In this episode, Harry, the host, is joined by Howard Marks, the co-chairman and co-founder of Oaktree Capital Management, to discuss Marks' influential role in Harry's passion for investing and his impressive career trajectory from Citicorp to creating Oaktree, a firm managing over $120 billion in assets. Marks, also an author and a respected figure in the investment community, shares his insights on the importance of understanding market cycles, the value of contrarian thinking, and the necessity of intellectual humility in investing. He reflects on Oaktree's countercyclical, cautious approach, the significance of experience in navigating booms and busts, and the firm's recent transaction with Brookfield. Marks emphasizes the culture of open dialogue and mutual respect at Oaktree, which fosters an environment where diverse opinions and productive disagreements are encouraged. He also touches on the unpredictability of markets, the role of luck in his career, and his ongoing motivation derived from a genuine love for the work.
"So I'm often asked, Harry, how did you find your love of investing in financial markets so early in life? And the truth is, my guest today is largely responsible for a lot of it."
The quote highlights the influence Howard Marks had on Harry's interest in investing from a young age.
"Howard Marks, co chairman and cofounder of Oaktree Capital Management, a leading investment firm with more than $120,000,000,000 in assets."
This quote provides a brief overview of Howard Marks' professional background and his role at Oaktree Capital Management.
"But before we dive into the show today, I doubt you started a business to track financial statements or make cash flow spreadsheets."
This quote introduces a sponsored segment promoting Pilot's bookkeeping services.
"And man, we do a lot on the Internet today. That means remembering and typing lots of passwords, payments and personal information."
This quote introduces Dashlane as a solution to managing online information securely.
"And instead, I started work at Citibank in the investment research department."
This quote explains the beginning of Howard's career in finance, which was not his original plan.
"And I wrote a memo about luck. And I said in that memo that if it wasn't for that little bit of bad luck, I could have spent 40 years at Lehman Brothers and had nothing to show of it."
This quote illustrates how what seemed like bad luck at the time played a crucial role in Howard's successful career.
"You know, I firmly do not believe in forecasts. And if you look back at that quote, knowing where we are in the cycle, which I think we roughly can do, says nothing about forecasts."
This quote emphasizes Howard's belief that while we can have a sense of where we are in a market cycle, it does not allow us to predict future events accurately.
"And it's really important to not think we know what's going to happen. Having said that, where we are in the cycle tells us something about the probability distribution of future developments."
This quote emphasizes the importance of acknowledging uncertainty in predicting market movements, while also recognizing that the cycle stage can inform us about potential future trends.
"And I think if we are at an above average position and a late stage in the cycle, I think what it says is that the probability distribution is negatively skewed, we are more likely to have a decline than a rise."
Here, the speaker is discussing the implications of being at a late stage in the economic cycle, suggesting a greater chance of a market downturn.
"There is no the time. This is a time. There may be several, and we never know when it's the top or the bottom."
This quote challenges the notion of a single optimal investment time, suggesting that there are multiple opportunities and uncertainties in timing the market.
"I think it's a better time to decrease risk for the reasons that I've been discussing."
The speaker suggests that current market conditions warrant a reduction in investment risk, based on the analysis of economic indicators and investor behavior.
"So you make the big money as an investor for taking risk when others won't."
This quote highlights the potential for significant gains by investing during times of high market aversion to risk, which can lead to better bargains.
"It's in scary times that you get the best bargains, because there is so little optimism in prices."
The speaker points out that market downturns and fear can create opportunities for investors to acquire assets at lower prices due to a lack of optimism.
"Experience is what you got when you didn't get what you wanted."
The speaker reflects on the value of experience, particularly from challenging situations, as a learning tool for investors.
"The less prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own affairs."
This quote, attributed to Warren Buffett, advises on the importance of cautiousness in investment when others are being reckless.
"If you engage in conventional behavior, that is, you follow the crowd. If good things happen, you'll have good, conventional performance. And if bad things happen, you'll have bad, conventional performance."
The speaker explains that following the crowd results in average outcomes, which do not distinguish an investor's performance from the norm.
"If you want to be an above average performer, by definition, you can't engage in conventional behavior."
This quote emphasizes the necessity of diverging from the norm in order to achieve exceptional results. It is a foundational concept for those aiming for high performance in their fields.
"I think that our relationship is characterized by affection for each other, but importantly by mutual respect."
Howard Marks describes the core qualities that define his successful partnership with Bruce Karsh, highlighting the importance of mutual respect and affection in their working relationship.
"Neither of us is afraid to admit doubt about our opinion."
Howard Marks explains how he and his partner Bruce Karsh maintain a healthy dynamic by being open to questioning their own opinions, thereby fostering a culture of intellectual humility.
"Everybody who works here understands the working environment... everybody's safe to say what they think."
Howard Marks discusses how Oak Tree's culture encourages all employees to express their opinions without fear of retribution, which is integral to fostering a collaborative and open work environment.
"Brookfield now owns 61% of Oaktree. We're working together very harmoniously."
Howard Marks details the successful acquisition of a majority stake in Oaktree by Brookfield and how the two companies operate in a collaborative manner due to their aligned cultures and values.
"Own 60% of Oaktree. All they want to do is make us successful."
This quote highlights the nature of Brookfield's ownership of Oaktree, emphasizing their interest in the success of Oaktree rather than asserting dominance or competition.
"Probably fooled by randomness by Taleb. I think that his ideas about the randomness of the investors environment and as a consequence, the fact that short term performance says rather little about merit."
The quote explains why Howard Marks values Taleb's "Fooled by Randomness," particularly for its perspective on how randomness affects the investment environment and the interpretation of short-term performance.
"It's only work if you'd rather be doing something else. And there's really nothing I'd rather be doing."
This quote, originally from Bill Graham, is used by Howard Marks to express his love for his work, suggesting that he does not consider it work because he enjoys it so much.
"In investing, it is the fact that what the wise man does in the beginning, the fool does in the end."
This quote encapsulates Marks' investment philosophy, which emphasizes the importance of timing and foresight in making successful investment decisions.
"To operate cautiously in a pro risk environment isn't fun."
Marks expresses the difficulty of maintaining a cautious investment strategy during a market period that rewarded higher risk-taking.
"I think that our greatest accomplishment was to turn cautious at the right times and then aggressive in the meltdowns."
This quote reflects on Oaktree's strategic decisions during market cycles and Marks' retrospective wish that they had taken on more risk during less volatile times.
"We're going to continue to keep the risk off and prepare for the next downturn."
Howard Marks outlines Oaktree's future strategy, emphasizing risk management and preparation for potential market distress.
"As I said, that just so surreal for me to have Howard on the show, such a huge fan of all his incredible work."
Harry conveys his excitement and respect for having Howard Marks on the podcast, highlighting the impact of Marks' work on his own life.