Warren Buffett said "When I see memos from Howard Marks in my mail, they're the first thing I open and read."

Howard is the Co-Chairman of Oaktree Capital Management. He gave a talk at Google on 27 March this year, a video of which can be viewed below.

He is known in the investment community for his "Oaktree memos" to clients which detail investment strategies and insight into the economy. He treats investing as equal parts psychology and finance, and his book The Most Important Thing provides "uncommon sense for the thoughtful investor."


5:25: Investing is very difficult because it's kind of counterintuitive and it 
kind of turns back on itself all the time and there are no formulas that work. So what I tried to do in the book is teach people how to think. Now, the thoughts they should hold change from time to time but how to think, I think, is valid in the long term.

9:42: ….the basic theme is that in investing there's a lot of randomness and if you look at investing as a field without randomness where everything is determinative, you'll get confused because you will not draw the proper inferences from what you see. For example, you see somebody and they report a great return for the year. The scientist who thinks that the investment world runs like the world of physics might think well, great return, that means the guy is a great investor but in truth it might be somebody who took a crazy shot and got lucky. Why? Because there's a lot of randomness in the world.

12.22: Basically, even if you know what's most likely, many other things can happen instead.

You should not act as if the things that should happen are the things that will happen. In the world of the physical sciences you can probably bet that that's true and the electrical engineer knows that if he turns on a light switch over here, the light will go on there every time because it's subject to physics. But not in the world of investing. For every possible phenomenon, there is a range of things that can happen.

15:48: “Should” does not equal “will”. Lots of things that should happen failed to happen and even if they don't fail to happen, they fail to happen on schedule so the thing that the economist or the financier thinks should happen this year may happen in three years.

If you overpay ...

howard marks“Success is buying things for less than they're worth. What determines the success of an investor is not what he buys but what he pays for it and if you buy a high quality asset but you overpay for it, you're in big trouble.”

30:01: How do you make money as an investor? The people who don't know think the way you do it is by buying good assets -- a good building, stock in a good company, or something like that -- that is not the secret for success in investing. Success is buying things for less than they're worth. What determines the success of an investor is not what he buys but what he pays for it and if you buy a high quality asset but you overpay for it, you're in big trouble. You can buy a very low quality asset but if you pay less than it's worth chances are you going to make money. The most important thing is value, figuring out what the value of an asset is. The most important thing is the relationship between price and value so let's assume that you're able to figure out the value if you pay more than that you're in trouble if you get it for less the wind is at your back.

39:00: We tell the clients we think that for excellence in investing, the most important thing is not making a lot of money, it's not beating the market, it's not being in the top quartile. The most important thing is controlling risk -- that's our job. There are other people who put less emphasis on controlling risk and they have better results in the good times and worse results in the bad times.

44:57: Being too far ahead of your time is indistinguishable from being wrong. The things that are supposed to happen will not necessarily happen and they absolutely will not happen on time, so you have to be able to live until the wisdom of your decisions is proved, if at all. So all of these things I think say something about modesty and humility, a belief rather than cock sureness, which I think is the greatest risk.

48:27: We try to anticipate a future that looks pretty much like the norm and make allowance for the things other than the norm that can happen. All this by the way all this stuff is judgment you know there are no rules, there are no algorithms, there are no formulas that always work. None of this is any good unless the person making the decision has superior judgment … the most important thing is second level thinking. Most people think on the first level. To be a superior investor you must think on the second level, you have to think different from everybody else but within being different you have to be better. So the first level thinker is naïve, he says this is a great company let's buy the stock. The second level thinker says it's a great company but it's not as great as everybody thinks it is, we better sell the stock. That's the difference between being an average person and a person with superior insight.

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