing for one

outcome, but for having a portfolio or

approach to life

which prepares you for a range of

outcomes.

I think that's that's where success

lies.

And you know, too many people in the

investment business say

I think this is going to happen in the

economy.

This is going to happen with rates.

This is going to happen with

markets.

This is going to happen with this

industry.

And this is what's going to happen with

this company.

And if you get all five of those right

then you end up

uh rich as Croesus. But what's the

probability of getting all five right?

And if you if you specify, I call that

single scenario investing. And if you

specify that single scenario

and invest as if you're right out of

certainty

and it turns out a few of those things

surprise you

might the investment portfolio you have

fashioned

be absolutely wrong and out of phase and

disastrous?

So,

preparing for a single outcome I think

is a mistake in an uncertain world.

And all we can do as as investors is

prepare for a variety of outcomes. We

want a portfolio that will do well if

the things we think are most likely

happen.

Pretty good if the other things that we

think are likely happen.

And not terribly

if the things we

don't think will happen happen.

Now, that's not easy. And it's

complicated by the fact that there's

nothing you can do that can prepare you

optimally for all scenarios.

So, you have to say

which scenarios do I want to prepare

for?

Which range of scenarios

do I think we'll fall into and if I'm

ready for them will make me good money.

And which ones do I not have to prepare

for? You can't prepare for them all by

definition. Right. So, let's use that

lens for a current situation. I was

having exchange with a former guest,

Colm Kelleher, who's chairman of UBS,

was president of Morgan Stanley. And he

said, "Given the declines in the PE

space and maturities in funds

happening," he said, "perhaps 30,000

companies will need to find a buyer.

Realistically, when do investors get

their money back and at what multiple?"

Well, that's a great question, isn't it?

Because

um you know,

private equity

from I would say roughly

from '04

to

'21

was viewed as

uh

what I call the silver bullet.

When I was growing up, there was a guy

on TV called the Lone Ranger. He he had

a white hat and a black mask and he rode

around uh on his horse and he solved all

the problems Then he had a gun, and in

the gun he had silver bullets.

And And because he had silver bullets,

he never missed.

See? So, investors are always looking

for the silver bullet, the thing that

will make them rich without risk

and without fail.

But by definition,

it can't exist.

But as my mother used to say, hope

springs eternal. And I would say that

from '04 until '21, uh

private equity was

knighted

as as the silver bullet. I wrote a memo

in December of '22 called uh

sea change.

And I said in there that in 1980, I had

a personal loan outstanding from a bank,

and I got a slip of paper in the mail,

and it said, "The rate on your loan is

now 22 and a quarter."

And in 2020, 40 years later, I was able

to borrow from a bank at two and a

quarter.

So, rates went down by 2,000 basis

points or 20 percentage points over 40

years,

pretty monotonically. And

declining rates are great for people who

own assets,

because the value of an asset is the

discounted present value of the future

cash flows, and if the the rate at which

you discount the future cash flows

declines, the rate the value goes up.

Declining interest rates are also great

for borrowers, because their cost of

capital goes down.

So, what about people who buy assets

using borrowed money?

When rates go down, they get a double

bonanza.

And that's what happened to the private

equity industry.

And

and you know, private equity tries to

make money, I think, tries to make money

four ways.

Buy things for less than they're worth,

lever them up

to magnify the return on equity, add

value

by making them work better, and sell

them

at non-bargain prices,

maybe elevated prices.

And

for a time, it did that.

But think about it. Owning assets with

borrowed money was the ideal strategy

for a declining interest rate

environment. Now, were the Were the

people who did that activity smart

enough to know the rates would come come

down, or did they Did they engage in an

activity and were they lucky enough

to encounter

a

an ideal environment? I tend to think

the latter.

You know, I think that performance is

what happens when a portfolio

encounters

the future. I tend to think of it kind

of like an accidental encounter.

