In this episode of "Acquired," hosts Ben Gilbert and David Rosenthal engage in a rich dialogue with legendary value investor Howard Marks of Oaktree Capital Management and his son, Andrew Marks of TQ Ventures. They delve into the contrasting investment philosophies of traditional value investing and modern growth-oriented tech investing. Howard, known for his influential investment memos and books, and Andrew, a proponent of early-stage venture investing, discuss the nuances of knowing when to sell, the importance of founder judgment in startups, and the evolution of markets. Their conversation highlights the key to successful investing—understanding the intrinsic value and future potential of businesses, while also considering the timing and opportunity cost of investments. The episode also touches on the significance of crafting a firm culture that aligns with personal strengths and the dynamic of working within a family business in the investment world.
"Today we have two guests with very different investment styles, a value investor and a growth oriented tech investor, head to head."
This quote sets the stage for the episode's focus on contrasting investment philosophies and the dialogue between Howard and Andrew Marks.
"Andrew. I think you have a bright future in technology."
Ben Gilbert acknowledges Andrew's aptitude for technology, hinting at his future success in the field.
"Welcome to this special episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them."
Ben Gilbert introduces the podcast's theme, emphasizing the exploration of successful technology companies and the strategies behind their achievements.
"We are joined today by the legendary value investor Howard Marks, the co founder of Oaktree Capital Management, and his son, Andrew Marks, the cofounder of TQ Ventures."
The introduction highlights the guests' credentials and the significance of their presence on the podcast.
"Howard's memos and books are among the most coveted in the entire investing landscape. Even Warren Buffett is quoted in saying, when I see memos from Howard marks in my mail, they're the first thing I open and read."
This quote emphasizes the high regard in which Howard Marks' memos are held within the investment community.
"Pilot is the one team for all of your company's accounting, tax and bookkeeping needs, and in fact, now is the largest startup focused accounting firm in the US."
The quote introduces Pilot and its role as a comprehensive accounting service provider for startups, emphasizing its growth and importance.
"Andrew and Howard co authored one of Howard's famous memos together in a departure for Howard, where they were debating over Covid together as a family, as father and son, value investing versus growth investing and tech investing and what was going on in the markets."
This quote explains the context in which the "Something of Value" memo was written, highlighting the unique father-son collaboration.
"I started off being a value investor, first parroting my dad, as all little kids do, and then I got, fortunately, into the Buffett letters really young, and so turned into a huge Buffett nerd and all the things that come with that."
Andrew Marks describes his early investment influences and the evolution of his investment philosophy from value to growth.
"Amazon's a great example of the opposite, because you could have never dreamed that if you owned Amazon when the story was about growing as a retailer, you could have never dreamed of AWS."
Andrew Marks uses Amazon as an example to illustrate the unpredictability and potential of growth investing, especially when led by visionary founders.
"I'm a recovered equity investor. I was in the equity research department of Citibank from 69 to 78. And then I left. And in the credit field, where I've spent the last 44 years, we historically have not had contact with what you would call a tech company."
Howard Marks reflects on his career shift from equity research to credit investing, highlighting the different investment focus and his long-term experience in the field.
"The concept of disruption was never considered. The moats were considered inviolate." "If Xerox priced their copies at $0.30 apiece, somebody from abroad could produce it."
The quotes highlight that there was a time when the concept of disruption was not part of the business mindset, and companies with strong market positions ("moats") were considered safe. The example of Xerox shows how foreign competition could disrupt a market by offering lower prices.
"You have to think about the future potential of the company." "All investments in equities are worth a discounted value of their future cash flows from here to eternity."
These quotes emphasize the importance of considering a company's future potential in investment decisions and the fundamental concept that equity investments are valued based on the present value of future cash flows.
"The newspapers... because you had your newspaper, you didn't have to worry about competition from the newspaper in the town next door."
This quote reflects the past dominance of newspapers, which were seen as secure investments due to their local monopolies and the essential nature of their service to both readers and advertisers.
"There are very few businesses that idiots can run these days." "With the Internet, you can address global markets."
These quotes highlight the complexity of modern business and the vast opportunities presented by the internet, which allows companies to expand their reach far beyond traditional geographic limitations.
"If you have competitive advantages and you continue to mine those advantages... there's much more value creation to be had."
The quote underscores the importance of leveraging competitive advantages for value creation and the potential for successful companies to expand and dominate in their markets.
"Take Darwinism and turn up the knob a few clicks. It's what it is. It's winners and losers, maybe more dramatic than ever and happening faster than ever."
