Howard Marks Warning: Why I'm Getting Out Now

- August 22, 2025 (7 months ago) • 46:59

Transcript

Start Time	Speaker	Text
00:00	MFM	Alright, here's what I said: "Describe Howard Marks."
00:02	Shaan Puri	In 280 characters, here's what he gave you: > "Howard Marks is a legendary investor and co‑founder of Oaktree Capital, known for his sharp memos, contrarian thinking, and risk‑focused approach. He made billions zigging when others zag, especially in crises. When he writes, Wall Street listens. Pretty flattering."
00:19	MFM	Pretty, pretty good, yeah.
00:29	Shaan Puri	Okay, well, I think the best place to start is that kind of zig while others zag. I want to ask about the S&P, because you don't know much about us, but the short version of the guy you see across from me — Sam — is: Sam's an entrepreneur. Sam built his company, he sold his company, and he took the money that he made and said, "Look, I worked hard for this money. Now I want this money to work hard for me, but I need it to be safe." So Sam went into mostly best-practice, low-cost index funds in the S&P 500. Anytime I ask Sam about his strategy — or I tell him, "Dude, you gotta buy Bitcoin, Ethereum, you gotta buy this, you gotta put some money over here" — I'm like, you know, if Sam is vanilla, I don't even know what I am. I'm some flavor off to the side. That's how about fruity — yeah, fruity over here. I keep trying to pull him over here, but he says, "No, no, no, I like vanilla." So he basically just says the long-term average of the S&P 500 is 10%. "If I just hold this for 50 years, I'm gonna double, you know, this many times — I'm good." But I do get a little wary when anything seems too safe or too certain, or I guess when it's taken for granted that this 10% number over the long term will be what it is. I guess what would your message be to Sam? Is Sam just, you know, right or wrong? Would you give him a caution or warning? If he was your nephew — he looks like he might be your nephew — if he was your nephew, what would you be telling him?
01:46	MFM	Well, on the one hand, Sam, you're right: if you have more money than you need for food, the first purpose of your money should be to make you comfortable. It doesn't make any sense. Buffett says, "Don't risk what you have and need to get what you don't have and don't need." It makes no sense for someone with a surplus of money to make their daily life less pleasant by choosing investments that put them under pressure.
02:20	Sam Parr	But there's going to be a "but" on your statement. It sounds like...
02:23	MFM	But on the other hand, the riskiest thing in the world is the belief that there's no risk. The risk in the markets does not come from the companies, the securities, or the institutions like the exchanges. The risk in the markets comes from the behavior of people. It's for that reason that Buffett says: > "When others are imprudent, you should be prudent. When other people are carefree, you should be terrified, because their behavior unduly raises prices and makes them precarious. When other people are terrified, you should be aggressive, because their behavior suppresses prices to the point where everything is a giveaway." So, I don't— I mean, look, in the long run you're right about the S&P. Over the coming years, American companies on balance are going to produce prosperity. </FormattedResponse>
03:31	Sam Parr	"What's that defined as 'long term' in this?"
03:35	MFM	Well, I would say 20 or more is the real long term, and I'll tell you in a minute how I get there. But my favorite cartoon — I have a file of cartoons from over the years. My favorite one: there's a guy, his car is pulled over to the side of the road, the guy's in a phone booth (so it's an old cartoon because there are no more phone booths), and there's a factory going up in the background. He's screaming into the telephone: "I don't give a damn about prudent diversification — sell my Fenwick Chemical!" In other words, prudent diversification calls for certain investment positions in a variety of them in a certain composition. Reality says, "I see Fenwick Chemicals burning to the ground — get me out." And you can't ignore reality. Now, what's reality in this case for you? Reality is recognizing where things stand. J.P. Morgan published a chart around the '24, and it was a scatter diagram showing, over the years, the relationship between the S&P 500 at purchase and the annualized return over the next ten years. It looked like this: on one axis we had return, and on the other axis we had the P/E ratio. It was a negative correlation, which means the higher the P/E ratio you pay, the lower the return you should expect. Makes perfect sense. It showed there was a number here — 23 on the P/E ratio axis. It showed what the P/E ratio on the S&P was at the time, and it showed that historically if you bought the S&P when the P/E ratio was 23, in every case — there were no exceptions — your annualized return over the next ten years was between 2 and -2.
