Howard Marks & Andrew Marks: Something of Value

Episode Summary

Executive Summary: Acquired hosts interview Howard Marks and his son Andrew Marks about value investing, growth investing, and how markets, companies, and firm-building have evolved. The conversation argues that rigid investing doctrines are less useful than open-minded, context-driven judgment, especially as technology accelerates disruption, information spreads instantly, and private markets reward qualitative insight.

Main Topics: Value vs. growth investing is a spectrum, not a binary (Priority: 5/5): Howard and Andrew argue that the classic divide between value and growth is too rigid. Great investing requires understanding business economics, reinvestment opportunities, and what is already priced in, rather than adhering to fixed labels. How market structure and technology changed investing (Priority: 5/5): They discuss how information availability, lower friction, and faster technological adoption have made public markets more efficient and competition more intense, reducing easy mispricings and increasing the need for differentiated insight. Optionality, reinvestment, and Amazon as a case study (Priority: 4/5): Amazon is used to illustrate how businesses can create value far beyond initial assumptions if management can reinvest at high returns and leverage a strong platform into adjacent opportunities like AWS. Judgment, second-level thinking, and founder evaluation (Priority: 5/5): Both speakers emphasize that good investing depends on qualitative judgment, intellectual humility, and understanding unusual founders who can build category-defining companies. In venture, backing the right people matters more than any spreadsheet. Selling discipline and the danger of price-action thinking (Priority: 4/5): They debate when to sell, arguing that sales should be based on thesis, opportunity cost, and future compounding potential—not just whether a position is up or down. Building an investment firm as a separate skill from investing (Priority: 4/5): Howard and Andrew compare Oaktree and TQ Ventures, showing that firm-building depends on culture, complementary skills, and aligning the business structure with the founders’ strengths. Career fit, personality, and evolution over time (Priority: 4/5): A recurring theme is that investors should choose roles that suit their temperament. Howard was naturally suited to credit and distressed debt; Andrew is better suited to venture and long-horizon qualitative investing.

Key Arguments: Rigid value/growth labels are misleading; the real job is to identify future cash flows and compare them to price, regardless of style. A company can look unprofitable on the income statement while still being economically strong if it has favorable cash conversion and reinvestment opportunities. Information is more ubiquitous than ever, so public-market edge now requires real insight, not just access to basic data. The internet and global distribution expanded the size of winners, but faster change also makes moats more fragile. The best venture investments require exceptional founders, because even a great idea is not enough without unusual judgment and execution. Selling decisions should be driven by investment thesis and opportunity cost, not emotional reactions to gains or losses. The best firms are built by matching strategy to personality, maintaining culture, and letting partners specialize in what they do best.

Data Points: Oaktree AUM: $159 billion - Howard Marks describes Oaktree’s scale as of the end of June 2022. TQ Ventures assets under management: $1 billion - Andrew Marks says TQ Ventures has reached about $1 billion under management. TQ third fund size: $500 million - Andrew notes TQ recently closed its third fund. Oaktree memo count: about 160 - Howard estimates he had written roughly 160 memos before the co-authored memo. Oaktree founding year: 1995 - Howard references starting Oaktree in 1995 when discussing his career timeline and exit. Howard Marks at Oaktree launch: 27 years old - He says he was 27 when Oaktree started. Length of Howard and Andrew living together during COVID: March to June 2020 - Howard recalls the family living together in Los Angeles after the March 6, 2020 trip. Career at Citibank: 1969 to 1978 - Howard says he worked in equity research at Citibank for that period before moving to credit. Credit career span: 44 years - Howard says he spent the last 44 years in credit. Fund percentile example: 27th to 47th percentile yearly; 4th percentile overall - Howard describes a pension fund that looked mediocre annually but ranked fourth over 14 years. Default-free? no: single-B bonds and below were treated as non-investment grade in 1978 - Howard discusses the prejudice against low-rated bonds in the era before high-yield became accepted. Amazon stock example: $6 to $3,300 - Used in the selling discussion to show how premature selling can destroy upside in compounding winners. Nifty 50 P/E: roughly 16 to 90+ - Howard says many Nifty 50 stocks traded far above normal post-war valuations, around 90 PE, versus a normal S&P PE near 16. Wall Street Journal / public market adoption: internet and global markets enabled much larger scale winners - Andrew references companies like Apple, Amazon, Google, and Microsoft as beneficiaries of global reach and adjacent-market expansion.

Pivotal Quotes: "The path to exceptionality cannot come through doing what everybody else does." — Howard Marks: Howard explains why investors must be open-minded and willing to differ from consensus. "Readily available quantitative information about the present is not going to give you the key to the castle." — Howard Marks: He argues that modern markets require better qualitative judgment and future-oriented thinking. "If you're not competitive, you shouldn't be in the investment business." — Andrew Marks: Andrew describes the mindset that drives TQ Ventures and long-term performance focus.

Implications: For investors, the episode argues for flexible thinking, deeper thesis work, and founder judgment over rigid style rules. It also suggests public markets are harder to exploit, while venture and other illiquid arenas reward qualitative insight and patience.