Lunches with Legends: Howard Marks' Timely Wisdom for Investors

This past February, Howard Marks, co-founder and Co-Chairman of Oaktree Capital, joined us for our Lunches with Legends series. Howard is well known in the investment community as a highly accomplished investor, thought leader, and writer. During the conversation, Howard shared his thoughts on the current investment landscape and the attributes of successful investing.

Howard completed his undergraduate studies at The Wharton School of the University of Pennsylvania, followed by earning his MBA from the University of Chicago Booth School of Business.  He started his career at Citicorp Investment Management as an equity analyst and quickly moved into investment research.  A few years after moving into the role of Vice President and Senior Portfolio Manager for convertible and high-yield debt strategies, Howard joined TCW Group, where he led very similar groups. After a ten-year career with TCW Group, Howard and four other partners decided to leave and co-found Oaktree Capital in 1995.  Since then, Oaktree Capital has become a global leader in alternative investing, focusing on credit strategies.

When asked about his thoughts on the current investment backdrop, Howard began by noting that although markets are generally cyclical, the current recovery has been a non-cyclical event. He expanded this thought by referencing the lessons learned by the Federal Reserve from the Global Financial Crisis in 2008.  These lessons underpinned the importance of acting swiftly and decisively to calm markets during the initial weeks of the pandemic crisis. Howard went on to share his longer-term concerns about the current artificially low Federal Reserve interest rate policy, a policy that continues to reward risk-takers and penalize savers. He also expressed caution about Modern Monetary Theory (MMT) - whose central idea is that governments can and should print as much money as they need to promote economic well-being, such as reducing unemployment. Howard voiced concern that MMT will likely lead to increased inflation, rising interest rates, and a weakening currency.

Howard’s investment philosophy is driven by strong risk controls and defined by consistency.  His family is currently focused on investing through two allocations – an income-oriented allocation that he manages and a growth-equity portion that his son oversees. He explained that his son is more of an optimist than he is. Interestingly, Oaktree Capital has evolved over the years to have more investment strategies that are “aspirational” in nature, whereby the focus is on finding “winning” investments rather than avoiding “losing” ones – the latter being more aligned with income-oriented investments.

The conversation continued with Howard describing the characteristics of “better” investors. “Better” investors have exceptional investment abilities and superior insight into when the odds are in their favor. He emphasized that the methodology alone is not sufficient to generate higher returns, and since most investment managers do not have superior insight, they do not earn their fees. This inability to “earn their fees” is the reason why passive investing has grown so much in recent years. And speaking more specifically to the decision-making process, Howard explained that he is not generally fond of “investment committees” since the pressure not to make mistakes often leads these committees to over-diversification.

The conversation took a somber note, with Howard expressing concern about the effect of automation on the working class and broader societal problems, including racial inequalities. Still, it concluded with Howard sharing his enthusiasm for the new U.S. administration and technology’s role in improving life.

Head to our YouTube channel to watch the full recording!

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