AI transcript
0:00:03 All right. Here’s what I said. I said, describe Howard Marks in 280 characters. Here’s what he
0:00:08 gave you. Howard Marks is a legendary investor and co-founder of Oak Tree Capital, known for his
0:00:13 sharp memos, contrarian thinking, and risk-focused approach. He made billions zigging when others
0:00:19 zag, especially in crises when he writes Wall Street Listens. Pretty flattering. Pretty good,
0:00:19 yeah.
0:00:36 Okay. Well, I think the best place to start is that kind of zig while others zag. So I want to ask
0:00:42 about the S&P because you don’t know much about us, but the short version of the guy you see across
0:00:47 from me there, Sam, is Sam’s an entrepreneur. Sam builds his company. He sold his company and he
0:00:52 took the money that he made and he said, look, I worked hard for this money. Now I want this money
0:00:58 to work hard for me, but I need it to be safe. And so Sam went into a mostly, you know, best practice,
0:01:03 low-cost index funds in the S&P 500. And anytime I ask Sam about his strategy or I tell him,
0:01:07 dude, you got to buy Bitcoin, Ethereum, you got to buy this, you got to put some money over here.
0:01:12 Cause I’m, I’m like, you know, if Sam is vanilla, I don’t even know what I am. I’m some flavor off
0:01:13 on the side. That’s strange.
0:01:14 How about tutti frutti?
0:01:19 Yeah, I’m tutti frutti over here. And I keep trying to pull him over here, but he says, no,
0:01:24 no, no, I like vanilla. And so he, um, he basically just says the long-term average of the S&P 500
0:01:28 is 10%. If I just hold this for 50 years, I’m going to double, you know,
0:01:30 this many times I’m good.
0:01:32 Very, very boring. Very boring.
0:01:36 Yeah. He repeats that like on loop. Like he’s one of my kid’s toys. You push the button. It just
0:01:41 keeps saying the same line. Uh, but you know, I do get a little wary when, um, anything seems too safe
0:01:45 or too, too certain, or I guess too taken for granted that this 10% number over the long-term
0:01:49 will be the, be what it’ll be. I guess, what would your message be to Sam? Is Sam just, you know,
0:01:53 is he right? Is he wrong? Would you give him a caution of warning? If, if he was your nephew,
0:01:56 you, he looks like he might be your nephew. If he was your nephew, what would you be telling him?
0:02:02 Well, on the one hand, Sam, you’re right. Because if you, if you have more money than you need to eat,
0:02:10 the first person, first purpose of your money should be to make you comfortable. It doesn’t
0:02:17 make any sense. Uh, Buffett says, don’t risk what you have a need to get what you don’t have and don’t
0:02:27 need. It does, it makes no sense for somebody with a surplus of money to make their daily life less
0:02:33 pleasant by going to investments that put them under pressure. But there’s going to be a but on your
0:02:42 statement, it sounds like, but on the other hand, the riskiest thing in the world is the belief that
0:02:49 there’s no risk. The risk in the markets does not come from the companies, the securities or the
0:02:56 institutions like the exchanges. The risk in the markets comes from behavior of people. And it’s
0:03:03 that for that reason that Buffett says when others are imprudent, you should be prudent. When other people
0:03:14 are carefree, you should be terrified because their behavior unduly raises prices and makes them
0:03:22 precarious. When other people are terrified, you should be aggressive because their behavior suppresses
0:03:30 prices to the point where everything’s a giveaway. So I don’t, I mean, look, in the long run, you’re right
0:03:42 about the S&P. And over the coming years, American companies on balance are going to produce prosperity.
0:03:46 What’s that defined as long-term in this?
0:03:56 Well, I would say 20 or more is the real long-term. And I’ll tell you in a minute how I get there.
0:04:04 But my favorite cartoon, I have a file of cartoons from over the years. My favorite one, there’s a guy,
0:04:10 he’s got his, is a car pulled over to the side of the road. The guy’s in a phone booth. So you know,
0:04:16 it’s an old cartoon because there are no more phone booths. And there’s a, as a factory going up in the
0:04:22 background. And he’s screaming into the telephone, I don’t give a damn about prudent diversification,
0:04:30 sell my Fenwick chemical. In other words, prudent diversification calls for certain investment
0:04:39 positions and a variety of them in a certain composition. Reality says, I see Fenwick chemicals
0:04:46 burning to the ground, get me out. And you have, you can’t ignore reality. Now, what’s reality
0:04:57 in this case for you? Reality is recognizing where things stand. And J.P. Morgan published the chart
0:05:06 around the end of 24. And it was a scatter diagram showing over the years, if you bought the relationship
0:05:16 between the S&P 500 at purchase and the return of the annualized return over the next 10 years.
0:05:25 And it looked like this. On this axis, we had return. And on this axis, we had PE ratio. And it was a,
0:05:34 it was a negative correlation, which means the higher the PE ratio you pay, the lower the return you should
0:05:45 expect. Makes perfect sense. And it showed there was a number here, 23 on the PE ratio axis. And it showed,
0:05:52 which is what the PE ratio on the S&P was at the time. And it showed that historically, if you bought the S&P
0:06:04 when the PE ratio was 23, in every case, there were no exceptions. In every case, your annualized
0:06:11 return over the next 10 years was between two and minus two. That’s all you have to know.
0:06:15 And what are we today? What is it today? 23 or?
0:06:24 24, 24, 25. Because why? Because prices have risen. Now, maybe the outlook has risen. So maybe it’s
0:06:35 still 23. But I think, let’s say, I think 24. So you can say the S&P has returned 10% a year on average
0:06:43 for 100 years. I’m happy with 10. I’m in. Or you can say it doesn’t always return 10. By the way,
0:06:48 one of the most interesting things about the S&P, if you do the research, and I did it for a memo,
0:06:56 on average, it has returned 10% a year for 100 years. But do you know that the annual return is
0:07:01 almost never between 8 and 12? Think about that.
0:07:04 Yeah, like it kills it or it gets destroyed.
0:07:04 Dies. Yeah.
0:07:10 Think about what that means. The norm is not the average.
