Introducing “The Rewind”: The Route To Performance

Episode Summary

Executive Summary: Howard Marks reflects on the origin and evolution of his first memo, “The Route to Performance,” and explains why he writes: to clarify his thinking, reinforce Oaktree’s culture, and help investors. He argues that long-term success comes from consistency, risk control, and avoiding disasters rather than chasing top-decile years, a principle that remains central to his investing philosophy.

Main Topics: Origin and evolution of The Memo: Marks recalls that the first memo in 1990 was a one-off, not a planned series, and describes how it gradually became a habit and then a major communications channel. Writing as a thinking tool and creative outlet: He says memo-writing helps him think through ideas, uncover insights he hadn’t fully formed, and respond to serendipitous connections, market developments, or important events. From mailed notes to global distribution: Marks describes the transition from Xeroxed, mailed memos to email and website publication, which expanded the audience worldwide and created immediate, viral circulation. Investment philosophy: consistency over brilliance: The core lesson of the first memo is that superior long-term results are more likely to come from steady above-average performance and avoiding bad years than from pursuing top-decile outcomes. Risk control and downside protection: He emphasizes that Oaktree’s culture prioritizes discipline, specialization, and avoiding loss, especially in challenging markets and opportunistic niches. Audience and cultural reinforcement: Marks says the memos are not just for clients but also for employees, serving as a repeated reminder of Oaktree’s principles and business culture.

Key Arguments: The memos began as an accidental, one-time communication, not a marketing strategy. Writing memos benefits Marks personally by sharpening his thinking and serving as a creative outlet. Digital communication transformed the memo from a private note into a global, widely shared product. The goal is not to share proprietary secrets but to educate readers on investing principles. Investing is simple in theory but difficult in execution; superior insight and execution matter more than any formula. Chasing top-decile performance requires unusual, risky behavior that can just as easily produce disastrous results. A steady, slightly above-average record with few bad years can outperform volatile brilliance over time. Avoiding losers and catastrophic years is more important than producing occasional spectacular gains. Oaktree’s products across converts, high-yield, and distressed debt all reflect the same principle of protection first, return second. The memos help reinforce a culture of risk control, consistency, and non-reliance on forecasting within Oaktree.

Data Points: Date of first memo: October 12, 1990 - Marks discusses the 30th anniversary and the debut of “The Route to Performance.” Length of first memo: 2 pages - He contrasts the first memo’s length with later memos. Typical memo length now: about 12 pages - Marks says this is the norm today. Longest memos: 16 pages - He notes a few exceptions. Subscriber count: over 100,000 - Marks says the website distribution has built a large audience. Lagging equity performance example: 1,840 basis points behind the S&P 500 - He cites the Wall Street Journal example of a firm with bold but mistimed positioning. Convertible fund outperformance: more than 1,600 basis points better than the average convertible fund - Used to illustrate how a divergent approach can work for a while. Convertible fund advantage over second place: 945 basis points ahead - Marks cites the fund’s 1987 result. Pension plan percentile range: never above the 27th percentile or below the 47th percentile - Example of consistently solid performance over 14 years. Pension plan ranking over 14 years: 4th percentile - Marks uses this to show the power of consistency over time. Timeframe of first 10 years: no responses received - He says nobody replied in the early years, reflecting slower communication at the time. Memos written this year: 12 - Marks says this is the all-time high so far.

Pivotal Quotes: "If you want to be in the top 5% of money managers, you have to be willing to be in the bottom 5% too." — Howard Marks: He cites this claim to explain why he disagrees with high-variance performance chasing. "Simple But Not Easy." — Howard Marks: He uses this phrase to describe investing: simple conceptually, difficult in practice. "If you can avoid losers, and losing years, the winners will take care of themselves." — Howard Marks: This captures the central lesson of the first memo and his long-term investment philosophy.

Implications: Marks’s message is that durable investing success comes from disciplined risk management, not heroics. For listeners, the lesson is to value consistency, downside protection, and culture-building over short-term ranking wins.