Howard Marks' $2.2 Billion Investing Playbook
“Be careful the environment you choose, for it will shape you; be careful the friends you choose for you will become like them.” – W. Clement Stone
Howard Marks is a highly respected American investor and co-founder of Oaktree Capital Management, known for his expertise in distressed debt and alternative investments. With a net worth of approximately $2.2 billion, Marks has achieved a remarkable track record, with his funds delivering an average return of 19% net of fees over the long term.
Digging deep into Howard Marks's investment philosophy reveals valuable insights into understanding risk and the importance of buying assets for less than their intrinsic worth. His strategies challenge conventional wisdom and provide a practical framework for navigating the complexities of investing:
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CORE INVESTING PHILOSOPHY
Secret of Success
Success isn’t just about acquiring high-quality assets; it’s about purchasing assets for less than they’re worth, ensuring value by paying the right price.
Price over Quality
Overpaying for even the best companies can lead to losses; buying well-priced assets is more critical than the asset quality itself.
Risk Control
Investing wisely is balancing potential upside with limited downside, avoiding risks that offer inadequate rewards.
"It’s not what you buy; it’s what you pay for it." – Howard Marks
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CORE INVESTING PHILOSOPHY
Secret of Success
Success isn’t just about acquiring high-quality assets; it’s about purchasing assets for less than they’re worth, ensuring value by paying the right price.
Price over Quality
Overpaying for even the best companies can lead to losses; buying well-priced assets is more critical than the asset quality itself.
Risk Control
Investing wisely is balancing potential upside with limited downside, avoiding risks that offer inadequate rewards.
"It’s not what you buy; it’s what you pay for it." – Howard Marks
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AVOIDING LOSERS OVER PICKINGWINNERS
“If we avoid the losers, the winners will take care of themselves.”
Marks advocates focusing on excluding bad investments rather than trying to find top performers.
This approach echoes earlier investment philosophies from Benjamin Graham and Jesse Livermore, emphasizing that avoiding significant losses enables success.
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AVOIDING LOSERS OVER PICKINGWINNERS
“If we avoid the losers, the winners will take care of themselves.”
Marks advocates focusing on excluding bad investments rather than trying to find top performers.
This approach echoes earlier investment philosophies from Benjamin Graham and Jesse Livermore, emphasizing that avoiding significant losses enables success.
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MARKET MIS-PRICING & INVESTMENT CHALLENGES
Ignorance and bias are primary drivers of market mispricing. Investing is inherently challenging and goes against natural instincts, and Marks emphasizes that predicting the market is essentially impossible.
Marks advocates focusing on excluding bad investments rather than trying to find top performers.
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MARKET MIS-PRICING & INVESTMENT CHALLENGES
Ignorance and bias are primary drivers of market mispricing. Investing is inherently challenging and goes against natural instincts, and Marks emphasizes that predicting the market is essentially impossible.
Marks advocates focusing on excluding bad investments rather than trying to find top performers.
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RISK CONTROL, NOT RISK AVOIDANCE
"Knowing what you don’t know is more useful than being brilliant."
Distinction
Risk control isn’t about avoiding all risks but about managing risk so it aligns with one's tolerance and potential reward.
Risk vs. Return
Low-risk choices (like Treasury bills) offer lower returns. Prudent risk control balances the willingness to accept some losses for the chance of higher returns.
Importance of Risk
Awareness
Asking “What could I lose if things go wrong?” is as critical as considering potential gains.
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RISK CONTROL, NOT RISK AVOIDANCE
"Knowing what you don’t know is more useful than being brilliant."
Distinction
Risk control isn’t about avoiding all risks but about managing risk so it aligns with one's tolerance and potential reward.
Risk vs. Return
Low-risk choices (like Treasury bills) offer lower returns. Prudent risk control balances the willingness to accept some losses for the chance of higher returns.
Importance of Risk
Awareness
Asking “What could I lose if things go wrong?” is as critical as considering potential gains.
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PATIENCE & LONG-TERM SUCCESS
Marks values consistent, slightly better-than-average performance, which he believes will outperform volatile attempts to achieve top-tier returns every year.
Buffett and Munger’s Example: Many successful investors have had a few significant winners rather than consistent high performers, emphasizing the role of patience and holding on to strong investments for extended periods.
Accepting Losses: Marks advises that having some losses is natural and necessary for growth, as aiming for zero losses would imply no risk-taking at all.
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PATIENCE & LONG-TERM SUCCESS
Marks values consistent, slightly better-than-average performance, which he believes will outperform volatile attempts to achieve top-tier returns every year.
Buffett and Munger’s Example: Many successful investors have had a few significant winners rather than consistent high performers, emphasizing the role of patience and holding on to strong investments for extended periods.
Accepting Losses: Marks advises that having some losses is natural and necessary for growth, as aiming for zero losses would imply no risk-taking at all.
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CONCLUSION: EFFECTIVE INVESTMENT STRATEGY
Aspirational Strategies & Controlled Risk
Oaktree employs "aspirational strategies" that require some big winners, yet their guiding principle remains risk control to prevent heavy losses.
Avoid Short-term Performance Goals
Marks discourages focusing on immediate gains, instead advising a disciplined approach aimed at securing reliable results through both good and bad market cycles.
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CONCLUSION: EFFECTIVE INVESTMENT STRATEGY
Aspirational Strategies & Controlled Risk
Oaktree employs "aspirational strategies" that require some big winners, yet their guiding principle remains risk control to prevent heavy losses.
Avoid Short-term Performance Goals
Marks discourages focusing on immediate gains, instead advising a disciplined approach aimed at securing reliable results through both good and bad market cycles.
Avoid the herd. Play to win.
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