Howard Marks has spent decades turning market observation into enduring wisdom. The Oaktree Capital co-founder and co-chairman is celebrating 35 years of writing the famous investment memos this month.
Always eager to share his views, Marks gave an in-depth interview for the Master Investor Podcast on October 20. Looking back at the decades prior, he reflected on the memo that made him "an overnight success," as in January 2000, he was one of the few who called the bubble.
History Lessons And AI Dangers
The seed for that note, he explained, was Edward Chancellor's "Devil Take the Hindmost", a history of financial speculation. As Marks read about the South Sea Bubble—day trading mania, speculative fervor, and blind faith—he saw the same human patterns in the late-'99 internet froth.
"I said, ‘Holy cow, that’s exactly what’s going on now in the tech stocks, ‘" he explained. Yet, he adds that the luck was that he proved "correct, and correct soon."
That distinction—between prediction and positioning—runs through Marks's worldview. He insists you can't know when, only roughly where you are in the cycle.
"We never know where we’re going, but we sure as hell ought to know where we are." Overpriced isn't the same as "going down tomorrow," and betting on rationality arriving on your schedule can be "fatal."
Thus, Marks focuses on "taking the market's temperature" and letting behavior, pricing, and risk tell the story.
It was in the famous bubble.com piece where he quoted Warren Buffett.
"The key to investing is not assessing how much an industry is going to affect society or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage," Buffett said for Fortune magazine in November 1999.
That line rings loudly today. Yes, AI will change the world, but Marks warns against leaping from efficiency gains to guaranteed profitability.
"If all companies in an industry get AI, they all put it to work, and it increases efficiency for all of them. If they compete for business by cutting prices, it eliminates unusual profitability.
That is how "change the world" and "make a lot of money" don't necessarily mean the same thing, he explains.
Less Is More
On how to behave, Marks is clear: don't chase momentum. "You should only buy it if you think it's good value," he notes.
Across the decades, he points out that being a contrarian works best at the extremes. Trying to be a hero every week is more likely to leave you 50/50 at best.
Marks sees success in "second-level thinking"—not just thinking differently from the crowd, but thinking better. That's rarer than it sounds, and it's why he says he's made truly decisive market calls "five times in 50 years."
Gold And The Current Rally
Marks keeps non-yielding assets at a distance. He divides the world into assets with cash flows (stocks, bonds, buildings) and those without (gold, oil, crypto, art). The former can be valued; the latter trades at "what the market will bear."
Why is gold so popular this year? Sentiment, mainly—"a voting machine," to borrow Ben Graham. If it were pure fear-driving, he notes, you wouldn't see equities at highs and FX relatively stable.
And where are we now?
After a poor 2022, risk assets ripped higher on optimism and rising P/Es—an unusually strong swing. Marks isn't apocalyptic, but he is calibrated: prudence should rise when everyone else's falls. If you'd "really mind" a full drawdown, consider taking some chips off the table.
How To Invest Successfully?
Despite a 50-year career in investing, his advice is disarmingly simple.
"Invest. Invest a lot. Invest early. Stick with it." Don't try to be agile; market timing is "the hardest thing in the world," he says.
"You can shade or calibrate your risk posture, but remember the market is made up of people. Doing something very different is not likely to be right unless you're exceptional—which few people are," he concludes.
His five big calls in 50 years are not defeatism—it's discipline. And that, more than anything, is what 35 years of memos have taught.
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