Value Investing with Legends Howard Marks - Successful Investing Through Buying Things Well
From Accounting To Chicago
- Howard Marks loved accounting's symmetry and got into Wharton as a result.
- Graduate studies at Chicago introduced him to quantitative finance that complemented Wharton.
Research Director Was A Low Point
- Howard Marks called running research at Citibank the low point of his life.
- He disliked committee-heavy work and shallow, two-sentence coverage of 400 companies.
Markets Become More Efficient Over Time
- Howard defines 'efficientization' as a long-term trend where markets become more efficient over time.
- He warns this trend shrinks persistent mispricings, raising the bar for finding edges.
The most successful investors combine a profound analytical understanding of financial markets and the economy at large with the ability to act on those ideas. My guest today has these two attributes in spades.
Today’s conversation is with Howard Marks, the Co-Founder and Co-Chairman of Oaktree Capital Management, which is one of the largest credit investors in the world and certainly the largest investor in distressed securities. Howard started his career at Citicorp as an equity research analyst and then Director of Research, Vice President, and Senior Portfolio Manager overseeing convertible and high yield debt. After leaving Citicorp, he moved to The TCW Group, where once again, he was responsible for investments in distressed debt, high yield bonds, and convertible securities. In 1995 he and another group of partners from TCW founded Oaktree, where he remains today.
Howard is known for his penetrating mind and his memos are a must-read for any serious student of the market and I can’t think of anyone better than him to discuss the many complexities of markets and the economy of today.
On this episode, Howard and I discuss how he ended up in the high yields space, why running research at Citicorp was a low point in his career, the concept of “efficientization”, why Graham and Dodd called bond investing a negative art, why complexity and early adoption are your friends, the dominant challenge for investors today, Howard’s prolific writing, and so much more!
Key Topics:
- Howard’s early life from working adding machines in an accounting office to studying finance at university (3:30)
- How Howard ended up working at Citicorp for his first job out of school (5:39)
- Why running research at Citicorp was an extremely unsatisfactory role for Howard (7:25)
- Howard’s involuntary transition from analyst into the high yield space (9:01)
- The big difference between the market being efficient and being right (11:37)
- The concept of “efficientization” (13:14)
- Two main causes of mistakes in the market? (14:04)
- Howard’s holy grail in investing (15:12)
- Why Howard doesn’t use macro forecasting in his decision making (17:24)
- The dawn of the high yield bond era (18:55)
- Different approaches to the analysis of equities versus high yield bonds (20:07)
- Why Graham and Dodd called bond investing a negative art (21:03)
- Howard’s early days at The TCW Group (23:18)
- Complexity and early adoption as an investor’s friends (24:53)
- Why you must work at a firm that is in alignment with your investment philosophy (28:05)
- Howard’s love for writing (31:49)
- Using memos to shape the company culture (33:30)
- Why you should analyze your winners (34:47)
- The “I know” school versus the “I don’t know” school (36:01)
- The dominant challenge for investors today (38:46)
- What Howard thinks is behind consistently low yields (42:13)
- What surprises me about the politics of populism and financial markets (46:43)
- The rise of populism as a response to the shifting beliefs of the working class (48:16)
- And much more!
Mentioned in this Episode:
- Oaktree Capital Management
- Memos from Howard Marks
- Howard Marks’ Book | The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor
- Benjamin Graham & David Dodd’s Book | Security Analysis
- Howard Marks’ Memos:
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