05:58	Shaan Puri	So you have to know. And what are we today? What is it today?
06:03	MFM	2023 or 2024 or 2025 — because why? Because prices have risen and now the outlook has risen. So maybe it's still 2023, but I think—let's say—I think 2024. So you can say the S&P has returned 10% a year on average for 100 years. I'm happy with 10% — I'm in. Or you can say it doesn't always return 10%. By the way, one of the most interesting things about the S&P (if you do the research, and I did it for a memo) is that, on average, it has returned 10% a year for 100 years. But do you know that the annual return is almost never between 8% and 12%... </FormattedResponse>
06:49	Sam Parr	About—yeah. Like, it kills it or dies it. It's destroyed, yeah.</FormattedResponse>
06:53	MFM	Think about what that means. The norm is not the average.
06:59	Sam Parr	But the issue for someone like me — and a lot of our listeners, I'm one of them — is this: I was fortunate. I had a business and I made a large amount of money at a very young age. But I'm not an investor; I don't know anything about public markets. So when I hear you say that, I think, "I don't have an alternative."
07:21	MFM	Well, you do have an alternative. You could figure out an algorithm to rebalance your position based on relative price, and you could put it on autopilot. I don't recommend making judgments about the future and the appropriateness of today's price for the future you perceive. But you can do that, and there are ways to do these things even if you just use common sense.
07:47	Shaan Puri	"What would you be rebalancing into? So let's say S&P P/E [price-to-earnings] is high. What would be the second-best option for the sort of non–full-time active investment?"
07:55	MFM	Okay, so I've tried to suppress my tendency to talk about my book until now, but I think an alternative is bonds, you know. In 1969 I joined Citibank in the investment research department as an equity analyst. The bank did so horribly that in 1978 I was banished to the bond department. The bond department was the equivalent of Siberia. The good news is that at that time American corporations pretty much gave lifetime employment, so I didn't get sacked. I was in the bond department when I got a phone call from the head of the bond department. He said, "There's some guy in California named something like Milken and he invests in something called high-yield bonds. Can you figure out what that means?" I said yes, and I became a high-yield bond investor. When you buy a bond there's a contract that says the borrower will pay you interest every six months and give you your principal back at the end. You can figure out the return that is implied by that contract. If the borrower doesn't keep that contract (overgeneralizing, oversimplifying), the creditors get the company through the bankruptcy process. So the borrower has a lot of incentive to pay you, and they almost always do. I've been involved in high-yield bonds for 47 years, and I can tell you they've almost all paid. Today you can buy high-yield bonds — whether in the U.S. or Europe, or variations on that theme (what we call low-grade credit) — and you can buy them to get yields of 7% to 8%. Now, 8% is pretty close to 10%, so that's a good thing. The bad thing is you have to pay tax every year on the income — that's a downside. But for those of us who are cautious, like you and me, we might say, "I'll take, you know, 8%," which in the long run will give me 4% after tax, as opposed to 10% which, after capital gains taxation, will give me 7%. Or maybe I'll mix them. Maybe I'll own a little less S&P and a little more debt, because I'm...
10:17	Sam Parr	That's what I do now.
10:18	MFM	Yeah, because I'm worried it's not all or nothing. That's why when I'm on TV shows and they ask, "Is this a sell or buy? Is this risk on or risk off?" I resist that formulation because it's never one or the other — it's a mix. The only question that's relevant is: what mix? When you manage your portfolio, the operative continuum to think about runs from aggressive to defensive. I think about a speedometer in the car: zero is no risk, 100 is max risk — 100% aggressive. You should have a sense for your appropriate normal posture. It sounds to me, Sam, you're a little conservative. You've made so much money you can't believe it, but you don't want to give it back. I'd say you're a 65 [on a 0–100 risk scale], and especially given your youth, you may be a 55 for your cohort. I think every listener — every investor — should figure out the right place for them and try to stay there most of the time.
11:38	Sam Parr	We need to get a couch here. You could just call Dr. Marks, and, well...
