Howard Marks: how I make money while you worry about a market crash

Episode Summary

Executive Summary: Howard Marks explains why he upgraded his view on AI after new information, emphasizing its autonomy, speed, and unpredictability while arguing humans will still matter where judgment, intuition, and novel situations are involved. The conversation also explores second-level thinking, decision-making under uncertainty, long-term partnerships, parenting, and lessons from Buffett, with humility and probabilistic thinking as recurring themes.

Main Topics: Howard Marks Changes His Mind on AI (Priority: 5/5): Marks describes revising his AI memo after his son Andrew, who works in VC, urged him to update it in light of rapid developments. He highlights AI's ability to explain itself, use humor, and contextualize information personally. AI Autonomy, Limits, and the Future of Work (Priority: 5/5): Marks argues AI is unprecedented because it can be given a job and figure out how to do it without instructions, but he remains unsure whether it can match all aspects of human intelligence or judgment. Second-Level Thinking and Investment Judgment (Priority: 5/5): The discussion revisits Marks's framework that superior investors need variant perceptions and must be right when they diverge from consensus. He says this cannot be fully taught and may depend on innate insight. Risk-Taking Under Uncertainty (Priority: 4/5): Marks recounts investing during Lehman and other crises to show that great decisions often require acting despite fear, incomplete data, and uncertainty rather than waiting for certainty. Building a Durable Partnership with Bruce Karsh (Priority: 4/5): Marks explains the success of his 39-year partnership with Bruce Karsh through shared values, complementary skills, mutual respect, and appreciation, contrasting this with failed partnerships driven by ego or money. Parenting, Agency, and Life Choices (Priority: 3/5): Marks reflects on supporting his children’s decisions and giving them room to choose, emphasizing that people should try to live life their own way and make intentional choices aligned with strengths and happiness. Lessons from Buffett, Charlie Munger, and Reading (Priority: 3/5): Marks discusses his relationship with Buffett, the influence of Charlie Munger, and books that shaped his thinking about cycles, randomness, and financial euphoria.

Key Arguments: AI is uniquely autonomous: unlike prior technologies, it can be assigned a task and work out how to do it without explicit instructions. AI may replace or expose weaker practitioners, similar to how indexation exposed mediocre active equity managers. Human judgment remains important because some investment decisions rely on instinct, context, and situations with no historical precedent. Great investors think probabilistically, accept uncertainty, and avoid overconfidence; certainty is what gets people into trouble. Second-level thinking is essential for outperformance, but the ability to generate correct variant perceptions is not easily teachable. In crisis investing, the hardest part is acting before certainty arrives; by the time fear disappears, the opportunity is usually gone. Successful long-term partnerships require shared values, complementary skills, mutual respect, and appreciation, not just financial incentives. Good parenting involves supporting children’s autonomy, allowing them to make choices, and accepting that some choices may be wrong but educational. Buffett’s great contribution to investing, via Munger, was shifting from buying cheap companies to buying great companies at good prices. Reading about financial euphoria and randomness reinforces that markets are cyclical and luck plays a major role in outcomes.

Data Points: AI memo timing: First memo written around December 9; updated in early February - Marks says his son urged him to revise his AI memo after rapid changes in the field Oaktree distressed fund size (2002): $2.5 billion - Marks cites their prior record fund before the 2007-08 crisis Oaktree distressed fund size (2007-08): $11 billion - Raised in advance of the financial crisis to deploy during distress Lehman-era deployment pace: $450 million per week - Bruce Karsh invested the distressed fund rapidly after the crisis hit Lehman-era deployment period: 15 weeks - Marks describes the duration over which capital was deployed Total deployment: $7 billion - Amount invested in a quarter during the crisis Partnership duration with Bruce Karsh: 39 years - Marks says their partnership lasted nearly four decades First chapter / book timing: 2002 - Marks references writing The Most Important Thing memo/book section on partnerships and second-level thinking Years at which he says he became more intentional: Approximately 1995 - Marks associates this with leaving to start Oaktree with Bruce Years before 1995 described as unintentional: About 25 years - Marks says he did not make conscious decisions for much of his early career Career start at Citibank: 1969 - Marks mentions graduating and joining Citibank Investment Research Move to bond department: 1978 - He was moved after being unsuccessful in equity research Move to California: 1980 - He attributes it partly to sunshine and palm trees Book recommendations: 2 titles - Short History of Financial Euphoria and Fooled by Randomness are recommended Three generations reference: 1 podcast in January 2021 - Marks mentions a prior episode with his son during the pandemic

Pivotal Quotes: "If you wait until you have nothing to be afraid about, probably the opportunity has passed." — Howard Marks: Marks explains why investors must act despite fear and uncertainty "The most important thing is second level thinking." — Howard Marks: He defines superior investing as seeing something different from the consensus and being right "There is only one success, to live your life your own way." — Christopher Morley (quoted by Howard Marks): Marks uses this to advise younger people on choosing a career and life path

Implications: Listeners should expect AI to reshape analysis-heavy work but not fully replace human judgment yet. For investors and founders, humility, probabilistic thinking, and strong partnerships remain critical advantages in uncertain, fast-changing markets.