0:07:18 But the issue for someone like me, so a lot of our listeners, I’m one of them. You know, I was
0:07:24 fortunate. I had a business. I made a relatively large sum of money at a very young age. But I’m not an
0:07:25 investor. Yeah.
0:07:30 Like, I don’t know anything about public markets. And so when I hear you say that, I think, well,
0:07:31 I don’t have an alternative.
0:07:40 Well, you do have an alternative. You could figure out an algorithm to rebalance your position based on
0:07:46 relative price. And you could put it on autopilot. I don’t recommend, you know, making judgments about
0:07:53 the future and the appropriateness of today’s price for the future you perceive. But you can do that.
0:07:59 And there are ways to do these things, even if you just use common sense.
0:08:05 What would you be rebalancing into? So let’s say S&P PE is high. What would be the second best for the
0:08:07 sort of non-full-time active investor?
0:08:14 Okay. So I’ve tried to suppress my tendency to talk my book until now. But I think an alternative
0:08:22 is bonds. You know, and in 19, I joined Citibank in the investment research department in 1969 as an
0:08:29 equity analyst. And the bank did so horribly that in 78, I was banished to the bond department. And the
0:08:35 bond department was the equivalent of Siberia. The good news is that at that time, American corporations
0:08:41 pretty much gave lifetime employment. So I didn’t get sacked. But I’m in the bond department. And I get
0:08:45 a phone call from the head of the bond department saying that there’s some guy in California named
0:08:51 something like Milken. And he invests in something called high-yield bonds. Can you figure out what
0:08:59 that means? And I said, yes. And I became a high-yield bond investor. And you know what? When you buy a
0:09:05 bond, there’s a contract that says the borrower will pay you interest every six months and give
0:09:12 you your money back at the end. And you can figure out the return that is implied by that contract.
0:09:20 And if the borrower doesn’t keep that contract, overgeneralizing, oversimplifying, the creditors
0:09:25 get the company through the bankruptcy process. So the borrower has a lot of incentive to pay you,
0:09:32 and they almost always pay. I’ve been involved in high-yield bonds for 47 years. And I can tell you,
0:09:39 they’ve almost all paid. So today, you can buy high-yield bonds, whether it be the US or Europe
0:09:48 or variations on that theme, what we call low-grade credit. And you can buy it to get yields of seven
0:09:57 seven to eight. Now, seven to eight is pretty close to 10. So that’s a good thing. The bad thing is you
0:10:04 have to pay tax every year on the income. That’s a bad thing. But for those of us who are cautious,
0:10:15 like you and me, we might say, I’ll take eight, which in the long run will give me four after tax,
0:10:21 as opposed to 10, which after capital gains taxation will give me seven.
0:10:30 Or maybe I’ll mix them. Maybe I’ll own a little less S&P and a little more debt because I’m-
0:10:30 That’s what I do now.
0:10:37 Yeah, because I’m worried. It’s not all or nothing. And that’s why when I’m on TV shows and they say,
0:10:45 well, is this a sell or buy? Is this risk on or risk off? I resist that formulation because it’s
0:10:51 never one or the other. It’s a mix. And the only question that’s relevant is what mix?
0:11:01 I think the way when you manage your portfolio, the operative continuum to think about is the
0:11:09 continuum that runs from aggressive to defensive. And I think about a speedometer in the car. So zero
0:11:19 is no risk. A hundred is max risk. A hundred percent aggressive. You should have a sense for your
0:11:25 appropriate, normal posture. And it sounds to me like, Sam, you’re a little conservative guy.
0:11:31 You’ve made so much money, you can’t believe it, but you don’t want to give it back. So I would say
0:11:42 you’re a 65 and especially given your youth, you may be a 55 for your cohort. So I, and I think you
0:11:47 should figure out every, every listener, every investor should figure out the right place for
0:11:52 them and try to stay there most of the time. We need to get a couch here and you could just,
0:11:56 I’ll call you Dr. Marks and- Well, you know what? I run, I once wrote a memo called on the couch
0:12:00 because I think that once in a while, the market needs a trip to the shrink.
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0:12:33 I went back and I read a bunch of your old memos. And the one that stood out to me was
0:12:38 the bubble.com one. So you wrote this back in 2000. And I actually have a few of these where I feel like
0:12:48 there’s been moments in time, maybe 2000, 2008, 2012, 2020, where it seemed like consensus was going
0:12:54 one way. Maybe it was Mac’s greed and you went the other way. Or it was Mac’s fear and panic. And then you,
0:12:59 you were actually very aggressive. You did the thing where Buffett says, be fearful when others
0:13:03 are greedy and greedy when others are fearful. It’s cool to say, but it’s hard to actually do.
0:13:08 And I thought it’d be fun if you could kind of walk us through a couple of those moments.
0:13:13 And I don’t know, like, yeah, not to go too far down memory lane, but just, you know,
0:13:17 take us back to, you know, the one in 2000. What’d you see? What’d you do? How did it, you know,
0:13:20 how did that play out? What’d you learn from that? Take us through a couple of those. Cause I think
0:13:27 that’s your superpower. First of all, one of my sayings is we never know where we’re going,
0:13:37 but we sure as hell ought to know where we are. And at Oak Tree, we loudly proclaim our inability
0:13:45 to make macro forecasts and our non-reliance on macro forecasts. But if we want to do the right
0:13:53 thing vis-a-vis the macro, we should be able to figure out what’s going on at the present time
0:13:59 and what that implies for the future. It may not happen, the thing you think it implies,
0:14:05 but it probably has a higher chance of happening than not happening if you’re logical and understand
0:14:11 history and patterns. And I wrote a book called Mastering the Market Cycle, which was published
0:14:19 in 18. And I always say it’s a cheesy title, but it wasn’t my idea. The publisher wanted that title
0:14:25 because they thought it would sell more books. But I like the subtitle and the subtitle says,
0:14:32 getting the odds on your side. And I believe that where we stand in the cycle determines what
0:14:41 probably is going to happen and how likely it is. And understanding that can improve your odds.
