Investing with Oaktree Capital Management’s Howard Marks

Episode Summary

Executive Summary: Katie Koch reflects on Howard Marks’ cycle-based investing philosophy, highlighting how Oaktree profits by buying when fear is highest and prices are dislocated. Marks explains that investors should assess the present rather than predict the future, lean on strong partners, stay price-conscious, and treat public market selloffs as potential opportunities when valuations become attractive.

Main Topics: Investing Through Market Cycles (Priority: 5/5): Marks argues that cycles, not forecasts, are what matter most; successful investing requires recognizing present conditions and acting when pessimism creates bargains. 2008 Crisis and Distressed Investing (Priority: 5/5): He revisits Oaktree’s aggressive buying during the 2008 financial crisis, explaining that panic and forced selling created compelling opportunities in stressed debt. Partnership and Complementary Skills (Priority: 4/5): Marks credits his long partnership with Bruce Karsh as central to maintaining conviction, stressing mutual respect, humility, and divided strengths. Technology Bubbles and Valuation Discipline (Priority: 5/5): He compares the dot-com bubble to recent tech declines, arguing that even great companies can become poor investments if valuations become excessive. Public vs. Private Market Pricing (Priority: 4/5): Marks notes that public markets have repriced downward faster than private markets, implying public assets may now be cheaper relative to private ones. Current Cycle Assessment (Priority: 4/5): He sees markets as closer to balance now, with prior excesses in optimism and leverage largely corrected, which improves the setup for future returns. Sharing Investment Wisdom (Priority: 3/5): Marks says his memos are both a creative outlet and a way to help others, even if openness may slightly reduce his informational edge.

Key Arguments: Forecasting the future is impossible, but investors can and should understand the present environment. Panic and widespread pessimism often create the best buying opportunities because distressed prices can be unusually attractive. Strong investing partnerships work when each person has complementary skills and mutual respect. Price always matters, even for exceptional companies; good businesses can still be bad investments at too high a valuation. The dot-com era and recent tech cycle rhyme, but today’s leaders are generally higher-quality businesses than many 1999-era names. Public market drawdowns may have created relative value versus private markets, which may still be marked too high. Current market excesses appear to have been corrected, leaving the balance between bulls and bears more even than before.

Data Points: 2008 weekly deployment pace: $500 million a week - Howard Marks described Oaktree putting money to work aggressively during the fall 2008 crisis. 2008 total deployment: $650 million total across the first period; later referenced as $10 billion - The transcript contains both figures while discussing Oaktree’s crisis-era investment program. Partnership duration at time of interview: 35 years - Marks said he and Bruce Karsh had been partners for 35 years. Partnership duration during 2008: 22 years - Marks noted that in 2008 their partnership had already lasted 22 years. Memo writing history: 33 years - Marks said he has been writing memos for 33 years and does not plan to stop. Early memo period: First 10 years without response - He said his memos initially received no meaningful feedback or recognition. Tech stock decline: NASDAQ down 30% - Marks referenced the decline as part of the recent tech selloff. Software stock declines: 50% to 60% - He said parts of the software market had fallen sharply despite proven business models. October 2020 memo performance: Underperformed by 30% - Marks said the FAANG-related group he discussed had underperformed the S&P 500 by 30% since September 2020. Market era of outperformance: 2009 through 2019 - Marks described this period as one where optimism and risk-taking were rewarded. Pandemic shock: March 2020 - He cited the pandemic as a period when risk-taking was punished before the rebound.

Pivotal Quotes: "we never know where we're going, but we sure as hell ought to know where we are" — Howard Marks: Marks explained his view that investors should focus on the present rather than make unreliable forecasts. "good investing is not about buying good things, it's about buying things well" — Howard Marks: He used this to emphasize that valuation matters even for high-quality companies. "I think we're at a real reasonable place" — Howard Marks: Marks summarized his current view that market forces are more balanced and excesses have largely been corrected.

Implications: Investors should prioritize valuation discipline, patience, and relative value rather than prediction. In dislocated markets, especially after large selloffs, public assets may offer better opportunities than expensive private deals.