But

private equity was great under those

circumstances. And of course, private

equity was invented in that period. So,

you if you invent a mechanism,

and then encounter

an environment for which it is ideally

suited,

it shouldn't come as a surprise that it

produces great success. But um

you know, Einstein said that um

a definition of insanity is doing the

same thing over and over again and

expecting a different outcome.

I think another version of insanity is

doing the same thing in a different

environment and expecting the same

outcome.

And you know, if you came into this

business like you did,

since 1980, almost everybody did. There

aren't too many people who've been in

the business 45 years,

cuz you have to be 70 or so. If you came

in since 1980, pretty much all you've

seen is declining interest rates or

ultra-low interest rates or both

until '22.

That was ideal for private equity and

other leveraged strategies, not just

private equity.

But

the sea change memo that I wrote in

December '22 said, "It's over."

And for the next decade,

you will not be able to describe

interest rates as

uh you know,

in general or or secularly declining,

or as consistently ultra-low.

The Fed funds rate was

zero most of the time from the beginning

of '09, when the Fed cut rates to fight

the global financial crisis, until the

end of '21, when they decided to raise

rates to fight inflation. Between the

beginning of '09 and the end of '21, an

unusual 13-year period, the Fed funds

rate was zero most of the time, and I

think averaged about a half a percent.

My view, you're not going back to that.

And if not, then

private equity will still be good for

people who can buy things at bargain

prices and add value, but the beneficial

uh impact of declining rates and

ultra-low rates will not be present, and

it will not be the success it was, and

it will be shown not to be a silver

bullet. Which leads us very nicely to

your memo, which I think was called

looking ahead, and I'll just quote you,

"Successful investing has to be more

about superior judgments concerning

qualitative

non-computable factors and how things

are likely to unfold in the future." And

I know that's a more general observation

of assets, but just explain that a

little bit, because I was intrigued by

it.

Well, I don't think there was ever a

memo called looking ahead. I I don't

know which one you're referring to.

Uh but I would love to stand corrected.

I think that I must be wrong. And as

Yogi would say, maybe I said something I

didn't think I said.

Okay.

But So, there is a memo

called something of value.

And

at the very beginning of the pandemic,

March the 13th of 2020, my son and his

family moved in with my wife and me.

And

then the pandemic hit, and we stayed

together for several months. And it was

just wonderful to have

uh three generations uh living together

under one roof. It never happens these

days anymore. My son is an investor, and

we spent a lot of our time talking about

um

value investing. So, I wrote this memo

in January '21 called something of

value. It was a play on words, uh which

I plead guilty to, because number one,

we were discussing value investing, and

number two, it was of great value for us

to live together. And he's so he's so

smart and so insightful.

And his clients are so lucky. Again,

mathematically, it can't make you an

unusual success.

So,

and by the way, if you look at the SEC

today,

the I think they consider one of their

main jobs to making sure that everybody

has the same information at the same

time, right? There's something called

Reg FD, regulation fair dealing.

You must A company has to tell everybody

everything at the same time.

So, so quantitative readily available

quantitative information about the

present can't make the difference

if you want to be a superior investor.

What can?

Very I think that's the essence of your

question, right?

Yep. So, so what can? I can think of

three possibilities.

Um maybe there are others. Number one,

you take that information, and you do a

better job of extracting its importance.

Now, again, everybody has the same

computer, they all run the same

software, they can all do the same

screens. So, that's not going to be the

secret. But you know, when Andrew was in

uh college and studying to become

uh an investor, he would come home on

breaks, and he would say to me something

like, "Dad,

uh we should buy Ford stock, cuz they're

coming out with a great new Mustang."

And my answer was always the same for

pedagogical reasons. I would say,

"Andrew, who doesn't know that?"

So, the point is that if if you know

something and everybody else knows it,

then it's already probably uh discounted

in the price of the stock.

You can't gain a march by investing in

the stock, cuz everybody else has

already incorporated that factoid in the

price, and

you're being paid for that truth. So,

you have to know something other people

don't know.

