Howard Marks — How to Invest with Clear Thinking (#338)

17 Comments

Photo by Peter Murphy

“It’s not what you buy. It’s what you pay.”
— Howard Marks

Howard Marks (@howardmarksbook) is co-chairman and co-founder of Oaktree Capital Management, a leading investment firm with more than $120 billion in assets. He is the author of the new book Mastering the Market Cycle: Getting the Odds on Your Side, and his previous book on investing, The Most Important Thing: Uncommon Sense for the Thoughtful Investor, was a critically acclaimed bestseller. Warren Buffett has written of Howard Marks: “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something.” Marks holds a B.S.Ec. degree from the Wharton School of the University of Pennsylvania with a major in finance and an M.B.A. in accounting and marketing from the University of Chicago.

In this conversation, we discuss:

  • How his firm was poised to capitalize on the bubble in 2008 and put massive amounts of capital to work.
  • His thoughts on understanding market cycles for making better decisions.
  • The three stages of a bull market.
  • Newsletters he reads.
  • Thoughts on Bitcoin and cryptocurrencies.
  • Much, much more…

Studying what Howard says transcends the world of investing—it’s really a study in clearer thinking. I hope you enjoy and learn as much as I did!

Want to hear another conversation with an investor whose thoughts transcend finances? — Check out my interview with Adam Robinson, who was mentored in chess as a teenager by Bobby Fischer and is now a global macro advisor to the world’s most successful hedge funds and family offices. (Stream below or right-click here to download.)

#219: Lessons from Warren Buffett, Bobby Fischer, and Other Outliers
Download


This episode is brought to you by Inktel. Ever since I wrote The 4-Hour Workweek, I’ve been frequently asked about how I choose to delegate tasks. At the root of many of my decisions is a simple question: “How can I invest money to improve my quality of life?” Or “how can I spend moderate money to save significant time?”

Inktel is one of those investments. They are a turnkey solution for all of your customer care needs. Their team answers more than 1 million customer service requests each year. They can also interact with your customers across all platforms, including email, phone, social media, text, and chat.

Inktel removes the logistics and headache of customer communication, allowing you to grow your business by focusing on your strengths. And as a listener of this podcast, you can get up to $10,000 off your start-up fees and costs waived by visiting inktel.com/tim

This podcast is also brought to you by Helix Sleep. I recently moved into a new home and needed new beds, and I purchased mattresses from Helix Sleep.

It offers mattresses personalized to your preferences and sleeping style — without costing thousands of dollars. Visit Helixsleep.com/TIM and take the simple 2-3 minute sleep quiz to get started, and they’ll will match your sleep preferences to a mattress you’ll love.

Its customer service makes all the difference. The mattress arrives within a week, and the shipping is completely free. You can try the mattress for 100 nights, and if you’re not happy, they’ll pick it up and offer a full refund. To personalize your sleep experience, visit Helixsleep.com/TIM and you’ll receive up to $125 off your custom mattress.


QUESTION(S) OF THE DAY: What was your favorite quote or lesson from this episode? Please let me know in the comments.

Scroll below for links and show notes…

SELECTED LINKS FROM THE EPISODE

  • Connect with Howard Marks:

Website | Oaktree Capital Management | Twitter | LinkedIn | Facebook

SHOW NOTES

  • We kick things off with an A.E. Housman poem. [05:49]
  • What is mujō, and how did it become a part of Howard’s life philosophy? [06:53]
  • According to Howard (and a prominent insurance company): you can’t predict, but you can do this. [09:22]
  • In what ways did Howard’s company prepare for 2008’s bubble to burst when a lot of others were pulling out of the market, and how did he reassure investors eager for a return to take the long view? [11:09]
  • How does someone get the odds on their side, and what did it take to get Howard to turn 20 years of memos into a book? [14:40]
  • Most of us are essentially cautious or essentially aggressive. Is either bias particularly good for choosing when to invest? [18:13]
  • Is it possible to develop stoic resilience in the face of a mercilessly fluctuating market, or is this something with which one is born? [23:06]
  • Howard talks about the synergy of his 31-year partnership with Bruce Karsh and what each brings to the table. [24:35]
  • To what does Howard credit the fact that there have never been any serious arguments over the span of this 31-year partnership? [32:14]
  • Is there a secret formula to getting along with business partners through emotionally trying times? [33:03]
  • How might someone vet a potential partner as a good fit before going into business with them? [34:56]
  • Howard elaborates on why, in addition to an opinion regarding what’s going to happen, people should have a view on the likelihood that their opinion will prove correct. [37:37]
  • According to Henry “Dr. Doom” Kaufman, it’s these two kinds of people who lose a lot of money. [42:36]
  • What reading does Howard recommend for people looking to expand their awareness of limited knowledge? [43:23]
  • Can dumb money become smart money? [47:08]
  • Howard says his life is pretty calm and he tries to keep it that way. But what might disrupt this calm and what would he do to reel things back to reason? [49:02]
  • How does Howard maintain a balance between the confidence of experience and an understanding that all knowledge is incomplete in order to take action? [50:35]
  • The case to be made against stop-loss orders and other templated approaches to investment. [52:50]
  • To Howard, superior judgment outweighs any process or rule. But what is it? [54:27]
  • The one simple question Howard would ask of each investment under consideration. [57:44]
  • It’s not what you buy, it’s what you pay. [58:17]
  • Expressions too absolute to be useful in a world beset by uncertainty and randomness — like the stock market. [1:01:31]
  • How does Howard check the market’s temperature? [1:02:27]
  • The three stages of the bull market (and, conversely, the bear market). [1:05:27]
  • Currently, what has Howard hopeful and what has him worried about the economy? [1:07:17]
  • Why it’s important for people to invest only at a level that makes them comfortable. [1:12:20]
  • The twin risks of investing and the case for finding a comfortable middle. [1:16:26]
  • In what ways does Howard most disagree with Warren Buffett’s style and strategies? [1:18:08]
  • Do the games people play accurately determine their risk tolerance for investing? [1:22:57]
  • Investment misconceptions that prevail and what a lot of otherwise smart people miss about the nature of cycles. [1:26:21]
  • We can’t expect the market — or life in general — to accommodate our needs or desires. Patience is essential. [1:29:20]
  • Lessons Howard learned from financial historian Peter Bernstein. [1:31:21]
  • Newsletters, columnists, economists, or writers who Howard finds himself excited to read these days. [1:35:19]
  • The book Howard is reading now and recommends. [1:38:15]
  • What is Howard’s take on cryptocurrency, and how do we measure its intrinsic value? [1:40:46]
  • Growth or venture investors Howard admires. [1:45:33]
  • Mental models or heuristics that Howard has used in his investing life that are particularly valuable across the board in life. [1:49:11]
  • Final thoughts. [1:51:26]

