RWH063: Avoid Disaster w/ Howard Marks
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
Howard Marks, co-founder and chairman of Oaktree Capital Management, shares profound insights on investing and life in this episode celebrating Oaktree's 30th anniversary and 35 years of his legendary memos. Throughout the conversation, Marks emphasizes the power of "steady excellence" over spectacular returns, drawing from his career managing $218 billion in assets. (02:46) He explores core principles like risk management, market cycles, and the importance of avoiding losers rather than just picking winners. The discussion also touches on current market conditions, comparing today's AI enthusiasm to the dot-com bubble, and offers wisdom on maintaining balance between professional success and personal fulfillment.
- Main themes: The philosophy of avoiding losers over picking winners, the importance of understanding market cycles, maintaining balance between aggressiveness and defensiveness in investing, and living a life aligned with personal values while achieving professional excellence.
Speakers
Howard Marks
Howard Marks is the co-founder and co-chairman of Oaktree Capital Management, which he established in 1995 and has grown into a global powerhouse managing $218 billion in assets. Over his 56-year career, he has become one of the most respected voices in investing, writing influential memos for 35 years that have attracted over 300,000 subscribers. He is the author of "The Most Important Thing" and "Mastering the Market Cycle," and is widely regarded as one of the premier investment thinkers of our time.
William Green
William Green is the host of the Richer, Wiser, Happier podcast and author of the acclaimed book "Richer, Wiser, Happier." He has spent decades interviewing the world's greatest investors and exploring how to achieve success in both markets and life. His work focuses on distilling the wisdom of master investors into actionable insights for ambitious professionals.
Key Takeaways
Focus on Avoiding Losers Rather Than Picking Winners
Marks' foundational philosophy stems from a 1990 dinner where he learned about a pension fund that stayed consistently in the second quartile but ended up in the fourth percentile overall. (02:15) This taught him that "if you can avoid the losers, the winners will take care of themselves." The strategy emphasizes risk-conscious investing over spectacular gains. In bond investing particularly, this becomes what Graham and Dodd called a "negative art" - your performance improves not by what you buy, but by what you exclude. This approach requires disciplined analysis to identify and avoid potentially problematic investments rather than swinging for the fences with high-risk, high-reward plays.
Understand Your Risk Posture and Stick to It
Every investor should determine their appropriate risk posture on a scale from 0 to 100, considering factors like age, wealth, income, dependents, aspirations, and intestinal fortitude. (13:33) Marks emphasizes that this isn't a one-size-fits-all calculation - a young professional with few dependents might operate at an 80-85 risk level, while someone closer to retirement should be more conservative. The key is making this a conscious decision rather than drifting into a risk level by default. Once established, investors can then decide whether to maintain that posture consistently or tactically adjust based on market opportunities, but always with their baseline risk tolerance as an anchor.
Wait for Compelling Market Opportunities
Marks has made only five major market calls in 50 years, demonstrating the importance of patience and selectivity. (21:23) These calls weren't based on predictions but on observations of extreme investor behavior and market conditions. As his son noted, "you did it five times in fifty years" - emphasizing that successful market timing requires waiting for truly compelling opportunities rather than trying to be active constantly. The key is assessing whether people around you are behaving with extreme euphoria or depression, as these emotional extremes often create the best opportunities for contrarian positioning.
Specialize in Inefficient Markets
Success in investing requires developing a knowledge advantage, which often comes from focusing on less efficient markets where information isn't evenly distributed. (37:57) Marks found success in high yield bonds when they were called "junk bonds" and most institutions wouldn't touch them. The principle is simple: you can't expect to win in highly efficient markets where everyone has access to the same information and analytical tools. Instead, look for areas where hard work, specialized knowledge, and contrarian thinking can provide a genuine edge. This might mean avoiding the most popular investment themes and instead focusing on areas that are reputationally or politically unattractive.
Maintain Balance Between Professional Excellence and Personal Life
Marks has consistently emphasized the importance of having a balanced life, spending thousands of hours playing backgammon and tennis while building one of the world's most successful investment firms. (80:33) He quotes Christopher Morley: "There is only one success - to be able to live your life in your own way." The challenge is figuring out what "your way" truly is, especially early in your career. Marks advocates against pursuing money and prestige simply because others glorify it, instead encouraging conscious choices about what will make you happy at 70. This requires honest self-assessment and the courage to potentially choose a different path than societal expectations.
Statistics & Facts
- Oaktree Capital Management has grown to $218 billion in assets under management with over 1,400 employees globally since its founding in 1995. (00:46)
- Howard Marks has written investment memos for 35 years, attracting more than 300,000 subscribers to his insights on market trends and investment philosophy. (01:01)
- A pension fund that stayed between the 27th and 47th percentiles for 14 consecutive years ended up in the 4th percentile overall, demonstrating the power of consistent performance over spectacular gains. (02:15)