You have to do a better job of

interpreting the information. Um and

extracting its importance. Number two,

you maybe you can do a be a better job

uh because you do a better job than

anybody else of understanding

qualitative things.

Not everybody knows the qualitative, and

by definition, uh qualitative things are

harder to assess.

So,

you know, which company has the best

research effort? Which has the best

product pipeline? Which has the best

management? Uh

the most creativity. Uh I wrote a memo

in '2016 or '17 called uh investing

without people about uh indexation,

passive investing, al- uh

algorithmic investing, and then

ultimately even AI

and machine learning. And I said in

there that I don't think that a computer

can sit down with five business plans

from uh VC companies and figure out in

advance which one is Amazon.

I think that requires a unique human

insight.

Of course, most people can't do it

either.

So, so merely taking the computer out of

the

equation and turning it over to people

is not a

But at least at least when a person

subjects themselves to a uh

to a quantitative qualitative

task like that,

they have the possibility

of doing something in an exceptional

way. So, that's number two, qualitative.

And number three is future-oriented.

And it's if if the if all the

information about the present is

universally known,

then clearly the the superior investors

will be the people who know more than

others about the future.

And you know, the greatest the greatest

oxymoron at all or the greatest

challenge is

that investing What is investing?

It's positioning capital to benefit from

future events.

That's all it is.

And yet I believe the future is

unknowable.

So, how do you do it? And the answer is

nobody does it

flawlessly. Nobody knows it all. Some

people will have more insight than

others.

And I I like to believe that that that

the smartest computer in the world will

not have as much insight as the most

insightful individual.

But the the the the problem for the

profession is that the smartest computer

may be have more insight than 80% of

people

or

90 or some number like that. So,

the answer is you better try to not go

into the investment business if you're

not in the top few.

Yep. So, in one of your memos it was

actually was about risk. You quoted

Professor Elroy Dimson, who's Professor

of Finance at Cambridge Judge Business

School. So, I had an exchange with him

and he said he said 25 years ago we

published the Triumph of the Optimists.

And of the many countries for which we

assembled a long-term financial market

history, the US had performed the best.

We didn't expect that to continue, but

it did. And he said we're about to

publish our, you know, on the 4th of

March their new returns. He said my

question is does Mr. Marks expect this

exceptionalism to continue?

Well, first of all,

I am not a futurist.

And No, I'm not. I It's it's it's not my

makeup. So, I don't think about things

like that. And I and I

ab- I mean, I I'll express an opinion.

I'll get around and answer to your

question. I'll get around to expressing

an opinion.

But I would never bet 10 cents on it.

You know, I asked you macro forecasting

and the the the memo Illusion of

Knowledge, but I say it's okay to have

opinions, but something very different

for for to have an opinion than to bet

on it. I don't bet on my opinions.

I think that America has a great system.

And there's something

in America in the combination

of the

the embrace of the free enterprise

system,

private ownership, capitalism, economic

incentives,

the rule of law,

which we think we can depend on,

uh the spirit of innovation.

Maybe it's the fact that we were

invented only 250 years ago and not

900 years ago. Educational institutions

that we have. And

uh the embrace of the pioneer and the

risk-taker and all these things somehow

or other that combination of things has

produced outstanding success.

And you know,

from a standing start two and a half

half centuries ago, I would I describe

the US as having been preeminent for the

last 100 years since the end of World

War I.

And

obviously preeminent economically,

but it but not just that because we've

accomplished great things in all walks

of life. Uh and you know, um

uh the arts

and and and the sciences and and so

forth. I would not be so cavalier as to

say it's sure to continue. I would not

be such a pessimist as to say it's sure

to stop.

The odds are against

perpetuation.

You know, trees don't grow to the sky

most of the time.

But things are still going well here and

for

tell Elroy

that

who who I think of so highly

that

for

the US

to lose its exceptionalism,

some of those forces have to abate, but

also somebody else has to step forward.

Who's that going to be?

