Howard Marks

Howard Marks is a legendary American investor, writer, and co-founder of Oaktree Capital Management, one of the world's largest investors in alternative assets. While his firm specializes in complex areas like distressed securities and high-yield bonds, Marks has earned a global following for his ability to distill profound investment wisdom into clear, accessible prose. His fame among ordinary investors stems primarily from his widely-read “memos” and his seminal book, The Most Important Thing. A titan in the value investing community, Marks champions a philosophy centered on superior thinking, rigorous risk control, and a deep understanding of market psychology. He teaches that successful investing isn't about brilliant forecasting but about positioning your portfolio to survive and thrive through the market's inevitable cycles. His work provides an invaluable framework for anyone looking to navigate the complexities of investing with discipline and insight, making him a must-read for value-oriented investors.

Born in 1946, Howard Stanley Marks began his career in finance in the late 1960s. After earning an MBA in Finance from the prestigious University of Chicago Booth School of Business, he worked at Citicorp and later TCW Group. In 1995, he co-founded Oaktree Capital Management, a firm that became renowned for its expertise in investing in out-of-favour and less-trafficked corners of the market. Oaktree's success, particularly during market downturns, cemented Marks's reputation as a master of risk management and contrarian investing. Unlike many of his peers who remain private, Marks actively shares his thoughts through his regular memos, which have achieved a cult following for their clarity and timeless wisdom. Even Warren Buffett has said, “When I see memos from Howard Marks in my mail, they're the first thing I open and read.”

Marks's philosophy is not a rigid formula but a way of thinking. It’s built on a few powerful, interconnected concepts that help investors make better decisions under uncertainty.

This is the cornerstone of Marks's approach. While first-level thinking is simplistic and superficial, second-level thinking is deep, complex, and unconventional.

• First-Level Thinking says: “This is a great company, let's buy the stock.”
• Second-Level Thinking asks: “Yes, it's a great company, but does everyone else think so too? Is its quality already reflected in the price? What are the expectations baked into that price, and what is the probability they won't be met?”

To succeed, you must think differently and better than the crowd. Second-level thinking requires you to consider a whole range of possible outcomes, not just the most obvious one.

For Marks, the most important thing is risk control. He defines risk not as volatility but as the probability of a permanent loss of capital. Great investing is about taking calculated risks when the potential return adequately compensates you for the risk you're bearing. He is famous for his analogy of the market cycle as a pendulum. It constantly swings from euphoria to depression, from being overpriced to underpriced. A smart investor's goal is not to predict the exact top or bottom of the swing but to know where the pendulum is in its arc.

• When the pendulum is near its euphoric extreme (greed is high, prices are high), it's time to be cautious.
• When it swings to its depressive extreme (fear is rampant, prices are low), it's time to be aggressive.

True to value investing principles, Marks insists on the relationship between price and intrinsic value. The goal is always to buy an asset for less than your estimate of its inherent worth. This creates a margin of safety. He emphasizes that there's no such thing as a good or bad asset in a vacuum; it all depends on the price you pay. A great company can be a terrible investment if you overpay for it, and a mediocre company can be a fantastic investment if you buy it cheap enough.

Since 1990, Marks has been writing detailed memos to Oaktree's clients. These memos are not marketing fluff but are deep dives into his thinking on market conditions, investor psychology, and timeless investment principles. They are available for free on the Oaktree website and offer an incredible education for any serious investor. They combine market history, psychological insight, and practical advice in an easily digestible format. His book, The Most Important Thing: Uncommon Sense for the Thoughtful Investor, is a compilation and expansion of the key themes from these memos.

Distilling Howard Marks's wisdom gives us a powerful toolkit for navigating the investment world.

• Think Deeper: Don't just accept the popular narrative. Ask “And then what?”. Cultivate second-level thinking to find opportunities others miss.
• Master Your Emotions: The biggest enemy is often yourself. Understand the market pendulum and resist the pull of greed and fear. Be brave when others are terrified and cautious when they're euphoric.
• Focus on Not Losing: Prioritize avoiding permanent losses over chasing spectacular gains. If you avoid the big mistakes, the wins will take care of themselves.
• Price is What Matters: You can't control a company's earnings, but you can control the price you pay for its stock. Insist on a margin of safety.
• Read, Read, Read: Start with Marks's book, The Most Important Thing, and then dive into his free memos online. The education you'll receive is priceless.