This quote draws a parallel between business disruption and Darwinism, suggesting that the pace of change and the consequences of failing to adapt are more severe than in the past.
"You have to have an advantage, a knowledge advantage, a skill advantage, if you're going to be one of the people who ends up on the positive side of that equation."
The quote emphasizes the need for investors to have some form of advantage, whether in knowledge or skill, to succeed in a market where information is widely accessible.
"I like being an optimist, and I like thinking about, well, what could this be if it works?"
This quote reflects the speaker's personal investment philosophy and preference for venture capital, which aligns with an optimistic outlook and a focus on the potential success of a business.
"roduct teams ship faster, automate a b testing, and see the impact every feature is having on the core business metrics. The tool gives visualizations backed by a powerful stats engine, unlocking real time product observability."
This quote explains the core functionality of Statsig, highlighting its ability to enhance productivity and decision-making for product teams.
"Customers include notion, Brex, OpenAI, Flipkart, Figma, Microsoft and Cruise Automation."
This quote lists some of Statsig's prominent customers, indicating the platform's wide acceptance and versatility in the market.
"So we had a big tailwind. And what Bruce and I did for the most part, is create a culture."
Howard Marks emphasizes the impact of market conditions and firm culture on Oaktree's success.
"But the great news is we each accepted the truth of what I just said. And so that produces a lot of respect, mutual respect."
This quote from Howard Marks highlights the mutual respect and recognition of each partner's strengths as a foundation for their long-standing partnership.
"And it's not because other approaches aren't also extremely valid or work for other people. It's just that this is what motivates us."
Andrew Marks explains that their firm's approach is tailored to their personal motivations and strengths, rather than a reaction to other strategies.
"I think at some point you just sort of do what suits you."
Andrew Marks discusses the importance of aligning public engagement with personal preferences and the nature of the business.
"But the few who can can really help their clients."
Howard Marks points out that only a select few investors are able to make accurate qualitative judgments about the future, which is critical for client success.
"But with startups, there's not much of a map."
Andrew Marks discusses the uniqueness of startups and the necessity for founders to think independently and have strong convictions.
"The path to exceptionality cannot come through doing what everybody else does."
Howard Marks emphasizes the need for investors to be different and idiosyncratic to achieve exceptional results.
"And I just think it takes exceptional people who can exhibit exceptional judgment, who can attract and retain other exceptional people, and all the things that go into being a great founder to build those sorts of things."
This quote emphasizes the importance of having a team of outstanding individuals who can navigate the complexities of establishing and growing a successful company. It highlights the challenges of competition and the need for exceptional leadership.
"Crusoe's data centers are nothing but racks and racks of a. Because Crusoe's cloud is purpose built for AI and run on wasted, stranded, or clean energy, they can provide significantly better performance per dollar than traditional cloud providers."
This quote describes Crusoe's specialized infrastructure and its efficient use of energy, which not only provides cost benefits but also has a positive environmental impact.
"So they proposed to offer a fair price to take out the public. That's half, and to buy a fifth of our half. So they started with just over 60%."
Howard Marks explains the specifics of the transaction with Brookfield, which was structured to benefit both parties and maintain Oaktree's operational independence.
"What I said in the memo, selling out half facetiously, but only half, is that there are two reasons people sell things. Because they're up and because they're down."
Howard Marks discusses the common, yet flawed, reasons behind selling investments, which often are driven by emotional reactions rather than strategic thinking.
"You shouldn't just let price action alone determine what you should do."
Andrew Marks advises that selling decisions should not be solely influenced by price fluctuations but should be based on a comprehensive understanding of the investment's intrinsic value and potential.
"I don't care if I'm in the top 5% in any given year. I'm absolutely unwilling to be in the bottom 5%."
Howard Marks expresses his investment philosophy, emphasizing the importance of consistency and risk aversion over chasing top performance at the expense of potential significant losses.
"But this one, of course, the tech bubble crapped out in mid 2000. And so I like to say that after ten years, I became an overnight success."
This quote recounts how Howard Marks' memo on the tech bubble garnered attention due to its timely and accurate analysis, leading to increased recognition of his work.
"The truly generational companies, the truly monstrous companies are extremely few and far between. But when you have them, selling them early is just a colossal mistake."
Andrew Marks highlights the importance of recognizing and retaining investments in companies that have the potential to be transformative and generational, as their value can be immense over time.
"These things are also available in podcast form under something called the memo. Originally enough, in any podcast player."
Howard Marks provides information on where listeners can access his memos in both written and audio formats, emphasizing the accessibility and value of his insights.