Howard Marks
Howard Marks
Background:
Co-founder and co-chairman of Oaktree Capital Management, the largest investor in distressed securities worldwide.
According to Warren Buffett, "When I see memos from Howard Marks in my mail, they're the first thing I open and read. I always learn something, and that goes double for his book."
Marks believes that it is hard to gain an investment advantage through research since so many smart people are doing it already, the ways to get an advantage are through better inferring the consequences implied by current company data, managing the psychology of investing, and assessing the present stage of the business/market cycle.
From 1978 to 1985, he worked at Citi as a Vice President and a senior portfolio manager in convertible and high-yield debt.
Notes from his interview:
His reply to how he predicted the crisis even though he doesn’t believe in forecasts “It’s hard to predict the future, but it’s not hard to predict the conditions in the present.”
His analysis on the 2008 recession: All the investment firms were going bankrupt one after another like dominos. “There was a belief that the whole financial system was gonna melt down. Either it was gonna melt down or it was not. If it melts down, it doesn’t matter whether we bought any stocks or not because it’s game over for everything. But if it doesn’t melt down, and we didn’t buy, then we didn’t do our job so let’s buy.”
“History doesn’t repeat but it often rhymes.”
“Success in investing doesn’t come from buying good things, but from buying things well.”
“If it was true that every overpriced market reverts and becomes fairly priced, then we would never have bubbles”.
“In investing emotion is your enemy you either have to be unemotional or act unemotional”. Because when a stock reaches an all time low people sell their shares instead of buying more and when it reaches an all time high people buy more shares instead of shorting positions.
“A battle field here isn’t somebody who is unafraid, its about somebody who is afraid but does it anyway”.
Tomorrows winners are usually found on the pile of today’s loser not on the pile of today’s winners so you have to take idiotic positions.
In investing its really easy to be average you can just buy an index fund. It’s really hard to be above average. But if you want to be above average, everything you do, in the interest of being above average exposes you to the risk of being below average.
If you want to be in the top 5% of money managers you have to be willing to be in the bottom 5%.
Risks can’t be quantified even after the fact. For example you buy something for $1 and sell it the next year for $2 was it risky? You can’t tell. Was it a crazy thing where you got lucky and doubled your money? Or was it a really clever thing that nobody else had figured out and you were sure to double your money? You can’t tell.
Success teaches a horrible lesson because it plays with our egos. What do you learn from success? It’s easy, I can do it, I can do it again, I can do it with more money, I can do it alone not with a team.
The way he talks:
Very informal
Says every word slowly and clearly
Talks likes he is talking to his close friends and just explaining them his opinions
A lot of hand movements in his talks
Doesn’t make eye contact with the person he is talking to
Never smiles or laughs but sounds very friendly
What I learned:
He talked a lot about never trusting forecasts however I already knew those and it was a good refresh for my memory and thought process. As he said, the best way to predict the future is by analysing the past and the current. He said this quote “history never repeats but it rhymes”. I believe what he means from this is that even though there isn’t a definitive way of predicting the future, you can get clues from the past. One example that I can think of is the 2008 crisis and now. Nobody knows if a crisis happens it will have the same impacts and affects as the last crisis or not but it will still rhyme. For example based on the past we can tell that hedge funds might go bankrupt but the number of them won’t be the same. Or we can tell that stocks will drop in price but we won’t know by how much. I will be implementing this in my stock reports by not just seeing how other companies in the field are doing, but by also thinking about how it will never be the exact same for the company i’m doing research on and only a small problem of them could be rhymed.
Something else that I learned was how if you want to be a successful investor, success doesn’t come from buying good things but from buying things well. For example Enphase right now is a very good and stable company however, I believe it’s too late to buy their stock as it is already at around $300 and I don’t see it going much higher. A few months ago however, even though Enphase wasn’t as big or profitable as it is now, their stock price was only at $150 so buying it would have been a good investment. Right now Enphase is a good thing but it wouldn’t be a well buy due to their stock price. The way I will be implementing this into my research would be asking myself questions like how fairly priced is their stock right now? Even though they are a great company and have had huge improvements will these improvements continue over time or will it plateu? What does the economy look like right now is there a chance of the stocks in this field dropping in price or will they continue going up?
When you are investing, you have to act unemotional. This has personally happened to me many times as I closed the position to early and missed out on a much higher profit. For example sometimes I would close the position as soon as the markets opened or I would set a stop loss that was too high and would get turned on early. As he also says, a battle field here isn’t about somebody who is unafraid, its about somebody who is afraid but does it anyway. I will be implementing this by completely forgetting about the loss or profit I am having on the stock right now and asking myself questions like if I didn’t have any positions open right now would I long or short this stock? Based on their report do I think they should be going higher than what they are at right now or lower? Could this be another short squeeze or is there a genuine reason behind this price drop?
He also talks about how tomorrow’s winners are usually found on the pile of today’s loser not on the pile of today’s winners so you have to take idiotic positions. I fully agree with this as today’s winners are stock that have already won so there isn’t much more you can be expecting from them. But these same winners were once undervalued stocks nobody believed in which was also the best time to buy. Enphase can also be another example of this as in my opinion they already are winners and have reached their full potential as compared to four years ago, when their stock was only around $10 and were considered as losers in the solar energy industry. I will be implementing this by measuring the potential of the stocks I will be investing in first. For example one stock that I wanted to own was CSX which are the biggest railway owners in USA. But now that I’m thinking about it, if i decided to put this money into another company that is just starting out and I truly believe in, it could be a much better trade. CSX almost has no competition and they already are the largest in the industry so what it the point of investing into a company that has already climbed its way up the ladder and already is at the top?
Lastly, one of the most important things I learned was how successful teaches bad lessons and only feeds our egos. This especially relates to me as whenever I had a couple good predictions in a row I would think that I’m doing everything correctly and therefore start slacking and being less productive and doing less research. The most important lessons I learned were from my failures and those were the things that pushed me to improve myself. Even though you can still learn good lessons from your success, you have to make sure it doesn’t feed your ego and only use it to make yourself better for next time.