What other society

is likely

to

exude

the combination that I described earlier

of free enterprise, innovation,

incentive,

pioneering spirit, education,

etc. And so,

you know, I think we're not we may not

be as great as we were for the last 100

years. The 20th century is described as

the American century.

And I I I would not be insistent that

the 21st century will also be the

American century,

but who's going to take our place?

Well, that's very nicely expressed and

that actually leads me to one of my

points, which is about luck, because too

few people in our industry admit to

luck's vital role in their success. And

I had two questions around it. One was

how did it feature in your career? And

secondly, how do you think people help

themselves to be lucky? You know, I'm a

great believer in luck. I believe I'm

I'm I'm the luckiest person alive.

And you know, I wrote a memo entitled

Getting Lucky in January of 20

14.

Talking the first half of it talks about

how much I believe in luck and how lucky

I've been. And I describe in there uh

dozens or so ways in which I was lucky.

And I talk about, you know, the where I

was born and when I was born. I was

conceived during World War II. And and

uh if you read the Malcolm Gladwell book

Outliers, it's all about something he

calls demographic luck, which I call

right time, right place.

And and merely being in the right place

at the right time is a great advantage.

So, if you were born in World War II,

you were

conceived, you were at the front of the

line

when the world economy boomed

in the post-war period.

I I went to the public schools in

Queens, New York.

Uh not Queens Club, by the way. Queens,

New York. And um

and I got a fine education in the New

York public schools for free.

I got into Wharton, which I was told I

wouldn't get into. And on and on like

that. And then I got booted out of the

equity department at Citibank and asked

to start high yield bonds.

That was my That was my sentence in

Siberia.

And that was, you know, the greatest

luck imaginable. And then meeting my

partners over the years and starting

Oaktree 30 years ago. And then

the world deciding in the last 20 years

that that they weren't so crazy about

stocks and bonds, but they wanted to be

active in something called alternative

investments. And guess what? We were

there. Now, again, remember what I said

about private equity 15 minutes ago. My

partners and I didn't say

the world is going to crave something

other than stocks and bonds. They're

going to want something called

alternative investments. We should be

there in 2005 to supply it to them.

Rather, we had some ideas of what we

could do well and make money at and we

set about doing it and the world said,

"Okay, now we want it."

So,

uh you know,

your second question was what what can

you do?

How can you take advantage? And there's

an old one of there are many sayings

about luck, one of which is that luck is

what happens when preparation meets

opportunity.

So, for private equity, for me and high

yield bonds, for

Oaktree

with alternatives, what happened is we

were prepared

not necessarily

for the specific future that unfolded,

but we were prepared

to do a good job and then an opportunity

arose that we were ready for.

And that's the way I like to think about

success rather than some genius. I I I

wrote maybe it was in maybe it was in

Getting Lucky. I tell the story about

you know, guy walks into a pub and uh he

he walks by the dart game and as he

walks by

one of the darts players

loses

a terrible dart throw,

but as the guy walks by, he knocks the

target off the wall and as it falls, the

the dart hits the bull's-eye.

That's luck.

But I think that's the way life is.

Rather than premeditate

and prepare for brilliantly for the

outcome that obtains, I think you you

you work your ass off and you try to do

a good job and

depending on how the future unfolds, you

may be in position to benefit from it.

So, how one of the things that we in all

worlds these days, walks of life, but

particularly in the investment world, we

are bombarded with information from all

sources. It reminded me of that T.S.

Eliot poem The Rock. The line is, you

know, where is the knowledge that we've

lost in information? How do you process

so many things coming at you? I think

it's really important to know the

difference between

uh data

and information and wisdom

or insight.

And you have to accept early

that success doesn't come from knowing

everything.

It comes from knowing the things that

are important.

And you know, I grew up reading the Wall

Street Journal.

And every day in the Wall Street Journal

and especially in earning season,

um

you open the journal and there's a page

where they tabulate companies' earnings.