0:14:45 It can’t make you a sure winner, but it can improve your odds. And that’s the best we can do
0:14:51 in an uncertain world beset by randomness. So, you know, I don’t know if you know that
0:14:59 I started writing the memos in 1990. Bubble.com on the first day of 2000 was the first one that ever
0:15:06 garnered a response. I went 10 years. Not only did nobody say, hey, that was good. Nobody even said,
0:15:10 I got it. And, and, and, and, and so one of the mysteries is why I kept-
0:15:12 Who were you sending them to?
0:15:13 To our clients.
0:15:14 How many?
0:15:15 Crickets.
0:15:19 Well, you know, in 1990, a hundred.
0:15:20 Okay.
0:15:30 You know, and by mail, of course. I wrote Bubble.com January the 2nd of 2000, and it had two virtues. It was
0:15:38 right, and it was right fast. If you’re right slow, it doesn’t look like you were right. One of the
0:15:42 great sayings in our business is that being too far ahead of your time is indistinguishable from being
0:15:52 wrong. So the, the, the answer is I was not too far ahead. Uh, in, in the fall of 99, I read a book
0:15:58 called Devil Take the Hindmost. It’s a, it’s a history of financial speculation.
0:16:03 Were you looking for books about that because you had a hunch or you just randomly read this book?
0:16:09 No, I, I don’t remember why I read it. Uh, the idea comes first. Not, my books, my memos are not
0:16:16 research-based. They’re based on ideas that resonate with me. And so I’m reading this book. I am interested
0:16:22 in financial speculation. I’m interested in cycles. I’m interested in, in the extremes of, uh, financial
0:16:28 behavior. Uh, so that’s probably why I read it. But I’m reading this book and it talks about all these
0:16:35 crazy things that people did, especially in something called the South Sea Bubble. Uh, Britain had this
0:16:42 big national debt and they concluded that they could, uh, pay it off by starting a company called the
0:16:49 South Sea Company. Uh, and they granted them a license to trade with the South Sea by which they
0:16:57 meant not Samoa, but Brazil. And, and they would charge them a license fee and that would pay off the
0:17:05 debt. And it was one of the, one of the great bubbles. And so I’m reading in the book about what
0:17:13 people were doing in 1720 and, you know, people were quitting their day jobs and hanging out in
0:17:24 ale houses to trade the shares of the South Sea Company, et cetera, et cetera, et cetera. And I said,
0:17:30 that’s what’s going on now in the tech bubble. People, you may recall that people were quitting their
0:17:36 jobs, becoming day traders. People with no money could trade stocks as long as they didn’t carry
0:17:45 any balance overnight. And, um, and, and, uh, young people were quitting MBA programs because they had
0:17:51 an idea. And if they waited until they graduated, somebody else would take it. So, so it just resonated.
0:17:57 And one of the quotes I use the most now is from, uh, Mark Twain who said, history does not repeat,
0:18:04 but it does rhyme. There are certain themes that rhyme from generation to generation and cycle to
0:18:11 cycle because they are embedded in human nature. And so they recur. And so, uh, and when you, when you
0:18:17 get older in our business, you know, obviously one of the things I, uh, hasten to point out is there is
0:18:23 no such thing as knowing something about the future. And if you don’t know about the future
0:18:30 and you want to figure out the future, there’s no such thing as analyzing the future. It doesn’t
0:18:39 exist. And the only thing you can do to get a handle on the future is look at the past and, uh,
0:18:48 look for the repetition of patterns as Twain said, and try to figure out if they apply today.
0:18:53 So this was very easy. So I wrote this memo, bubble.com, and it said what they were doing,
0:19:00 people are doing today. And I point, tried to point out the folly of what I saw going on.
0:19:07 Companies with no profits and no revenues were being highly valued. Maybe no product, just an idea.
0:19:14 And that is the epitome of a bubble. So I wrote the memo, uh, as I say, January the 2nd,
0:19:22 sometime around mid year, the tech bubble started to collapse. So as I said, in the introduction to one
0:19:28 of my books, after 10 years, I became an overnight success. Did you actually bet against it or did you
0:19:34 just preserve capital by not FOMOing into every, you know, tech company, basically? Like what was the,
0:19:40 what was the win of that for you? First of all, we’re not involved. We’re basically not involved in
0:19:48 the U S stock market and we’re not involved at all in technology. So we wouldn’t have a chance to apply
0:19:58 that. But I think what we did is we recognized that, and by the way, things don’t happen in
0:20:06 isolation uniquely. So when you, when you see something like I described in the tech bubble,
0:20:14 you should realize that maybe there are ramifications in other world, parts of the world. And we figured out
0:20:21 that people were engaging in optimism, not pessimism, greed, not fear, uh, credulousness,
0:20:28 not skepticism, risk tolerance, not risk aversion. And when, uh, as Buffett says about prudence,
0:20:38 when nobody’s afraid, unwise deals can get done easily. Simple as that. And the people who buy that
0:20:44 stuff, it usually ends badly. The way that you explain it, I think everything makes sense and I
0:20:49 totally buy into it, but that’s actually quite challenging to understand this like macro environment
0:20:59 and to say, this is where we are. Yeah. Well, uh, you have to be clinical. You have to observe and,
0:21:06 and without emotion understand what’s going on and what the, what the implications are. And of course, the,
0:21:15 what we call, what I call emotion is part of what’s called human nature. If you succumb to human nature,
0:21:22 it tends to get you to do the wrong thing at the wrong time. I came across a great quote within the last year
0:21:27 from a guy who’s a retired trader. When the time comes to buy, you won’t want to.