11:42	MFM	You know what? I once wrote a memo called On the Couch because I think that, once in a while, the market needs a trip to the shrink.
11:48	Shaan Puri	I went back and read a bunch of your old memos, and the one that stood out to me was the bubble.com memo — you wrote this back in 2000. I actually have a few of these moments in time — maybe 2000, 2002, 2020 — where it seemed like consensus was going one way. Maybe it was max greed and you went the other way. Or it was max fear and panic and then you were actually very aggressive. You did the thing Buffett says: "be fearful when others are greedy and greedy when others are fearful." It's cool to say but hard to actually do. I thought it'd be fun if you could walk us through a couple of those moments. Not to go too far down memory lane, but take us back to the one in 2000: what did you see, what did you do, how did that play out, and what did you learn from it? Take us through a couple of those, because I think that's your superpower.
12:42	MFM	First of all, one of my sayings is: "We never know where we're going, but we sure as hell ought to know where we are." At Oaktree, we loudly proclaim our inability to make macro forecasts and our non-reliance on macro forecasts. But if we want to do the right thing vis-à-vis the macro, we should be able to figure out what's going on at the present time and what that implies for the future. It may not turn out to be what you think it implies, but it probably has a higher chance of happening than not if you're logical and understand history and patterns. I wrote a book called Mastering the Market Cycle, which was published in 2018. I always say it's a cheesy title, but it wasn't my idea—the publisher wanted that title because they thought it would sell more books. I like the subtitle: Getting the Odds on Your Side. I believe that where we stand in the cycle determines what probably is going to happen and how likely it is. Understanding that can improve your odds. It can't make you a sure winner, but it can improve your odds, and that's the best we can do in an uncertain world beset by randomness. I don't know if you know this, but I started writing the memos in 1990. "Bubble.com" on the first day of 2000 was the first one that ever garnered a response. I went ten years— not only did nobody say, "Hey, that was good," nobody even said, "I got it." So one of the mysteries is why I kept it.
14:30	Sam Parr	Who are you sending them to?
14:31	MFM	To our clients.
14:33	Sam Parr	How many?
14:34	MFM	Crickets. Well, you know, in 1990 a 100. [transcription incomplete/unclear]
14:39	Sam Parr	Okay.
14:40	MFM	By mail, of course, I wrote "bubble.com" on 01/02/2000, and it had two virtues: it was right, and it was right fast. If you write slow, it doesn't look like you were right. One of the great sayings in our business is that being too far ahead of your time is indistinguishable from being wrong. So the answer is: I was not too far ahead. In '99 I read a book called Devil Take the Hindmost — it's a history of financial speculation.
15:18	Shaan Puri	"Were you looking for books about that because you had a hunch, or did you just randomly read this book?"
15:22	MFM	No, I don't remember why I read it. The idea comes first. My memos are not research-based; they're based on ideas that resonate with me. I'm reading this book because I am interested in financial speculation, cycles, and the extremes of financial behavior. It talks about all these crazy things that people did, especially in something called the South Sea Bubble. Britain had this big national debt and they concluded that they could pay it off by starting a company called the South Sea Company. They granted it a license to trade with the South Sea — by which they meant not Samoa but Brazil — and they would charge a license fee that would pay off the debt. It was one of the great bubbles. I'm reading about what people were doing in 1720. People were quitting their day jobs and hanging out in ale houses to trade the shares of the South Sea Company, etc. I said, "That's what's going on now in the tech bubble." People, you may recall, were quitting their jobs to become day traders. People with no money could trade stocks as long as they didn't carry any balance overnight. Young people were quitting MBA programs because they had an idea, and if they waited until they graduated somebody else would take it. So it just resonated. One of the quotes I use the most now is from Mark Twain: "History does not repeat, but it does rhyme." There are certain themes that rhyme from generation to generation and cycle to cycle because they are embedded in human nature, and so they recur. So when you get older in our business... you know, obviously one of the things I hasten to...
