Howard Marks - Co-founder of Oaktree | Podcast | In Good Company | Norges Bank Investment Management

Episode Overview

• Howard Marks shares his core investment philosophy, developed over 50 years and centered on risk control, consistency, and an acknowledgment of the "limits on knowledge."
• The conversation emphasizes the critical distinction between skill and luck, arguing that the quality of a decision cannot be judged by its outcome due to the significant role of randomness.
• Marks explains his belief in understanding market cycles, which are driven by the pendulum of human psychology, as a way to position a portfolio rather than engaging in futile macro-forecasting.
• The discussion highlights the psychological discipline required for successful investing, including embracing uncertainty, avoiding the danger of certainty, and having the courage to be a contrarian.

Key Concepts

• Core Investment Philosophy: Oaktree's philosophy is built on six tenets, with the most important being risk control. Other key principles include seeking consistency, operating in inefficient markets, specialization, and skepticism of macro-forecasting.
• Intelligent Risk-Taking: Profitable risk-taking requires that the risk is understood, analyzable, diversifiable, and that the investor is highly compensated for bearing it.
• Randomness vs. Skill: Short-term success can result from luck (aggressiveness at the right time), but long-term, repeatable success is the product of genuine skill. Good decisions can have bad outcomes, and vice-versa.
• Understanding Market Cycles: While timing the market is impossible, identifying where the market is in its cycle—assessing the prevailing mood of greed versus fear—is a crucial tool for positioning a portfolio appropriately.
• The Danger of Certainty: The biggest investment errors often stem from "what you know for certain that just ain't true." Acknowledging uncertainty and what you don't know is a strength.
• Contrarian Investing: True contrarianism isn't just opposing the crowd; it involves deep analysis to identify when the consensus is wrong and acting when the odds are overwhelmingly in your favor.
• Risk Control as a "Negative Art": The primary goal is often to avoid losers, particularly in fixed-income investing. If the downside is managed, the upside will take care of itself.

Quotes

• At 4:40 - "I think that what they all emphasize, in my opinion, is the limits on knowledge." - Marks identifies the foundational idea behind his six investment principles: a humble recognition of what cannot be known.
• At 6:16 - "You can't tell the quality of a decision from the outcome." - He shares a fundamental lesson on the role of randomness in investing, separating the process from the result.
• At 18:20 - "It ain't what you don't know that gets you into trouble. It's what you know for certain that just ain't true." - Quoting Mark Twain to highlight the danger of excessive certainty in investing.
• At 23:32 - "If we avoid the losers, the winners take care of themselves." - Stating the original motto for Oaktree, rooted in the firm's risk-control-oriented investing approach.
• At 32:30 - "You have to dare to be different... you have to be dare to be wrong... and number three, you have to dare to look wrong." - Outlining the three essential, psychologically difficult traits of a successful contrarian investor.

Takeaways

• Prioritize a sound decision-making process over short-term outcomes, as luck plays a significant role in the near term.
• Cultivate intellectual humility; the greatest risks often lie in being certain about a future that is inherently unpredictable.
• Use your understanding of market psychology to assess the current environment and position your portfolio, rather than trying to time market tops and bottoms.
• To achieve superior results, you must have the analytical rigor to develop a non-consensus view and the psychological fortitude to stick with it, even when it makes you look wrong.