0:21:38 And, and that, that, that, that encapsulated, encapsulates so much wisdom because what is it
0:21:46 that causes the great moments to buy? It’s probably the point of lowest, uh, consensus. So when most
0:21:51 people don’t believe would be the time that the price is going to be the lowest, right? It’s the time
0:21:58 either the most uncertainty or the most pessimism or the most fear, most conservatism. Uh, so you also
0:22:03 want to be all those things. What causes those things you’re talking about? You’re talking about
0:22:12 the manifestation. What’s the cause? Hmm. Bad news. I don’t know. Bad, uh, bad, uh, bad events,
0:22:20 bad news, either, either exogenous or geo or, or, or in the economy, faltering corporate fortunes,
0:22:29 declining stock prices, widespread losses, and a proliferation of articles about how terrible
0:22:36 the future looks. So the point, that’s why you don’t want to buy at the low. Who would want to buy
0:22:45 under those circumstances? Right. And so you, you talked before in your introduction, uh, about
0:22:54 zigging when others zag. The only thing I’m sure of is if you zig when they zig, you’re not going to
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0:24:00 check show notes for details. Do you still feel that fear? Uh, you know, the, of you, like when
0:24:05 you know, you’re supposed to buy, do you still feel fearful or do you feel like nice? Hello, my old
0:24:11 friend. I love this emotion. This is what I’m supposed to do. Right. Yeah. I mean, it’s not easy,
0:24:20 easy, but you have to know, you have to do it. You have to know that if, that, that what, what makes
0:24:28 buying opportunities. And if you think about it, the fortunes of companies and the outlook for
0:24:33 companies doesn’t change much. What, and I’m, I’m writing a memo about this that’ll come out one of
0:24:39 these days. And what changes is how people think about what’s going on and think about the future.
0:24:48 And so what changes is the relationship of price to what I’ll call value. Sometimes they hate them.
0:24:55 Sometimes they love them. When they love them too much, you should expect them to probably go down.
0:25:01 That sounds like a bull market or a bubble. And when they hate them too much, you should expect them to
0:25:09 go up. That sounds like a bear market or a crash. And so you have to do the opposite. And, and the same
0:25:17 developments in the environment that, that affect everybody else will affect you. You’re subject to
0:25:22 them. You feel them, you read about them, you hear about them. Everybody tells you how dire the outlook
0:25:30 is. And you know, uh, it’s hard to ignore them, but you have to do the right thing in the face of them.
0:25:40 Uh, 1998, we had, uh, uh, the Russian ruble devaluation, the debt crisis in, in Southeast Asia
0:25:48 and, um, the meltdown of long-term capital management. And one of our portfolio managers who,
0:25:53 who was young came to me and he said, I think this is it. I think we’re going to melt down. I think it’s
0:25:59 all over. I’m terribly pessimistic. I said, tell me why he went through his reasoning. Uh, I said,
0:26:06 okay, now go back to your desk and do your job. A, a, a battlefield hero. And I don’t want to
0:26:13 compare what we do to being a battlefield hero, but a battlefield hero is not somebody who’s unafraid.
0:26:19 It’s somebody who does it anyway. And that’s, that’s the way you have to be.
0:26:24 Can I actually, can I ask, let me ask you about that because, so it’s funny, interestingly enough,
0:26:30 even though I’m the conservative one, I’m actually way more emotional. Sean’s like a more, uh, mostly is,
0:26:34 is, is, is a pretty stable guy emotionally. I go up and down, which I think is actually closer to the
0:26:40 average for, um, uh, average folks. You said something really, you said a bunch of stuff about emotion,
0:26:44 uh, in the past. I think you said to be a good investor, you better, uh, be able to invest
0:26:50 without emotion or at least act as if you don’t have a lot of emotion. Has there ever been anything
0:26:56 like a mindset shift or a practice or something that you’ve had to use in order to learn to be
0:26:58 less emotional when investing?
0:27:01 No, these things are not intentional on my part.
0:27:03 You think you were born like that?
0:27:08 I was born unemotional by the way. And, and I want to point out here, uh, cause my wife’s
0:27:13 downstairs having lunch that, that, uh, I, I wrote in my book that it’s really important to be
0:27:20 unemotional and investing, uh, not so good to be unemotional in life in, in arenas like marriage.
0:27:27 Uh, so there it’s not an advantage, but, uh, no, for me, it came naturally. I don’t have to,
0:27:31 I don’t have to say, Oh, there I go again. I’m getting emotional. I have to restrain that blah,
0:27:36 blah, blah. It’s it. And, and, and my partner, Bruce Karsh, who’s been my partner successfully
0:27:42 for 37 years, he’s pretty much the same. So that makes it easy. I don’t have to restrain him.
0:27:47 We’ve gassed you up about some of your, your best moves. What’s the worst mistake you made
0:27:52 due to an emotional mistake where you, you didn’t control your temperament properly and you made a
0:27:57 mistake. My worst mistake is not, and I know you’re talking about a point in time.
0:28:05 My worst mistake is that I have always been too conservative. My parents were traumatized by the
0:28:11 depression. I always say the question is not whether your parents were alive during the depression,
0:28:17 but whether they were adults. My parents were adults. They were born in the 19 aughts. And so in
0:28:24 the depression, they were in their thirties and they were, you know, and the depression was really
0:28:33 traumatic. Nobody knows what it was like. And it ground on for over 10 years. And, and so you,
0:28:39 when you grow up with parents of the depression, they say things like, don’t put all your eggs in
0:28:44 one basket saved for a rainy day, you know, that kind of stuff. And I ended up too conservative.
0:28:51 And if I, if it wasn’t as conservative, I’d be richer today. I’m not sure I’d be happier.
0:28:56 Because what’s an example. What do you mean you were too conservative? Like, I guess like,
0:28:59 what makes you say that? What would you have done differently? Had that not,
0:29:04 had that wiring not been done in you? Well, I mean, I don’t know. I might’ve,
0:29:11 I might’ve gone to an, into an, a more aggressive asset class than credit like equities. I might’ve
0:29:17 become a venture capitalist or, uh, you know, like my son, Andrew or a private or a leveraged buyout
0:29:24 investor. But, you know, the reason I was talking about the appropriateness of credit for Sam is
0:29:31 because while the returns are a little lower, there’s much less uncertainty and downside. So I,
0:29:36 I would say that if I, I’ve been in this business 56 years, if I would’ve spent those 56 years in
0:29:43 less conservative asset classes, uh, I would have made more money. Having said that, it happens that
0:29:49 I went into things like high yield bonds in 78 and distress debt in 88. And if I had not been a
0:29:53 conservative person, I probably wouldn’t have had any clients because they would have been scared
0:29:59 off by the risk. So it served me well in, in pioneering in those businesses. But that was my,
0:30:07 I mean, I, I, we never had a mistake. Like we were too defensive at a, uh, in a crisis or too
0:30:15 aggressive in a bubble. We just, I just was too conservative all my life. And that kind of makes
0:30:19 sense because you, I don’t think you started Oak tree until your late forties, right? Just short of
0:30:26 my 49th birthday. Yeah. And so I guess leading up to it, were you already financially successful?