17:36	MFM	There is no such thing as knowing something about the future. If you don't know the future and you want to figure it out, there is no such thing as analyzing the future — it doesn't exist. The only thing you can do to get a handle on the future is look at the past and look for the repetition of patterns, as Twain said, and try to figure out if they apply today. So I wrote this memo — memobubble.com — and it described what people are doing today. I tried to point out the folly of what I saw going on: companies with no profits and no revenues were being highly valued, maybe no product, just an idea. That is the epitome of a bubble. I wrote the memo, as I say, on January 2. Sometime around mid-year, the tech bubble started to collapse. So, as I said in the introduction to one of my books: "After ten years I became an overnight success."
18:45	Shaan Puri	Did you actually bet against it, or did you just preserve capital by not FOMOing into every tech company? Basically, what was the "win" of that for you?
18:56	MFM	First of all, we're not involved—we're basically not involved in the US stock market, and we're not involved at all in technology. So we wouldn't have a chance to apply that. But I think what we did is we recognized that. By the way, things don't happen in isolation or uniquely. So when you see something like I described in the tech bubble, you should realize that maybe there are ramifications in other parts of the world. We figured out that people were engaging in optimism not pessimism, greed not fear, credulousness not skepticism, risk tolerance not risk aversion. And, as Buffett says about prudence: > "When nobody's afraid, unwise deals can get done easily." Simple as that. It usually ends badly for the people who buy that stuff.
20:01	Sam Parr	The way that you explain it, I think everything makes sense, and I totally buy into it. But that's actually quite challenging — to understand this macro environment and to say, "this is where we are."
20:11	MFM	Yeah, well, you have to be clinical. You have to observe and, without emotion, understand what's going on and what the implications are. And, of course, what I call emotion is part of what's called human nature. If you succumb to human nature, it tends to get you to do the wrong thing at the wrong time. I came across a great quote within the last year from a guy who's a retired trader: "When the time comes to buy, you won't want to." That encapsulates so much wisdom, because what is it that causes the great moments to buy?
21:02	Shaan Puri	It's probably the point of lowest consensus. When most people don't believe, that's the time the price is going to be the lowest, right? It's the period with the most uncertainty, the most pessimism, the most fear, or the most conservatism. So you also want to be all those things.
21:19	MFM	What causes those things you're talking about? You're talking about the manifestation — what's the cause?
21:29	Shaan Puri	"Bad news. I don't know—bad news, bad events."
21:32	MFM	Bad news — either exogenous or in the economy: faltering corporate fortunes, declining stock prices, widespread losses, and a proliferation of articles about how terrible the future looks. That's why you don't want to buy at the low. Who would want to buy under those circumstances, right? And so, as you mentioned in your introduction about "zigging when others zag", the only thing I'm sure of is this: if you zig when they zig, you're not going to outperform.
22:15	Sam Parr	Do you still feel that fear? You know, like when you're supposed to buy — do you still feel fearful, or do you feel like, "Nice. Hello, my old friend. I love this emotion. This is what I'm supposed to..."? "Oh yeah."
22:28	MFM	Right. I mean, it's not easy, but you have to—you have to do it. If you think about it, the fortunes of companies and the outlook for companies don't change much. I'm writing a memo about this that will come out one of these days. What changes is how people think about what's going on and how they think about the future. So what changes is the relationship of price to what I'll call value. Sometimes they hate them; sometimes they love them. When they love them too much, you should expect prices to probably go down—that sounds like a bull market or a bubble. And when they hate them too much, you should expect prices to go up—that sounds like a bear market or a crash. So you have to do the opposite. The same developments in the environment that affect everybody else will affect you. You're subject to them. You feel them, you read about them, you hear about them. Everybody tells you how dire the outlook is, and it's hard to ignore. You have to do the right thing in the face of them. In 1998, we had the Russian ruble devaluation, the debt crisis in Southeast Asia, and the meltdown of Long-Term Capital Management. One of our portfolio managers, who was young, came to me and he said, "I think this is it. I think we're going to melt down. I think it's all over. I'm terribly pessimistic." I said, "Tell me why." He went through his reasoning. I said, "Okay—now go back to your desk and do your job." A battlefield hero—and I don't want to directly compare what we do to being a battlefield hero—is not somebody who's unafraid. A battlefield hero is somebody who does it anyway. And that's the way you have to be.
