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

“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!

Listen to the episode on Apple Podcasts, Spotify, Overcast, or wherever you get your podcasts. You can find the transcript of this episode here. Transcripts of all episodes can be found here.

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.)

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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

• Mastering the Market Cycle: Getting the Odds on Your Side by Howard Marks
• The Most Important Thing: Uncommon Sense for the Thoughtful Investor by Howard Marks
• All of Howard Marks’ Memos at Oaktree
• More Poems VI by A.E. Housman
• The Wharton School
• Mujo, Routledge Encyclopedia of Philosophy
• Memo to: Oaktree Clients, Re: You Can’t Predict. You Can Prepare. From: Howard Marks
• Northwestern Mutual
• Market Crashes: Housing Bubble and Credit Crisis (2007-2009), Investopedia
• 20 Awesome Things People Saw at the 1964 World’s Fair by Amy Plitt, Mental Floss
• Not Everything That Counts Can Be Counted by Garson O’Toole, Quote Investigator
• Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb
• Memo to: Oaktree Clients, Re: Pigweed From: Howard Marks
• A Short History of Financial Euphoria by John Kenneth Galbraith
• Memo to: Oaktree Clients, Re: It’s Not Easy From: Howard Marks
• Citibank
• What Are FANG (Facebook, Amazon, Netflix, Google) Stocks?, Investopedia
• S&P 500
• What is the VIX — CBOE Volatility Index?, Investopedia
• Howard Marks — The Poor Man’s Guide To Market Assessment by Johnny Hopkins, The Acquirer’s Multiple
• Picking Warren Buffett’s Brain: Notes from a Novice by Tim Ferriss
• The Warren Buffett Way by Robert G. Hagstrom
• Bringing Down the House: The Inside Story of Six M.I.T. Students Who Took Vegas for Millions by Ben Mezrich
• Principles: Life and Work by Ray Dalio
• Memo to: Oaktree Clients, Re: It Is What It Is From: Howard Marks
• Memo to: Oaktree Clients, Re: Risk From: Howard Marks
• Memo to: Oaktree Clients, Re: Risk Revisited From: Howard Marks
• Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein
• Grant’s Interest Rate Observer
• Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger by Charles T. Munger
• Lessons of History by Will Durant and Ariel Durant
• Factfulness: Ten Reasons We’re Wrong About the World — and Why Things Are Better Than You Think by Hans Rosling, Anna Rosling Rˆnnlund, and Ola Rosling
• Benchmark Capital
• Kleiner Perkins

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

• A.E. Housman
• E. Dale Saunders
• Bruce Karsh
• Warren Buffett
• David Tepper
• Charlie Munger
• Albert Einstein
• William Bruce Cameron
• Henry Kaufman
• Albert Wojnilower
• Nassim Nicholas Taleb
• John Kenneth Galbraith
• “Dirty” Harry Callahan
• Bill Gates
• Mark Twain
• Ray Dalio
• Peter Bernstein
• Joel Greenblatt
• Bill Gurley
• George Soros
• Stan Druckenmiller

The Tim Ferriss Show is one of the most popular podcasts in the world with more than one billion downloads. It has been selected for "Best of Apple Podcasts" three times, it is often the #1 interview podcast across all of Apple Podcasts, and it's been ranked #1 out of 400,000+ podcasts on many occasions. To listen to any of the past episodes for free, check out this page.