0:30:32 Were you a success leading up to that? Yeah. And, and so was it a big risk to start Oak tree?
0:30:40 I was secure. I, I wasn’t rich by today’s standards and I may not have been rich by the standards at the
0:30:48 time, but I had, I had a lot, I had good money and I lived well. So I started running money in 78.
0:30:57 I joined my Oak tree founder partners in 85 is 86, 87, 88. We did a great job through a variety of
0:31:03 environments and we weren’t worried about the ability to do a good job. And we had enough money
0:31:12 to eat. So it wasn’t, I mean, it, it, it, I had to overcome my innate caution. My wife had to give me a
0:31:18 kick in the ass, uh, which he, uh, happily did. Um, I may not have done it without her. Probably
0:31:23 wouldn’t have. You, uh, you said you’re, you’re too conservative, but there’s been times when you’ve
0:31:29 been very aggressive. Oh yeah. And, uh, you know, I think the sort of 07, 08 financial crisis, I read
0:31:37 something that as the crisis happens, you go raise $10 billion. Cause you see the opportunity and you
0:31:44 started deploying something like $600 million a week, which is, it just sounds bad-ass to be honest.
0:31:48 I don’t even, maybe that’s, maybe that’s not, not, not as crazy in the financial world, but that sounds
0:31:54 crazy to me. Well, it, your, your fact set is inaccurate in one regard. We did not raise 10
0:32:00 billion after the crisis hit because remember what I said about the guy who said, when time comes to
0:32:05 invest, you won’t want to, you can’t raise money in a crisis. You, if you went to people who say,
0:32:08 the world’s melting down, we’re going to buy all this stuff. We’re going to, it’s going to be a
0:32:13 bonanza. We’re going to get rich. Nobody will give you money. Why? Because the same factors that
0:32:17 influence the world influence the people you talk to and know everybody will stick their hands in
0:32:23 their pockets and say, maybe later after the, after the dust settles and, and light, and a lot of people
0:32:28 say, uh, you know, we’re not going to try to catch a falling knife. And I believe that you make the big
0:32:34 money catching falling knives carefully. So what happened is we, like I described about the tech
0:32:43 bubble in 2000, we detected in Oh five, six, that the world was behaving in a, in a carefree manner.
0:32:50 And, and I, I would wear out the carpet between my office and Bruce’s with the wall street journal.
0:32:54 And I’d say, look at this, look at this piece of junk that got issued yesterday. There’s something
0:33:00 wrong. If a deal like this can get done, the world is exercising inadequate prudence.
0:33:04 Specifically on mortgage is, or just generally.
0:33:07 No, I didn’t know about mortgage. I never heard of mortgage. I never heard of sub, I know, I don’t
0:33:11 think I ever heard the word subprime. I don’t think I ever knew what a mortgage-backed security was.
0:33:18 It just seemed that the world was operating in a pro-risk fashion. And when people are pro-risk,
0:33:23 they, they, they, they permit bad deals and they pay prices higher than they should.
0:33:30 So what happened was on, on the first day of Oh seven, we went out to our clients and we said,
0:33:36 we think there’s an opportunity. Uh, we didn’t, I don’t think we raised funds in Oh five or six for
0:33:41 his, uh, distressed debt area. But on the first day of Oh seven, we went out and we said, we think
0:33:46 there’s a great opportunity coming and we’d like to have 3 billion. The, at that time, the biggest
0:33:53 distressed debt fund in history was our, Oh one fund, which preceded the Enron meltdown and so forth.
0:34:01 And it was two and a half billion. And so two and a half. Yeah. Around there. So, uh, we went out
0:34:05 to the clients. We said, we’d like to have three. That would be the biggest distressed debt fund in
0:34:13 history. So within a month we had eight and we said, you know, we can’t do anything with 8 billion.
0:34:19 It’s, it’s, it exceeds our ability to invest it wisely. So we’re going to take three and a half
0:34:26 billion and we’re going to close the fund. But we would like to have the remainder of your interest
0:34:33 in a standby fund that will implement if the stuff hits the fan. So the first fund was seven and it
0:34:39 was three and a half billion. And the next fund was seven B. And by the time we finished raising money
0:34:47 for it a year later, it was 11 billion and we, and we, and fund seven got fully invested. So we started
0:34:53 investing, gradually investing seven B, uh, in June of 08. It’s sitting there on the shelf.
0:35:07 And by September 18th, 15th, it was, uh, no 18th. It was, uh, uh, 12% invested. So just over a billion
0:35:17 and Lehman brothers declares bankruptcy. And so the question, which you implied was, do you invest it
0:35:22 or not? You’re sitting there with all that money, but the, it looks like the world’s going to melt
0:35:30 down. Do you invest it? Very simple. And, uh, this, as you say, I think this was one of our, uh, best
0:35:38 moments because I reached a very simple conclusion. If we invest it and the world melts down, it doesn’t
0:35:46 matter what we did. But if I don’t invest it and the world doesn’t melt down, then we didn’t do our job.
0:35:55 QED, you have to move forward. I also wrote that it’s hard to predict the end of the world.
0:36:01 It’s hard to assign a high probability to it. It’s hard to know what to do if the world is going to
0:36:06 melt down. If you do those things and the world doesn’t melt down, it’s probably a disaster. And
0:36:13 most of the world time, the world doesn’t melt down. That was the, that was the sum of our analysis
0:36:18 because there was nothing to analyze. There had never been a global financial crisis before. The,
0:36:24 the meltdown of the financial sector had not been anticipated since the great depression.
0:36:30 And there was, there was, there were no past patterns to extrapolate. So you have to resort
0:36:38 to logic. That was the logic. So as you say, we invested 450 million a week for the next 15 weeks
0:36:46 in that fund, which was 7 billion and Oak tree overall invested an average of 650 million a week
0:36:51 for the next 50, uh, 15 weeks. How did that turn out? So that’s what you put in. How did,
0:36:54 what was the sort of result of that, that investing during that time?