24:32	Sam Parr	Can I—actually, can I ask? Let me ask you about that. It's funny. Interestingly enough, even though I'm the conservative one, I'm actually way more emotional. Sean's more—mostly—a pretty stable guy emotionally. I go up and down, which I think is closer to the average for most folks. You said something—you said a bunch of stuff about emotion in the past. I think you said, "To be a good investor, you better be able to invest without emotion, or at least act as if you don't have a lot of emotion." Has there ever been anything—like a mindset shift, a practice, or something—that you've had to use in order to learn to be less emotional when investing?
25:11	MFM	No, these things are not intentional on my part.
25:15	Sam Parr	"You think you're born like that?"
25:16	MFM	I was born unemotional, by the way. I want to be out here because my wife's downstairs having lunch. I wrote in my book that it's really important to be unemotional in investing. It's not so good to be unemotional in life, in arenas like marriage—so there it's not an advantage. For me, it came naturally. I don't have to say, "Oh, there I go again—I'm getting emotional; I have to restrain that..." It's just not an issue. My partner, Bruce Karsh, who's been my partner successfully for 37 years, is pretty much the same. That makes it easy—I don't have to restrain him.
25:55	Shaan Puri	"We've gassed you up about some of your best moves. What's the worst mistake you made due to an emotional mistake—where you didn't control your temperament properly and you made a mistake?"
26:06	MFM	My worst mistake is not... I know you're talking about a time. My worst mistake is that I have always been too conservative. My parents were traumatized by the Depression. I always say the question is not whether your parents were alive during the Depression, but whether they were adults. My parents were adults — they were born in the 1900s — so during the Depression they were in their thirties. The Depression was really traumatic; nobody knows what it was like, and it ground on for over ten years. When you grow up with parents who lived through the Depression, they say things like, "Don't put all your eggs in one basket" and "save for a rainy day." I ended up too conservative. If I hadn't been as conservative, I'd be richer today. I'm not sure I'd be happier, because...
27:06	Shaan Puri	What's an example? What do you mean, "you were too conservative"? I guess... what makes you say that? What would you have done differently had that wiring not been in you?
27:14	MFM	Well, I don't know. I might have gone into a more aggressive asset class than credit — like equities. I might have become a venture capitalist, like my son Andrew, or a private equity or leveraged buyout investor. But the reason I was talking about the appropriateness of credit for Sam is because, while the returns are a little lower, there's much less uncertainty and downside. I've been in this business 56 years. If I had spent those 56 years in less conservative asset classes, I would have made more money. Having said that, it happens I went into things like high-yield bonds in 1978 and distressed debt in 1988. If I had not been a conservative person, I probably wouldn't have had any clients because they would have been scared off by the risk. So being conservative served me well in pioneering those businesses. We never had a mistake like being too defensive in a crisis or too aggressive in a bubble. I was just too conservative all my life.
28:27	Sam Parr	"And that kind of makes sense, because—I don't think you started Oaktree until your late forties, right?"
28:31	MFM	Just short of my 40th birthday.
28:34	Sam Parr	"Yeah. So, I guess leading up to it, were you already financially successful? Were you a success leading up to that?" "Yeah. And so, was it a big risk to start Oaktree?"
28:45	MFM	I was secure. I wasn't rich by today's standards, and I may not have been rich by the standards at the time, but I had good money and I lived well. I started running money in 1978. I joined my Oaktree founder partners in 1985, 1986, 1987, 1988. We did a great job in a variety of environments, and we weren't worried about the ability to do a good job. We had enough money to eat. I had to overcome my innate caution. My wife had to give me a kick in the ass, which she happily did. I may not have done it without her. I probably wouldn't have.
29:32	Shaan Puri	"You said you're too conservative, but there have been times when you've been very aggressive."
29:37	MFM	"Oh, yeah. Oh, yeah."
29:39	Shaan Puri	You know, I think the 2007–2008 financial crisis. I read something that as the crisis happened, you would raise $10 billion because you saw the opportunity, and you started deploying something like $600 million a week. It just sounds badass, to be honest. Maybe that's not as crazy in the financial world, but that sounds crazy to me.
