This week on our Masters in Business radio podcast, we speak with our 3 time returning champion Howard Marks of Oaktree Capital. (You can hear our prior conversations here 2015 and here 2017). Oaktree manages ~$122 billion dollars in distressed debt. He is the the author of the highly regarded The Most Important Thing. His new book is “Mastering the Market Cycle: Getting the Odds on Your Side.”
He likes to quote Elroy Dimson, professor at the London Business School about Risk: “More things can happen than will happen.”
Marks formed Oaktree Capital with his partners in 1995, running high-yield bonds, distressed debt, private equity, and other strategies. Their returns have been spectacular, averaging ~19% per year after fees over the past 22 years. He describes setting up a $3 billion distressed debt fund by raising capital in 2007. It was oversubscribed so much they had to set up a second one, and between the two funds they had a war chest of $11 billion dollars to buy when everyone else was panic selling. That worked out pretty okay…
“All you had to do to make money in the crisis – was have money to spend and the nerve to spend to it. You didn’t need caution, conservatism, risk control, patience selectivity, discipline, any of those things. All you needed was money & nerve. But not all the time, because sometime money and nerve will get you killed. One of the keys to investing is to know which is which.”
Marks is known for his Chairman’s Memos that he has been his creative outlet since 1990. He describes the first decade of printing them — literally on paper, inserting them into stamped envelopes and physically mailing them off into the world — where he received precisely zero response. “We didn’t even know if anyone got them.” His January 2000 letter “Bubble.com” — was not only dead right, but pretty well timed, becoming a huge Barron’s cover story. That was his inkling that people were even reading these.
His favorite books are listed here; our transcript is posted here.
You can stream/download the full conversation, including the podcast extras on iTunes, Bloomberg, Overcast, and Stitcher. Our earlier podcasts can all be found at iTunes, Stitcher, Overcast, and Bloomberg.
Next week, we speak with Rex Sorgatz, author of The Encyclopedia of Misinformation.
Howard Marks Favorite Books
Against the Gods: The Remarkable Story of Risk by Peter Bernstein
Winning the Loser’s Game, 6th edition: Timeless Strategies for Successful Investing
A Short History of Financial Euphoria by John Kenneth Galbraith
Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Taleb