0:37:04 Well, it was great except for, I mean, we got good buys and we made good money, but the fed mobilized,
0:37:11 uh, uh, very astutely cutting interest rates to zero for the first time in history at the beginning of
0:37:21 2009 and introducing QE. And those two things saved the economy. So we didn’t get the meltdown that
0:37:28 everybody was afraid of. And there were relatively few bankruptcies, especially outside the financial
0:37:35 sector that result resulted from the global financial crisis. So we had, we’ve had some barn burner funds
0:37:38 in crises. Uh, this was very good, but not a barn burner.
0:37:44 You’ve, you’ve, you’ve, you’ve done something that I love, which is, um, you, you, you’ve quoted a ton of
0:37:47 different people. You’ve quoted Mark Twain a bunch of times. You’ve have all these quotes, which like
0:37:53 clearly shows that you retain information that you read. And I imagine you read a lot. Can I ask you
0:37:56 about your reading habits? How do you pick what books you read?
0:38:04 I’ve never read any books about how to be an investor, like, you know, multiply this by that
0:38:09 and add this and subtract that. And the books I’ve found most interesting have always been the ones
0:38:17 about investor behavior. And I mentioned Devil Take the Hindmost, uh, 99. Uh, uh, one of the greatest
0:38:24 books I ever read was, uh, before that, uh, John Kenneth Galbraith’s book, uh, uh, called the short
0:38:30 history of financial euphoria. That was really pivotal for me. And since I’m a slow reader, uh, I
0:38:37 like the fact that it was only about a hundred pages. And then, you know, back in, back in, uh, 74,
0:38:43 I think Charlie Ellis wrote an article winning the losers game where he said that because, uh, you can’t
0:38:50 predict the future, uh, active investing doesn’t work. He was a believer in the efficient market. So rather
0:38:55 than try to hit winners, like the tennis player, you should try to avoid hitting losers and keep the
0:39:02 ball in play. Um, and that has always defined my, uh, investing style. In fact, I wrote a memo in the
0:39:09 summer of 24 or 23 called fewer winners, fewer losers or more winners. And that’s the basic choice
0:39:15 of investing style. There’s a great, I think like sort of math paradox that you’ve pointed out,
0:39:19 which is that, you know, a fund, I don’t know if it was your fund, but any fund, it could be,
0:39:25 you know, never above, never in the top 10%, but sort of never in the bottom 50%. And there’s a
0:39:32 strategy of just consistently being above average will place you in the top 5%, right? It’ll place you in
0:39:36 the top percent. Uh, can you unpack that idea a little bit? I just, I just sort of butchered it.
0:39:43 In, uh, 1990, I wrote a memo called the route to performance. And I had, uh, dinner in Minneapolis
0:39:48 with my client, Dave Van Benskoten, who ran the General Mills pension fund. And he, Dave explained
0:39:55 to me that he had run the fund for 14 years. And in 14 years, the, the equities, General Mills equity
0:40:02 portfolio was never above the 27th percentile or below the 47th percentile. So 14 years in a row,
0:40:07 solidly in the second quartile. Now, if you said to the normal person, not in the investment
0:40:12 business, so this thing fluctuated between the 27th and the 47th, where do you think it was
0:40:19 for the whole period? They would say, well, let me think probably around 37th. The answer is fourth.
0:40:28 So if you, if you can do well for 14 years in a row and avoid the tendency to shoot yourself in the foot
0:40:35 in a bad year, you can pop up to the top. At the same time, uh, another investment management firm
0:40:39 had a terrible year because they were deep value investors and they were heavy in the banks and
0:40:46 the banks suffered terribly. So they were at the bottom. So the president comes out and of course
0:40:51 things, people in the investment business are great rationalizers and communicators. And he says,
0:40:56 the answer is simple. If you want to be in the top 5% of money managers, you have to be willing to be
0:41:03 in the bottom. Well, that makes great sense, except that my clients don’t care if I’m ever in the top
0:41:09 5 and they absolutely don’t want to see me in the bottom 5. So my reaction is the first guy’s approach
0:41:15 is the right one for me. So that’s why at Oatree, we go for fewer losers, not more winners.
0:41:22 Yeah. I love that because it’s one of the, um, unsexy ideas. Like I think any idea you can’t,
0:41:28 you know, make a movie about or won’t make you sound really cool are generally undervalued ideas when
0:41:33 they, when they actually logically math out the way, the way that one does. And so I sort of,
0:41:37 that was one that stuck out to me is I think nobody’s going to, nobody’s going to give you a
0:41:41 motivational video about being consistently above average and just never shooting yourself in the foot.
0:41:47 It’s all about heroic greatness and huge risks you can take and, you know, being willing to do it.
0:41:49 And so, you know, that’s all you hear.
0:41:56 But, but, you know, uh, the, uh, financial times of London every Saturday, they, they have an article,
0:42:01 uh, called the lunch with the FT and they take somebody to lunch and they write an article about
0:42:09 the person, the restaurant and the food. And they did that with me in late 22. And, uh, I, uh,
0:42:15 took the reporter to, uh, my favorite Italian restaurant near the office in New York, where I go
0:42:23 a hundred percent of the time, if I have a lunch. And I, and I said to her, eating in this restaurant
0:42:31 is like investing at Oak tree, always good, sometimes great, never terrible. Now that to me,
0:42:41 that sounds like a modest boast, but if you can do that for 40 or 50 years, I think it’ll compound to
0:42:47 great results. Uh, if you never shoot yourself in the foot. And I think it’s, I think, I, I don’t know
0:42:52 if the sec is listening, but I think it’s descriptive of what, of what we’ve accomplished.
0:42:56 There’s like this, um, class of investor that’s like kind of become like folk hero,
0:43:02 you know, like Warren Buffett’s an obvious one where the, like a folk hero, sort of, uh, their high
0:43:08 integrity, they make greatness seem achievable and relatable, uh, which is like a whole skill in
0:43:13 itself. And, and you’ve become one of these like folk heroes. Um, you know, and a lot of them,
0:43:17 they have in common where they like write a lot, they write well, they’ve got wonderful sayings.