Sales,

earnings, EPS.

10 20 30 40 50 companies in earning

season.

And I used to look at them.

And then after a short time,

I stopped looking.

Because I said, "Just a minute.

Looking does me no good if I don't know

what was expected."

You see, a company made $20 last year

and $30 this year. You don't know if

that's good or bad.

If it was if if if people if it made 20

last year and people were expecting 20

this year, then 30's a bonanza. But if

they're expecting 40, it's a big

disappointment. So, merely reading that

they made 30 doesn't tell you a damn

thing.

Why waste your time?

So, you have to give up on knowing the

minutia

and

not think that being well-informed means

knowing all the facts.

And you have to look at, for example, uh

uh

uh Buffett and Munger.

Charlie in particular, who I was

fortunate to spend a lot of time with,

um

co- in part because we both lived in LA.

Um

he used to say, you know,

"Wisdom does not come from batting back

a bunch of facts."

And uh there's a book out called The

Warren Buffett Way.

And I I was asked to write the forward

for uh

maybe I don't know, maybe it's the

current edition or some edition. And I

wrote an article called uh

The Exception. What makes Warren Buffett

Warren Buffett?

And I I I talked about the things that

that are singular about him.

And

one of the important ones is that he

figures out which few things are

important.

And then he studies the hell out of

those.

As opposed to trying to know all the

facts.

And

usually, to to go back to Andrew Marks

and the

you know, readily available quantitative

information that's present. Usually,

those few things that are the most

important are not current data.

But they are the forces that will make

the company successful or unsuccessful

in the company. And so, it's it takes a

singular intelligent to figure out what

they are and then a singular insight to

predict what's going to happen with

regard to those few things.

But that's how you that's how you reach

success, uh not by being uh

you know,

uh an encyclopedia.

You've seen so much that one of the

things that must have surprised you will

have been the explosion of government

debt globally, but the US particularly.

It's the ultimate credit conundrum for

many of us who just kind of think, is it

just going to be monetized? How are they

going to deal with it? You know, I know

you're not in the predicting game

long-term, but what's your sense of how

a powerful country which isn't able to

run a primary balance at the moment, um

deals with this debt issue?

Well, of course, you know, the last time

we had a budget surplus was when Clinton

left office, which was around 2000.

And

now deficits

uh over the next 25 years became

routine.

And in the last several years, they

become became enormous.

The

uh

fighting the pandemic

gave rise to enormous deficit spending.

And then when it was over, people said,

"Well, what the hell, why don't we just

keep doing it?"

I don't know if they said it

consciously, but anyway, they kept doing

it. And last year we had a

deficit approaching $2 trillion in in

prosperity. Lord Keynes,

who was who was described as the

father of deficit spending,

had the idea or codified the idea that

it was okay to spend more money than

they brought in in times of sluggishness

to stimulate the economy to produce the

jobs we wanted. But then, when we had

prosperity, the company the government

should bring in more than it spent and

take the surplus and pay down the debt.

So, it was kind of circular.

Uh and the everybody likes the first

part and everybody has forgotten the

second part cuz the second part is not

fun.

And

unfortunately, politicians have figured

out that they can be more popular the

more stuff they give away. And the

and the the the politician who stands up

for austerity and says, "No, let's spend

let's apply some discipline, let's spend

what we make or less and pay down the

debt." He's He's unlikely to be returned

to office.

Um

cuz people can characterize him as a

scold. So, it's really unfortunate. It's

a failure of our leadership. Uh it's

also kind of a 21st century mentality of

uh

um instant gratification. You know, I

I'd like to have that and that and that

and that. You know, this this business

about making choices and living within

your means seems terribly old-fashioned.

So,

what what's ever going to change it?

Well, interestingly, of course,

for example,

Trump looks like he may change it.

And Trump is going around taking a an

axe to government spending.

Of course, he also wants to cut taxes.