30:01	MFM	Well, your fact set is inaccurate in one regard: we did not raise $10,000,000,000 after the crisis hit. Remember what I said about the guy who said when the time comes to invest you won't want to: you can't raise money in a crisis. If you went to people and said, "The world's melting down; we're going to buy all this stuff, it's going to be a bonanza, we're going to get rich," nobody will give you money. Why? Because the same factors that influence the world influence the people you talk to. Everybody will stick their hands in their pockets and say, "Maybe later, after the dust settles." A lot of people say, "No—we're not going to try to catch a falling knife." I believe that you make the big money catching falling knives, carefully. What happened is, as I described about the tech bubble in 2000, we detected in [2005–2006] that the world was behaving in a carefree manner. I would wear out the carpet between my office and Bruce's with The Wall Street Journal and I'd say, "Look at this, look at this piece of junk that got issued yesterday. There's something wrong. If a deal like this can get done, the world is exercising inadequate prudence."
31:14	Shaan Puri	Specifically on mortgages or not? I just don't know. </FormattedResponse>
31:17	MFM	About mortgages—I never heard of mortgages. I never heard of subprime. I don't think I ever heard the word "subprime." I don't think I ever knew what a mortgage-backed security was. It just seemed that the world was operating in a pro-risk fashion, and when people are pro-risk they permit bad deals and they pay prices higher than they should. So what happened was: on the first day of 2007 we went out to our clients and said, "We think there's an opportunity." I don't think we raised funds in 2005 or 2006 for this distressed-debt area, but on the first day of 2007 we went out and said, "We think there's a great opportunity coming and we'd like to have $3,000,000,000." At that time the biggest distressed-debt fund in history was our 01 fund, which preceded the Enron meltdown, and it was $2,500,000,000 or so. We went out to clients and said we'd like to have $3,000,000,000—that would be the biggest distressed fund in history. Within a month we had $8,000,000,000, and we said, "We can't do anything with $8,000,000,000; it exceeds our ability to invest it wisely." So we decided to take $3,500,000,000 and close the fund, but we asked clients to keep the remainder of their interest in a standby fund that would be activated if things hit the fan. The first fund was Fund Seven and it was $3,500,000,000. The next fund was Fund 7B, and by the time we finished raising money for it a year later it was $11,000,000,000. Fund Seven got fully invested, so we started investing gradually—investing Fund 7B in June 2008. It was sitting on the shelf, and by September it was—no, by the eighteenth it was 12% invested, so just over $1,000,000,000. Then Lehman Brothers declared bankruptcy. So the question you implied was: do you invest it or not? You're sitting there with all that money, but it looks like the world's going to melt down. Do you invest it? Very simple—and as you say, I think this was one of our best moments—because I reached a very simple conclusion: if we invest it and the world melts down, it doesn't matter what we did. But if I don't invest it and the world doesn't melt down, then we didn't do our job. QED—you have to move forward. I also wrote that it's hard to predict the end of the world. It's hard to assign a high probability to it. It's hard to know what to do if the world is going to melt down. If you take those precautions and the world doesn't melt down, it's probably a disaster—and most of the time the world doesn't melt down. That was the sum of our analysis, because there was nothing else to analyze. There had never been a global financial crisis before; the meltdown of the financial sector had not been anticipated since the Great Depression, and there were no past patterns to extrapolate. So you have to resort to logic—that was the logic. So, as you say, we invested $450,000,000 a week for the next fifteen weeks in that fund [which was $7,000,000,000], and Oaktree overall invested an average of $650,000,000 a week for the next fifteen weeks. </FormattedResponse>
35:01	Sam Parr	How did that?
35:02	Shaan Puri	"Turn out... So that's what you put in. How did—what was the sort of result of that investing during that time?" "Well, it was..."
35:08	MFM	Great, except for... I mean, we got good buys and we made good money. But the Fed mobilized very astutely, cutting interest rates to zero for the first time in history at the beginning of ’09 and introducing QE (quantitative easing). Those two things saved the economy, so we didn't get the meltdown that everybody was afraid of. There were relatively few bankruptcies, especially outside the financial sector, that resulted from the global financial crisis. So, we've had some barn-burner funds and crises. This was very good, but not a barn burner.
