Howard Marks: Oaktree Capital, Investment philosophy, Risk and Randomness
Jun 12, 2024
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Howard Marks, co-founder of Oaktree Capital and a renowned investor, shares insights from his impressive career in finance. He discusses the importance of a well-defined investment philosophy and the unpredictability of human behavior. Marks emphasizes the necessity of effective risk management, viewing it as a strategy to engage with uncertainty rather than avoid it. He also dives into contrarian investing, encouraging aspiring investors to challenge market norms and embrace mentorship. Tune in for a treasure trove of investment wisdom!
Balancing risk and consistency is crucial in investment philosophy.
Quality decisions can't be solely judged by outcomes due to randomness.
Contrarian approach in investing involves embracing dissenting opinions.
Sound risk management includes bearing calculated risks and evaluating market cycles.
Deep dives
Howard Marks' Journey into Finance
Howard Marks' foray into the finance world originated from a simple accounting course in public school in New York, where he discovered a passion for the symmetry and logical nature of accounting. This love for symmetry drove him to venture into finance, where he found a balance between risk and consistency.
Investment Philosophy of Oaktree's Founder
Marks' investment philosophy, shared by Oaktree, centers around six key principles. These include paramount importance on risk control to navigate market fluctuations, consistency in results, targeting less efficient markets, embracing a high degree of specialization, avoiding reliance on macro forecasting, and steering clear of market timing. This philosophy has evolved over time, with increased conviction in concepts like market efficiency and the limitations of macro forecasting.
Limits on Knowledge and Decision Quality
Marks emphasizes the presence of randomness in business and investing, highlighting that good decisions may not always lead to success and vice versa. He underlines the importance of understanding that quality decisions cannot be solely judged by outcomes, citing the unpredictability stemming from human behavior as a critical factor. This recognition of uncertainty prompts a more profound evaluation of decision-making processes.
Contrarian Approach and Risk Management
Marks advocates for a contrarian investment approach, strategically diverging from consensus beliefs to identify profitable opportunities. He underscores the significance of being comfortable with dissenting opinions and maintaining analytical rigor in assessing risks and rewards. Sound risk management, according to Marks, involves intelligently bearing calculated risks while being mindful of probabilistic outcomes and the need for continuous evaluation of market cycles.
The Intersection of Games and Investing
Marks draws parallels between strategic decision-making in card games and investing, emphasizing the role of risk-taking and probabilistic thinking in both domains. He highlights the value of assessing probabilities, structuring bets based on advantages, and navigating uncertainties inherent in investment environments. Additionally, he stresses the necessity for investors to embrace contrarian viewpoints, perceive market cycles, and practice sound risk management to achieve long-term success.
Guidance for Aspiring Investors
In advising young individuals pursuing a career in finance, Marks accentuates the importance of embracing the uncertainties and complexities inherent in investing. He cautions against the need for constant correctness, advocating for a philosophical readiness to accept the inevitable ups and downs of the financial landscape. Marks suggests immersing oneself in an apprenticeship under experienced mentors to understand the multifaceted layers of investment puzzles and develop a robust investment philosophy.
Conclusion
Howard Marks' seasoned insights underscore the essence of risk control, probabilistic thinking, contrarian approaches, and continual learning in the realm of finance. His journey into finance, coupled with Oaktree's investment principles, reflects a strategic balance between calculated risks and consistent performance. By embracing the interplay of randomness, decision quality, and contrarian thinking, Marks offers invaluable guidance to aspiring investors navigating the dynamic landscape of financial markets.
How can you judge the quality of a decision? Howard Marks is the co-founder of Oaktree Capital and one of the world's most respected investors. In this episode he tells us about how he got started in finance, his investment philosophy, his thoughts on risk management and much more. Tune in for an insightful conversation with one of the greatest minds in the world of finance.
In Good Company is hosted by Nicolai Tangen, CEO of Norges Bank Investment Management. New episode out every Wednesday.
The production team for this episode includes PLAN-B's Pål Huuse and Niklas Figenschau Johansen. Background research was conducted by Kristian Haga.