And the blueprint for American finance,

which I think the House approved this

week, uh will reduce spending by two

trillion over the next decade, but taxes

by four and a half. So, that's not a

great step in the direction of uh

of uh

prudence or balanced budget. But on the

other hand, if if they just if they just

check the rate of growth

of the deficit and the debt.

And let's say, what if what if we get to

a place where they were running deficits

every year, but the debt grew slower

than GDP rather than faster. Most people

would probably say that would be a

really good outcome today.

And I think it's possible. So, as you

say, I'm not a futurist, I'll say it

again. And I don't have a forecast on

the subject and I don't uh

bet on it

any money of my clients or myself. And

um

I think it's the worst thing about

America today. I mentioned I'm I I read

off 15 minutes ago a list of the

advantages we have, which have made us

preeminent,

uh to use Elroy's word,

uh

I think the worst thing about it is our

profligacy, lack of discipline, appetite

for delayed gratification,

and our our deficit spending.

But, you know,

there's a chance that Trump will mark it

a turning point. And

that maybe in the future, politicians

will compete to get elected not by

promising more junk for free,

but by promising

a

uh

reasonable discipline.

Got it. There's a chance. So, three very

short, quick closing questions. Who's

the most interesting person you've ever

met?

Because he was a great investor, he was

well-versed in finance. He was a

Renaissance man, great in the arts,

civic civil civic service,

service to the country.

Um

you know, I learned a lot from him and

enjoyed his company in many uh areas.

And I was, you know, I was lucky to live

in London a third of the year from '06

to '18.

And and and uh we spent a lot of time

together.

Secondly, if you were going to give your

favorite book to a close friend, what

would the book be?

I think I would recommend uh

a book called A Short History of

Financial Euphoria by John Kenneth

Galbraith, which

uh it is a short book. I like short

books cuz I'm a very slow reader. And uh

it's about 100 pages. But it gives you

it gave me

uh a a a great feeling for the

uh

psychological fluctuations that so

dominate the market and really

influenced

me on the course toward emphasizing and

understanding of that, which has been

a rule for me over the last 30 years.

And finally, if you were only allowed,

and I know it would be deeply painful

and not correct, but only allowed to

give one piece of advice to somebody

starting in finance, what would that one

piece of advice be? Well, I would step

back and and and question whether or not

to start in finance. But what I would

say to a young person starting off in

life, there's a writer called

Christopher Morley and I love to quote

him cuz he said there's only one

success,

uh to be able to live your life your own

way.

And

what that sounds simplistic, but what it

means is

that in choosing your course, you should

not do it on the basis of the dictates

of society,

your friends,

your classmates, your mother,

or or the mere pursuit of money.

But you should figure out what will make

you really fundamentally happy.

And I don't mean in a hedonistic sense,

but fulfilled. And that's what you

should do. It's not easy because, you

know, you're doing it at age 20, you

don't know what's going to make you

fulfilled at age 60. But I would rather

try than just pursue the job that the

peer pressure pushes you toward or the

pursuit of money pushes you toward

thoughtlessly with regard to what it is

that's going to make you happy.

Well, Howard, you've been very generous

with your time. I've written down, you

know, so many things, but in essence,

anybody listening or watching this needs

to go to the Oaktree website. They need

to look at your memos, the insights,

because they are a volume of erudition.

Of the Of the many things you said, two

stay with me, perhaps because I wish, as

I said earlier, I had it brandished on

my face, which is there is no place in

our profession for certainty.

Um and secondly, I think you've

articulated it very well. You can't

predict, but you can prepare.

Um and Howard, I've read a lot of your

memos for many years, and I've listened

and learned a lot, and as I spoke to

people ahead of this interview, the

unanimity of praise and appreciation was

extraordinary, and I think your legacy

will be as one of the most influential

investors of our time. So, thank you for

everything, and thank you for being here

today. Well, it's a pleasure, and what

you said, of course, makes me very

happy. And I hope I

did leave some things

for the people who will follow based on

what I learned from the people who

preceded me.

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