PEOPLE MENTIONED

Posted on: September 25, 2018.

Please check out Tribe of Mentors, my newest book, which shares short, tactical life advice from 100+ world-class performers. Many of the world's most famous entrepreneurs, athletes, investors, poker players, and artists are part of the book. The tips and strategies in Tribe of Mentors have already changed my life, and I hope the same for you. Click here for a sample chapter and full details. Roughly 90% of the guests have never appeared on my podcast.

Who was interviewed? Here's a very partial list: tech icons (founders of Facebook, Twitter, LinkedIn, Craigslist, Pinterest, Spotify, Salesforce, Dropbox, and more), Jimmy Fallon, Arianna Huffington, Brandon Stanton (Humans of New York), Lord Rabbi Jonathan Sacks, Ayaan Hirsi Ali, Ben Stiller, Maurice Ashley (first African-American Grandmaster of chess), Brené Brown (researcher and bestselling author), Rick Rubin (legendary music producer), Temple Grandin (animal behavior expert and autism activist), Franklin Leonard (The Black List), Dara Torres (12-time Olympic medalist in swimming), David Lynch (director), Kelly Slater (surfing legend), Bozoma Saint John (Beats/Apple/Uber), Lewis Cantley (famed cancer researcher), Maria Sharapova, Chris Anderson (curator of TED), Terry Crews, Greg Norman (golf icon), Vitalik Buterin (creator of Ethereum), and nearly 100 more. Check it all out by clicking here.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Comment Rules: Remember what Fonzie was like? Cool. That’s how we’re gonna be — cool. Critical is fine, but if you’re rude, we’ll delete your stuff. Please do not put your URL in the comment text and please use your PERSONAL name or initials and not your business name, as the latter comes off like spam. Have fun and thanks for adding to the conversation! (Thanks to Brian Oberkirch for the inspiration)

17 comments on “Howard Marks — How to Invest with Clear Thinking (#338)

  1. If you only take away one thing it is this:
    Income producing assets (businesses & real estate etc) have intrinic value, non income producing assets (currencies, commodities & gold etc) don’t.

    Don’t over think it.

    If the asset doesn’t produce positive cash flows avoid it.

    Like

    • Not really. If you were holding real estate in 2008 you would have lost your ass. If you were holding gold you would have done quite well. Gold definitely has a place in your portfolio as a chaos hedge and I guarantee you that hedge funds invest in gold with appropriate percentages.

      Like

  2. Great interview. I’m getting his book for sure. (I think when he talks about FAANG stocks, he meant to say Apple instead of Google 0:59m). This one and the Ray Dalio podcast are essential for value investors.

    Like

  3. King Timothy,

    What a wonderful interviewer you have become. Thanks for this one my friend. Not only was it a great listen, but one to be revisited many times over.

    Cheers,
    Mickey

    Like

  4. “It’s not what you buy, it’s what you pay” . My favorite quote from this podcast. Everything can be a good investment or good deal if you paid the right price.

    Like

  5. Another great interview Tim! I would love to see you interviewing Don Greene, a sports psychologist professor at The Julliard School of Music. He’s trained all the best athletes and musicians around the globe to perform their best under pressure.
    Best,

    Like

  6. Hi Tim,

    Great content, thanks for doing it! In the latest email I’ve noticed you added Latvia to your visit list. There is one small country just next to it – Lithuania. It has great old town architecture and few more great places. If you plan to be around, let me know, I can share some ideas or show around.

    Marius

    Like

  7. What an extraordinary opportunity to listen to a 30 year vet impart his sage wisdom. Tim, your questioning was so intuitive – you really brought your intelligence to this interview. Definitely don’t ask a bull what second-level thinking is; you need to ask a Bear!

    Like

  8. Such a good episode and so many analogies in investing that can be applied to life in general. PS Random segway but would be awesome to have Trevor Noah on the show 🙂

    Like

  9. Hello Tim,

    I appreciate your work and i am your big fan of your work as well.
    I have one request, can you please call Akshay Kumar (Bollywood Actor) on your podcast?

    Would be great to hear him and eventually you can gather more peoples from India on your website and after all it would be more beneficial for you as well.

    Have a good one today,

    Hitesh

    Like