Howard Marks

Who

Howard Marks spent the early part of his career at Citicorp and TCW, where he moved into high-yield bonds and distressed debt. In 1995 he co-founded Oaktree Capital Management, which became one of the largest investors in those markets. Since 1990 he has written memos to his clients, and Warren Buffett has said they are the first thing he opens when they arrive. He has also written The Most Important Thing and Mastering the Market Cycle.

Operating rules

Think one level deeper than the crowd. First-level thinking says a good company is a good investment. Second-level thinking asks what everyone already believes, and what that belief has done to the price.

You can’t predict, but you can prepare. He does not claim to know what markets will do next. He tries to know where we are: whether investors are greedy or fearful, careless or cautious. Then he positions for a range of outcomes rather than one forecast.

Risk is the chance of permanent loss. Price swings are not the real danger. The real danger is losing money you never get back, usually because you paid too much or borrowed too much.

Fish where the market is inefficient. He built his career in corners of the market that many investors avoided. That is where careful analysis still gets paid.

What I borrowed

My barbell, mostly broad index funds plus a small satellite, is my answer to his point that you cannot predict but you can prepare. The core is built to survive futures I didn’t see coming. I also took his memo habit. Writing bottom line up front is how I find out what I actually think.

What I won’t copy

His trade. Distressed debt rewards deep work on contracts and companies that I don’t have the time or edge to do. I take the temperament, not the strategy.