New Howard Marks Letter on Negative Interest Rates: "Mysterious"

Oaktree Capital's chairman Howard Marks is out with his latest memo.  It is entitled "Mysterious" and deals with the topic of negative interest rates.

He writes, "The fact that we know what they are–as we do with inflation and deflation – doesn’t alter the fact that we don’t know for sure why negative rates are prevalent today, how long they’ll continue in force, what might cause them to turn positive, what their consequences are, or whether they’ll reach the U.S."

The rest of his letter follows.  Embedded below is Howard Marks' latest letter:



You can download a .pdf copy here.

For more from this manager be sure to check out his books Mastering the Market Cycle as well as The Most Important Thing.

Howard Marks' Latest Memo: Political Reality Meets Economic Reality

Oaktree Capital Chairman Howard Marks is out with his latest memo entitled Political Reality Meets Economic Reality.  In it, he spends the first part of the letter with interesting first and second order effects of the impact of tariffs, examining what's perceived as a benefit versus a risk. 

Marks then goes on to touch on something else that's worrying him even more: increasing anti-capitalist sentiment.

Rising populism is something he's watching, and he's not alone, as Ray Dalio of Bridgewater Associates has been cautioning about this as well.

Marks writes,

"A great deal of America's economic progress has resulted from people’s aspiration to make more and live better.  Take that away and what do we have?  The people at the bottom won’t have as many at the top to resent.  But without the contributions of those who aim for the top, everyone will have less to enjoy.  This is why I worry about the rise of negative sentiment toward capitalism and antipathy toward those who succeed under it."

Embedded below is Oaktree Capital's latest memo from Howard Marks:



You can download a .pdf copy here.

Don't forget that Marks also has a brand new book out: Mastering the Market Cycle that's definitely worth checking out.

Howard Marks Interview With Tim Ferriss on Mastering the Market Cycle

Tim Ferriss recently interviewed Oaktree Capital's Howard Marks on his popular podcast as part of Marks' press tour for his new book that's coming out: Mastering the Market Cycle: Getting the Odds on Your Side. Here are some notes/summary as well as the full audio below.


Howard Marks Interview on Tim Ferriss Podcast

- "You can't predict, you can prepare."  This quote is from one of Marks' memos from way back in the 1990s. He uses this to note that he didn't predict the housing crash, but he was prepared because of cautious preparation in advance.

-  His previous book The Most Important Thing outlines the concept that you have to know where we are in the cycle.  "And where you are in the cycle is the primary determinant of risk."  So his new book, Mastering the Market Cycle, focuses on that aspect because just knowing the position in the cycle is a huge advantage.

- The book focuses on looking at the future not as the past or something that's already happened that might repeat, but look at it as a range of possibilities, a probability distribution.

-  "Most of us have an inherent bias, (we're) essentially cautious or essentially aggressive."  He notes it's very important to assess your personal bias as that affects so much of your success in investing.

-  "One of the keys to successful investing is to either be unemotional or at a minimum, act like you are.  The great investors I know behave in an unemotional fashion."  The problem of course is teaching yourself to be unemotional is counter to human behavior.  So part of it is being born with that predisposition.

-  " 'I don't know.'  It's a great thing to say and not enough people say it."

-  Marks recommends people read Nassim Taleb's book, Fooled by Randomness

-  "There's nothing more dangerous in life than being sure you know something that you don't know."

-  Marks thinks the most useful chapter of his new book is the one that talks about one's attitude toward risk.  From the book: "If I could ask only one question about each investment I had under consideration, it would be, 'how much optimism is factored into the price?'"

-   "We make money from favorable surprises.  If the positive conviction is so high then by definition there can never be a favorable surprise."  Marks labeled this as a number one concept.

-  He says the greatest thing he was ever taught was about stages of a bull market and how people shift from not believing things will get better, to people accepting things are improving, to finally people believing the good times will go on forever.  Buying in the first phase gives cheapest prices because there's not much optimism in the price.  The second phase is when the favorable surprise happens.  Then you reach the phase where there's so much optimism in the price that it's unlikely to yield a profit.

-  Marks thinks we're in the 8th inning of the markets.  However, we don't know how many innings there are in the game.  In a normal game, the good times could be close to ending.  "I think this is a time for more caution than usual."

-  Marks likes playing backgammon since probability is the name of the game.

-  On cycles: the biggest mistake you can make is to ignore the repetitive nature of the cyclical pattern.