0:43:23 Uh, they make challenging things easy to understand. Did you purposely try to become
0:43:29 like this public figure? Well, first of all, you can’t ask somebody who did whether they did,
0:43:35 cause they’ll say no, nobody will admit that. Nobody will say my, my public persona is a facade.
0:43:41 Me and Sam were joking before this, we were saying it’s cool how, uh, it’s interesting how
0:43:45 I think when you started as an investor, there was like no celebrity investors. There’s no like
0:43:51 famous person who was doing what you were doing. And then now you have, whether it’s Buffett or
0:43:57 Munger, there’s like the investment guys are now like the philosophers. Yeah. The tech CEO nerds
0:44:04 are now like the power players of the world. Right. Uh, podcaster comedians are now like
0:44:10 the new trusted media. It’s like this very strange shift on all fronts where, um, you know,
0:44:16 influence has sort of shifted, but I find the like investment crossover life philosopher to be
0:44:20 just like one of the really wholesome ones that I personally really like, you know?
0:44:25 Well, you know, I, I hesitate to put myself as the same category, but I think Warren
0:44:30 has always tried to just educate people and share his knowledge. And, and people say, well,
0:44:33 why do you give away your secrets? Aren’t you afraid that other people will emulate you and,
0:44:38 and catch up with you? But I, I don’t think so because, you know, we can tell them all day long
0:44:43 what, what you should do, but it’s hard to do. Like we said, at the beginning of the podcast,
0:44:49 friend of mine, Richard Oldfield in London wrote a book once entitled simple, but not easy.
0:44:55 I think the things we have to do are simple. They’re just not easy to do. I think Buffett
0:45:03 makes investing seem simple because he boils it down to the essential ingredients. By the way,
0:45:08 you said there were no famous investors, but I think Buffett started around 53, if I’m not mistaken.
0:45:15 Uh, he just wasn’t famous. Uh, but, and, and there were a few people who were famous in the
0:45:22 investment business, but I don’t think anybody was, was, uh, famous in the, in the wider world.
0:45:27 Oh, it’s interesting for like the normal guys like me and, and, and Sean is like, we learned from you
0:45:32 about how to live life and you just, and you, and, and that’s kind of cool. And it just like investing
0:45:36 is just your way of like testing. If your way of living is true.
0:45:42 Right. Well, investing is a lot like life, but, but, and, and by the way, uh, I’m working on a book
0:45:51 along those lines, Sam, what’s it called? Uh, I don’t know yet. Uh, but, but, uh, uh, if you wait a
0:45:56 few years, I think it’ll be out. Well, we appreciate you coming. Uh, I do want to leave you with one.
0:46:00 It’s a question for, for, for you. So we’ve asked you a bunch of questions, but I actually
0:46:05 think it’d be interesting. Um, what question do you think people who listen to this should ask
0:46:10 themselves? What’s a, what’s a useful question that you think people could ask themselves as a,
0:46:15 as a final, final note here? Well, I would think in terms of the mistakes that investors made,
0:46:22 and I would ask yourself whether you make them. Uh, so what are the big mistakes investors make?
0:46:30 Uh, I, I can think of three. Number one, do you think you hope, do you think you understand what
0:46:38 the future holds? And, and do you reasonably think that’s accurate? Uh, number two, uh, I think the
0:46:43 biggest single mistake that investors make is that they think the world will remain the way it is,
0:46:47 that the things that are working today will continue to work. The things that aren’t working
0:46:52 will continue not to work, uh, that the trends or the emotion will continue and that there won’t be
0:46:58 any new trends. So do you, do you, are you part of that? And then number three is, do your emotions,
0:47:07 uh, rise and fall and get you to do what they want as opposed to what you should do? Uh, so, uh, I think
0:47:12 you just have to have a checklist. You know, in my first book, the most important thing, I had a thing
0:47:21 in there called the, uh, poor man’s guide to market assessment. And, and it says on the left a bunch of
0:47:25 things and on the right, there’s a bunch of things and, and, and it was half tongue in cheek or maybe
0:47:31 more than half, but I mean, it says, you know, uh, are the, is the market rising or falling? Are the,
0:47:36 are the TV shows about investing popular or unpopular? If an investor goes to a cocktail party,
0:47:41 is he mobbed or shunned? Uh, are, are, do deals get done easily or hard? Do people rate,
0:47:46 are, are, are, are deals oversubscribed or left begging? You know, that kind of thing.
0:47:53 And you can tell, you can figure out from that checklist, whether the market is overheated and
0:48:01 too popular or, uh, frigid and, and, and too shunned. And this can tell you a lot of what to do
0:48:03 if you’re methodical and clinical.
0:48:08 Well, um, Sean and I have, have read your stuff forever. We’ve listened to so many of your podcasts.
0:48:11 It’s been an honor. We really appreciate you doing this. I think the best part of our,
0:48:16 uh, best part of our job is we have an excuse to hang out with amazing people who are way out of
0:48:19 our leagues. And, uh, this is, this is one of those occasions. So thank you so much.
0:48:24 Well, thank you, Sam. Thank you, Sean. I’ve enjoyed your questions and let’s do it again sometime.
0:48:26 All right. You’re the best. We appreciate you.
0:48:27 Bye-bye.
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0:00:08 gave you. Howard Marks is a legendary investor and co-founder of Oak Tree Capital, known for his
0:00:13 sharp memos, contrarian thinking, and risk-focused approach. He made billions zigging when others
0:00:19 zag, especially in crises when he writes Wall Street Listens. Pretty flattering. Pretty good,
0:00:19 yeah.
0:00:36 Okay. Well, I think the best place to start is that kind of zig while others zag. So I want to ask
0:00:42 about the S&P because you don’t know much about us, but the short version of the guy you see across
0:00:47 from me there, Sam, is Sam’s an entrepreneur. Sam builds his company. He sold his company and he
0:00:52 took the money that he made and he said, look, I worked hard for this money. Now I want this money
0:00:58 to work hard for me, but I need it to be safe. And so Sam went into a mostly, you know, best practice,
0:01:03 low-cost index funds in the S&P 500. And anytime I ask Sam about his strategy or I tell him,
0:01:07 dude, you got to buy Bitcoin, Ethereum, you got to buy this, you got to put some money over here.