35:52	Sam Parr	You've — you've done something that I love, which is you've quoted a ton of different people. You've quoted Mark Twain a bunch of times. You have all these quotes, which clearly shows that you retain information that you read. I imagine you read a lot. Can I ask you about your reading habits? How do you pick what books you read?
36:09	MFM	I've never read any books about how to be an investor — like, "multiply this by that and add this and subtract that." The books I've found most interesting have always been the ones about investor behavior. I mentioned Devil Take the Hindmost ('99). One of the greatest books I ever read was, before that, John Kenneth Galbraith's book called The Short History of Financial Euphoria. That was really pivotal for me. Since I'm a slow reader, I liked the fact that it was only about 100 pages. Back in '74, I think Charlie Ellis wrote an article called "Winning the Loser's Game," where he said that, because you can't predict the future, active investing doesn't work. He was a believer in the efficient market. Rather than try to hit winners like the tennis player, you should try to "avoid hitting losers and keep the ball in play," and that has always defined my investing style. In fact, I wrote a memo in '23 called "Fewer Winners, Fewer Losers, or More Winners." That's the basic choice of investing style.
37:24	Shaan Puri	There's a great — I think — math paradox that you've pointed out. It's that, you know, a fund — I don't know if it was your fund, but any fund — could be never in the top 10%, yet also never in the bottom 50%. There's a strategy of just consistently being above average; that will place you...
37:43	MFM	Right.</FormattedResponse>
37:43	Shaan Puri	In the top 5%, right? It'll place you in the top 5%. Can you unpack that idea a little bit? I just... I just sort of butchered it.
37:50	MFM	In 1990, I wrote a memo called "The Route to Performance." I had dinner in Minneapolis with my client, Dave Van Benskoten, who ran the General Mills pension fund. Dave explained that he had run the fund for fourteen years and, in fourteen years, the equities—General Mills' equity portfolio—were never above the 27th percentile or below the 47th percentile. So, fourteen years in a row solidly in the second quartile. Now, if you asked a normal person (not in the investment business), "So this thing fluctuated between the 27th and the 47th—where do you think it was for the whole?" they would say, "Well, let me think… probably around the 37th." The answer is fourth. At the same time, another investment management firm had a terrible year because they were deep-value investors and were heavy in the banks. The banks suffered terribly, so that firm was at the bottom. The president comes out—and of course people in the investment business are great rationalizers and communicators—and he says, "The answer is simple: if you want to be in the top 5% of money managers, you have to be willing to be in the bottom." That makes great sense, except my clients don't care if I'm ever in the top 5%. They absolutely don't want to see me in the bottom 5%. My reaction is that the first guy's approach is the right one for me. So that's why at Oaktree we go for fewer losers, not more winners.
39:29	Shaan Puri	Yeah, I love that because it's one of the unsexy ideas. I think any idea you can't make a movie about, or that won't make you sound really cool, is generally undervalued when it actually, logically, maths out the way that one does. So that was one that stuck out to me. Nobody's gonna give you a motivational video about being consistently above average and just never shooting yourself in the foot, right? It's all about heroic greatness, huge risks you can take, and being willing to do it. That's all you hear... but, you know.
40:04	MFM	The Financial Times of London — every Saturday they have an article called "Lunch with the FT" [a column in which they take somebody to lunch and write about the person, the restaurant, and the food]. They did that with me in late 2022, and I took the reporter to my favorite Italian restaurant near the office in New York, where I go 100% of the time if I have a lunch. I said to her, "Eating in this restaurant is like investing at Oak Tree: always good, sometimes great, never terrible." Now, to me that sounds like a modest boast. But if you can do that for 40 or 50 years, I think it will compound to great results — if you never shoot yourself in the foot. And I think it's — I don't know if the SEC is listening — but I think it's descriptive of what we've accomplished.