-  Marks likes reading Grant's Interest Rate Observer.  Another book that Marks has enjoyed: Factfulness, which he recommends as it takes qualitative viewpoints commonly held and debunks them with data.

- Marks believes bitcoin can't be valued.


Podcast Audio:  Here is the link to stream the podcast episode (mp3 format): click here



Be sure to also check out Marks' new book: Mastering the Market Cycle.

Howard Marks' New Memo: The Seven Worst Words in the World

Oaktree Capital Chairman Howard Marks has released his latest memo entitled "The Seven Worst Words in the World."  He starts the memo with a reminder that his new book comes out next week: Mastering the Market Cycle: Getting the Odds on Your Side.  His first book was excellent, so we're looking forward to this one too.

The words he's referring to in the title of his latest memo are: "Too much money chasing too few deals."  He uses this quote as a starting point for his thoughts on the market today.  Basically, he notes that the recovery from the recession with loose monetary policy has lasted ten years, and as such:

"While there certainly is no hard-and-fast rule that limits economic recoveries to ten years, it seems reasonable to assume based on history that the odds are against a ten-year-old recoverycontinuing much longer."

He feels the requirements have been met for a frothy market and has a cautious stance.  While he acknowledges things can go on for a bit longer, there are many conditions flashing warning signs.  Read on to ascertain why.

Embedded below is Howard Marks' latest memo, The Seven Worst Words in the World:



You can download a .pdf copy here.

Be sure to also check out Howard Marks' brand new book that is coming out: Mastering the Market Cycle: Getting the Odds on Your Side.

Howard Marks' New Memo: Investing Without People

Oaktree Capital's Chairman Howard Marks has penned his latest memo.  It is entitled Investing Without People and talks about the evolution of the markets with the increasing presence of index/passive investing, quant strategies, and machine learning/AI.

Marks writes,

"When people invest more in certain stocks than others, the prices of those stocks rise in relative terms. And when everyone decides to refrain from performing the functions of analysis, price discovery and capital allocation, the appropriateness of market prices can go out the window (as a result of passive investing, just as it does in a mindless boom or bust). The bottom line is that the wisdom of investing passively depends, ironically, on some people investing actively. When active investing is dismissed totally and all active efforts cease, passive investing will become imprudent and opportunities for superior returns from active investing will reemerge. At least that’s the way I see it."

He then concedes that computers can do many things better than investors. But at the same time he notes that, "Computers can do an unmatched job dealing with the things that can be counted: things that are quantitative and objective. But many other things – qualitative, subjective things – count for a great deal, and I doubt computers can do what the very best investors do."

Marks' Upcoming New Book

Also, it was recently revealed that Marks has a new book coming out in a few months entitled Mastering The Market Cycle: Getting The Odds On Your Side.

Marks' Latest Memo

Embedded below is Howard Marks' new memo, Investing Without People



You can download a .pdf copy here.

Howard Marks Latest Memo on Markets & Tax Cuts

Oaktree Capital's Chairman Howard Marks is out with his latest memo entitled "Latest Thinking."  In it, he details his take on the markets and tax cuts.

He begins by highlighting the positives: fundamentals are solid, worldwide growth is in full effect, deregulation and pro-business policies are in place, etc. 

He then turns to the negatives, writing.

"Most valuation parameters are either the richest ever (Buffett ratio of stock market capitalization to GDP, price-to-sales ratio, the VIX, bond yields, private equity transaction multiples, real estate capitalization ratios) or among the highest in history (p/e ratios, Shiller cycle-adusted p/e ratio).  In the past, levels like these were followed by downturns.  Thus a decision to invest today has to rely on the belief that 'it's different this time.' Prospective returns in the vast majority of asset classes are some of the lowest in history."

Marks says that he would be on the "defensive or cautious part of the spectrum" in regards to portfolio construction at the moment.   You can read his full thoughts:

Embedded below is Howard Marks' new memo, "Latest Thinking":



You can download a .pdf copy here.

For more from this investor, be sure to also read his well-known book, The Most Important Thing.

Graham & Doddsville Latest Issue: Howard Marks Interview & Pitches on SPR, SERV

The Fall 2017 issue of Columbia Business School's newsletter Graham & Doddsville has been released.  In it, they feature an interview with Howard Marks of Oaktree Capital.  We've highlighted many of Marks' letters in the past.

The new issue also features Paul Sonkin of GAMCO Investors/Gabelli Funds who talks about learning from mistakes and pitching the perfect investment.