41:05	Sam Parr	There's this class of investor that's become a "folk hero." Warren Buffett is an obvious example. These figures are seen as people of high integrity who make greatness seem achievable and relatable — which is a whole skill in itself. You've become one of these folk heroes, and many of them have things in common: they write a lot, they write well, they have wonderful sayings, and they make challenging things easy to understand. Did you purposely try to become this kind of public figure? </FormattedResponse>
41:38	MFM	Well, first of all, you can't ask somebody if they did it because they'll say no. Nobody will admit that. Nobody will say, "My public persona is a facade."
41:49	Shaan Puri	Sam and I were joking before this. We were saying it's interesting how, when you started as an investor, there were no celebrity investors—no famous people doing what you were doing. Now you have, whether it's Buffett or Munger, the investment guys who are like the philosophers. The tech CEO nerds are now like the power players of the world. Podcasters and comedians are now like the new trusted media. It's a very strange shift on all fronts, where influence has sort of moved. I find that the investment-to-life-philosopher crossover is one of the really wholesome ones that I personally really like, you know.
42:33	MFM	Right. Well, you know, I hesitate to put myself in the same category, but I think Warren Buffett has always tried to just educate people and share his knowledge. People say, "Why do you give away your secrets? Aren't you afraid that other people will emulate you and catch up with you?" I don't think so. We can tell them all day long what they should do, but it's hard to do. Like we said at the beginning of the podcast, a friend of mine, Richard Oldfield in London, wrote a book once entitled "Simple but Not Easy." I think the things we have to do are simple; they're just not easy to do. I think Buffett makes investing seem simple because he boils it down to the essential ingredients. By the way, you said there were no famous investors, but I think Buffett started around 1953, if I'm not mistaken. He just wasn't famous. Yeah, there were a few people who were famous in the investment business, but I don't think anybody was famous in the wider world.
43:35	Sam Parr	"Oh, it's interesting. For normal guys like me and Sean, we learn from you about how to live life. Yeah — you just... that's kind of cool. Investing is just your way of testing if your way of living is true."
43:49	MFM	Right. Well, investing is a lot like life. And, by the way, I'm working on a book along those lines, Sam.
43:57	Sam Parr	What's it called?
43:59	MFM	"I don't know yet, but if you wait a few years, I think it'll be out."
44:06	Shaan Puri	Well, we appreciate you coming. I do want to leave you with a question for you. We've asked you a bunch of questions, but I actually think it'd be interesting: > "What question do you think people who listen to this should ask themselves? What's a useful question that you think people could ask themselves as a final note here?"
44:24	MFM	Well, I would think in terms of the mistakes that investors made, and I would ask yourself whether you make them. So what are the big mistakes investors make? I can think of three. 1. Do you think you hold — do you think you understand what the future holds, and do you reasonably think that's accurate? 2. The biggest single mistake is that investors think the world will remain the way it is: that the things that are working today will continue to work, that the things that aren't working will continue not to work, that the trends or the emotion will continue, and that there won't be any new trends. So, are you part of that? 3. Do your emotions rise and fall and get you to do what they want as opposed to what you should do? I think you just have to have a checklist. In my first book, the most important thing — I had a thing in there called "the poor man's guide to market assessment." It says, on the left, a bunch of things and, on the right, a bunch of things. It was half tongue-in-cheek, or maybe more than half, but it asks questions like: > Are the markets rising or falling? > Are the TV shows about investing popular or unpopular? > If an investor goes to a cocktail party, is he mobbed or shunned? > Are deals getting done easily or hard? > Do deals get oversubscribed or are people left begging? From that checklist you can tell whether the market is overheated and too popular, or frigid and too shunned. This can tell you a lot about what to do if you're methodical and clinical.
46:16	Sam Parr	Well, Sean and I have read your stuff forever. We've listened to so many of your podcasts. It's been an honor—we really appreciate you doing this. I think the best part of our job is that we have an excuse to hang out with amazing people who are way out of our league, and this is one of those occasions. Thank you so much.
46:32	MFM	Well, you, Sam. Thank you, Sean. I've enjoyed your questions, and let's do it again sometime.
46:37	Sam Parr	Alright, alright. You're the best. We appreciate you.
46:39	MFM	Bye bye.

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Howard Marks Warning: Why I'm Getting Out Now

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