Additionally, they profile Jeremy Weisstrub's new firm, Aryeh Capital Management.  Prior to founding the new firm, he worked at Greenlight Capital.  He talks about his bullishness on shares of ServiceMaster (SERV), which includes businesses like Terminix, American Home Shield, and more.

The newsletter also features student investment pitches, including long Spirit Aerosystems (SPR), which was the winning pitch at the Women in Investing (WIN) Conference.

Embedded below is the fall issue of Graham & Doddsville:



You can download a .pdf copy here.

Howard Marks' New Memo: "Yet Again?"

Oaktree Capital's Chairman Howard Marks is out with another memo.  This one is entitled "Yet Again?"

He says his previous memo, "There They Go Again... Again" received the most response he's ever received in 28 years of writing memos. 

His newest memo touches on the response and why he feels the way he does on where the market is currently.  He also addresses topics such as FAANG stocks, Bitcoin, and passive investing, among others.

Embedded below is Howard Mark's new memo: Yet Again?



You can download a .pdf copy here.

Be sure to also read Marks' cautionary memo on cycles.

Howard Marks' Cautionary New Memo on Cycles: "There They Go Again... Again"

Oaktree Capital Chairman Howard Marks is out with a new memo.  It's entitled "There They Go Again... Again."  He notes that, "Some of the memos I'm happiest about having written came at times when bullish trends went too far, risk aversion disappeared and bubbles inflated."  He feels that it's time again for a cautionary memo.

His latest writings delve into the topics of cycles and what seeds are needed for the foundation of a bull market, boom or bubble.  He outlines how investors gradually shift from a benign environment, to one with more money than ideas, to suspension of disbelief, to rejection of valuation norms, to eventually the almighty "fear of missing out."

While Marks says many of the ingredients are in play today, a few usual ingredients are notably missing.  He also writes that, "Most people can't think of what might cause trouble anytime soon.  But it's precisely when people can't see what it is that could make things turn down that risk is highest, since they tend not to price in risks they can't see."

This is an excellent memo and worth reading in its entirety.

Embedded below is Oaktree Capital and Howard Marks' new memo: There They Go Again... Again:



You can download a .pdf copy here.

For more letters from prominent investors, we've recently posted Third Point's Q2 letter and Greenlight Capital's Q2 letter.

Howard Marks Interviews Bruce Karsh at Wharton School

University of Pennsylvania's Wharton School has started a Howard Marks investor series where the founder of Oaktree Capital interviews outstanding investors and this time around he's interviewed Bruce Karsh, his co-founder at Oaktree.

They talk about the founding of Oaktree, distressed investing, and a myriad of other topics. 

Embedded below is the video of Howard Marks' interview with Bruce Karsh:



For more from Marks, check out his most recent memo: Lines in the Sand.

Howard Marks' Latest Memo: Lines in the Sand

Oaktree Capital's Chairman Howard Marks has just penned a new memo entitled, "Lines in the Sand."  In it, he addresses the use of subscription lines in private equity, real estate, distressed debt and other fields.

His piece asks investors to consider the implications of closed-end funds' increasing use of subscription lines.  He seems to conclude that subscription lines 'may be adding to risk at a variety of levels.'

Marks also notes,

"The key to financial security  –  individual or societal  – doesn’t lie in counting on things to work  in good times or on average.  Rather, it consists of figuring out what can go wrong in bad times,  and of only doing things that will prove survivable even if they materialize."

Embedded below is Howard Marks' new memo: Lines in the Sand



You can download a .pdf copy here.

For more from this investor, we also just posted Marks' recent presentation: The Truth About Investing.

Howard Marks: The Truth About Investing

Oaktree Capital's Chairman Howard Marks has put together a slideshow entitled The Truth About Investing which was posted by the CFA Society.  In it, he outlines the nuances of investing and also includes notable quotes from others.

Some highlights include:

"The price of a security  at a given point in time reflects  the consensus of investors  regarding its value.  The big gains arise when the consensus turns out to have  underestimated  reality.    To be able to take advantage of such divergences, you have  to think  in a way that departs from the consensus; you have to think  different and  better.   This goal can be described as “second - level thinking” or “variant perception.”

Also:

"Superior performance doesn’t come from being right, but from being more right  than the consensus.   You can be right about something and perform just average if  everyone else  is right, too.  Or you can be wrong and outperform if everyone else is  more wrong."

As well as:

"To be a successful investor, you have to have a philosophy  and process you believe  in and can stick  to, even under pressure.   Since no approach will allow you to profit  from all types of opportunities or in all environments, you have to be willing  to not  participate  in everything  that goes up, only the things that fit your approach. To be a  disciplined investor, you have to be able to stand by and watch as other people make  money in things you passed on."


Embedded below is Howard Marks' slideshow presentation: The Truth About Investing:



You can download a .pdf copy here.

For more from this investor, be sure to check out his book, The Most Important Thing, which is highly recommended if you found the above insightful.

We've also previously posted Howard Marks' latest memo: Expert Opinion.

Howard Marks' Latest Memo: Expert Opinion

Oaktree Capital's Chairman Howard Marks has penned yet another memo entitled Expert Opinion.

He notes that, "There are no facts about the future, just opinions.  Anyone who asserts with conviction what he thinks will happen in the macro future is overstating his foresight, whether out of ignorance, hubris or dishonesty."

Embedded below is Oaktree Capital's latest memo from Howard Marks: "Expert Opinion"

 

We've posted up a bunch of letters today, so be sure to also check out Third Point's Q4 letter as well as Greenlight Capital's Q4 letter.

Howard Marks' Latest Memo: 'Go Figure'

Oaktree Capital's Chairman Howard Marks has been penning quite a few more letters than usual recently.  He's just released another one entitled 'Go Figure' where he talks about the results of the US Presidential election and implications.

Embedded below is Howard Marks' latest memo, 'Go Figure':



You can download a .pdf copy here.

Howard Marks' Latest Memo: Implications of the Election

Oaktree Capital's Chairman Howard Marks has just penned another memo entitled "Implications of the Election."

Embedded below is Howard Marks' latest memo:



You can download a .pdf copy here.

For more recent hedge fund commentary, we've also posted up Third Point's Q3 letter.

Howard Marks' New Memo "Political Reality"

Oaktree Capital's Chairman Howard Marks has been busy writing memos these days.  We posted his most recent note, Economic Reality recently.  Now he's released another missive, entitled "Political Reality."

As the title implies, this one is less investing related and more about the political and economic environment.  

Embedded below is Howard Marks' memo:



You can download a .pdf copy here.

For more from Marks, be sure to also check out his highly praised book on investing, The Most Important Thing.

Howard Marks' Addendum to 'Economic Reality' Memo

Howard Marks of Oaktree Capital released his most recent memo entitled 'Economic Reality' a few months ago.  However, we forgot to post the addendum he added to it.  The original piece is insightful so definitely check it out if if you haven't already via the link above.

Here's what he added:

"There’s been a lot of response since the memo that follows was originally published on May 26.  In the discussions that have ensued, I realized that I should have led with something like this:  

Ultimately, economics is the study of choice.  Because choices range over every imaginable aspect of human experience, so does economics. . . .  

How do individuals make choices:  Would you like better grades?  More time to relax?  More time watching movies?  Getting better grades probably requires more time studying, and perhaps less relaxation and entertainment.  Not only must we make choices as individuals, we must make choices as a society.  Do we want a cleaner environment?  Faster economic growth?  Both may be desirable, but efforts to clean up the environment may conflict with faster economic growth.  Society must make choices. . . .  

We would always like more and better housing, more and better education – more and better of practically everything.  

If our resources were . . . unlimited, we could say yes to each of our wants – and there would be no economics.  Because our resources are limited, we cannot say yes to everything.  To say yes to one thing requires that we say no to another.  Whether we like it or not, we must make choices.  

Our unlimited wants are continually colliding with the limits of our resources, forcing us to pick some activities and to reject others.  Scarcity is the condition of having to choose among alternatives.  (Macroeconomics Principles, Libby Rittenberg and Tim Tregarthen.  Emphasis added)  

Because of the above, we make economic choices every day.  Everyone knows choices like these are inescapable.   

Everyone, that is, except for politicians.  The politician promises better grades and more leisure time.  A cleaner environment and faster economic growth.  That’s what caused me to write the memo: in politics and government – unlike the real world – the word “or” often goes out the window, replaced by “and.”  No choices are necessary.   

A few months ago I saw a cartoon featuring caricatures of two primary opponents.  Under one it said “bulls**t” and under the other it said “free s**t.”  There’s bound to be a lot of the former in any election season, but economics tells us the latter is unrealistic.  I wrote this memo to help readers understand why."

You can read the rest of Howard Marks' memo 'Economic Reality' here.


For more on this investor, check out Howard Marks' presentation at the London Value Investor Conference.

Howard Marks' Presentation at London Value Investor Conference

We're posting notes from the London Value Investor Conference 2016.  Next up is Howard Marks of Oaktree Capital.


Howard Marks' London Value Investor Conference Presentation

Markets have been pretty boring for the last six years. We have to keep our focus in times of boredom.  We are living through a period of complacency with zero interest rates leading some to believe in TINA (there is no alternative). There are no areas of acute over-valuation in Marks’s main markets which are corporate bonds, distressed debt, and real estate. In the stock market he thinks social media stocks are overvalued.

Everyone thinks that interest rates will remain low in the future, there is low demand for capital and the demographics are quite poor. His intellectual side says that low growth is here to stay. His alter ego tells him that when everyone is thinking the same thing he should be more optimistic. However, he did say that he does not listen to his alter ego very often.

Value investing is a big tent.  He also referred to it as the value pantheon. It ranges on a continuum from cigar butts to investing in franchise businesses with large moats and good management at a reasonable price.  He referred to this as Buffett’s journey. What is outside the value tent? Only dreams – companies with no earnings and only growth prospects.

Marks said that he had never carried out a liquidation and that he was not drawn to the cigar butt end of the spectrum. Because he wants high returns, he is very price sensitive so he does not buy safe, quality, unleveraged companies. He is somewhere in the middle of the value pantheon.

When Marks and his partners set up Oaktree they adopted the motto, “If you avoid the losers the winners will take care of themselves.”  In high yield bonds Oaktree have only suffered a 1.4% default rate. While avoiding the losers worked in bonds as they moved into other markets like distressed debt and mezzanine it became less appropriate. If you want more than high single digit returns in these markets you have to do more than avoid losers. ‘Risk control’ and ‘loss avoidance’ are important but not ‘risk avoidance’.  He warned that risk avoidance often leads to return avoidance.

If you hear that an asset is so dangerous that there is no price at which it can be bought your antennae should prick up. It probably means it is a good time to buy.  Throughout his career he has bought assets that other people would not invest in. When an asset class gains a reputation for being unseemly and becomes stigmatised like high yield bonds in the 1980s, emerging markets in the late 1990s, bank securities in 2008 and more recently the oil sector it is usually time to buy.

Investing is harder today than earlier in his career because there is more competition from other investors. The search for bargains has become more intense. Like the growth investor, the value investor needs to think about disruption. He highlighted the big changes a foot in the media, television cable area as an example.

Oaktree put some money to work in the oil sector earlier this year. They have been doing more commercial real estate investing than anything else over the last five years.   The real estate market is heterogeneous. Prime office buildings are expensive in the US today. They have been busiest in out-of-the-way places in non-prime properties. He mentioned that they have been buying zombie properties that require renovation and new tenants which they have been buying from banks at a discount.

Howard Marks' recommended reading for young investors:

- Berkshire Hathaway's annual reports written by Warren Buffett

- Ben Graham's The Intelligent Investor

- Chapter 1 of Marks' book The Most Important Thing on second level thinking


Be sure to check out the rest of the presentations from the London Value Investor Conference.

Howard Marks' Latest Memo: Economic Reality

Oaktree Capital's chairman Howard Marks is out with his latest memo entitled Economic Reality.  If you haven't spent time reading any of Marks' stuff before, all you really need to know is that Warren Buffett reads them religiously.

Marks' latest letter touches on the actions of central banks and governments and the underlying effects on economies.

Embedded below is Howard Marks' latest memo: 'Economic Reality'



You can download a .pdf copy here.

To hear more from Oaktree's chairman, head to Howard Marks' talk at Google.

For more recent fund manager letters, head to Third Point's Q1 letter and Greenlight Capital's Q1 letter.

Howard Marks' Talk at Google: The Most Important Thing

This week, we're posting up the various "Talks at Google" that focus on investing.  These typically feature authors of well known investment books.  Next up is Oaktree Capital's Howard Marks.  He is the author of The Most Important Thing: Uncommon Sense for the Thoughtful Investor.

Marks often shares wisdom in periodic memos that we always post on the site (you can scroll through his past letters here).  His thoughts are widely read (even by the likes of Warren Buffett) as they constantly feature enlightenment on various investing topics.

He is known for his belief of investing as part psychology and part finance.    In this talk he shares his wisdom as well as origins and inspirations for the book.

Embedded below is the video of Howard Marks' Talk at Google:



You can read Howard Marks' book The Most Important Thing here.