0:01:12 Cause I’m, I’m like, you know, if Sam is vanilla, I don’t even know what I am. I’m some flavor off
0:01:13 on the side. That’s strange.
0:01:14 How about tutti frutti?
0:01:19 Yeah, I’m tutti frutti over here. And I keep trying to pull him over here, but he says, no,
0:01:24 no, no, I like vanilla. And so he, um, he basically just says the long-term average of the S&P 500
0:01:28 is 10%. If I just hold this for 50 years, I’m going to double, you know,
0:01:30 this many times I’m good.
0:01:32 Very, very boring. Very boring.
0:01:36 Yeah. He repeats that like on loop. Like he’s one of my kid’s toys. You push the button. It just
0:01:41 keeps saying the same line. Uh, but you know, I do get a little wary when, um, anything seems too safe
0:01:45 or too, too certain, or I guess too taken for granted that this 10% number over the long-term
0:01:49 will be the, be what it’ll be. I guess, what would your message be to Sam? Is Sam just, you know,
0:01:53 is he right? Is he wrong? Would you give him a caution of warning? If, if he was your nephew,
0:01:56 you, he looks like he might be your nephew. If he was your nephew, what would you be telling him?
0:02:02 Well, on the one hand, Sam, you’re right. Because if you, if you have more money than you need to eat,
0:02:10 the first person, first purpose of your money should be to make you comfortable. It doesn’t
0:02:17 make any sense. Uh, Buffett says, don’t risk what you have a need to get what you don’t have and don’t
0:02:27 need. It does, it makes no sense for somebody with a surplus of money to make their daily life less
0:02:33 pleasant by going to investments that put them under pressure. But there’s going to be a but on your
0:02:42 statement, it sounds like, but on the other hand, the riskiest thing in the world is the belief that
0:02:49 there’s no risk. The risk in the markets does not come from the companies, the securities or the
0:02:56 institutions like the exchanges. The risk in the markets comes from behavior of people. And it’s
0:03:03 that for that reason that Buffett says when others are imprudent, you should be prudent. When other people
0:03:14 are carefree, you should be terrified because their behavior unduly raises prices and makes them
0:03:22 precarious. When other people are terrified, you should be aggressive because their behavior suppresses
0:03:30 prices to the point where everything’s a giveaway. So I don’t, I mean, look, in the long run, you’re right
0:03:42 about the S&P. And over the coming years, American companies on balance are going to produce prosperity.
0:03:46 What’s that defined as long-term in this?
0:03:56 Well, I would say 20 or more is the real long-term. And I’ll tell you in a minute how I get there.
0:04:04 But my favorite cartoon, I have a file of cartoons from over the years. My favorite one, there’s a guy,
0:04:10 he’s got his, is a car pulled over to the side of the road. The guy’s in a phone booth. So you know,
0:04:16 it’s an old cartoon because there are no more phone booths. And there’s a, as a factory going up in the
0:04:22 background. And he’s screaming into the telephone, I don’t give a damn about prudent diversification,
0:04:30 sell my Fenwick chemical. In other words, prudent diversification calls for certain investment
0:04:39 positions and a variety of them in a certain composition. Reality says, I see Fenwick chemicals
0:04:46 burning to the ground, get me out. And you have, you can’t ignore reality. Now, what’s reality
0:04:57 in this case for you? Reality is recognizing where things stand. And J.P. Morgan published the chart
0:05:06 around the end of 24. And it was a scatter diagram showing over the years, if you bought the relationship
0:05:16 between the S&P 500 at purchase and the return of the annualized return over the next 10 years.
0:05:25 And it looked like this. On this axis, we had return. And on this axis, we had PE ratio. And it was a,
0:05:34 it was a negative correlation, which means the higher the PE ratio you pay, the lower the return you should
0:05:45 expect. Makes perfect sense. And it showed there was a number here, 23 on the PE ratio axis. And it showed,
0:05:52 which is what the PE ratio on the S&P was at the time. And it showed that historically, if you bought the S&P
0:06:04 when the PE ratio was 23, in every case, there were no exceptions. In every case, your annualized
0:06:11 return over the next 10 years was between two and minus two. That’s all you have to know.
0:06:15 And what are we today? What is it today? 23 or?
0:06:24 24, 24, 25. Because why? Because prices have risen. Now, maybe the outlook has risen. So maybe it’s
0:06:35 still 23. But I think, let’s say, I think 24. So you can say the S&P has returned 10% a year on average
0:06:43 for 100 years. I’m happy with 10. I’m in. Or you can say it doesn’t always return 10. By the way,
0:06:48 one of the most interesting things about the S&P, if you do the research, and I did it for a memo,
0:06:56 on average, it has returned 10% a year for 100 years. But do you know that the annual return is
0:07:01 almost never between 8 and 12? Think about that.
0:07:04 Yeah, like it kills it or it gets destroyed.
0:07:04 Dies. Yeah.
0:07:10 Think about what that means. The norm is not the average.
0:07:18 But the issue for someone like me, so a lot of our listeners, I’m one of them. You know, I was
0:07:24 fortunate. I had a business. I made a relatively large sum of money at a very young age. But I’m not an
0:07:25 investor. Yeah.
0:07:30 Like, I don’t know anything about public markets. And so when I hear you say that, I think, well,
0:07:31 I don’t have an alternative.
0:07:40 Well, you do have an alternative. You could figure out an algorithm to rebalance your position based on
0:07:46 relative price. And you could put it on autopilot. I don’t recommend, you know, making judgments about
0:07:53 the future and the appropriateness of today’s price for the future you perceive. But you can do that.
0:07:59 And there are ways to do these things, even if you just use common sense.
0:08:05 What would you be rebalancing into? So let’s say S&P PE is high. What would be the second best for the
0:08:07 sort of non-full-time active investor?
0:08:14 Okay. So I’ve tried to suppress my tendency to talk my book until now. But I think an alternative
0:08:22 is bonds. You know, and in 19, I joined Citibank in the investment research department in 1969 as an
0:08:29 equity analyst. And the bank did so horribly that in 78, I was banished to the bond department. And the
0:08:35 bond department was the equivalent of Siberia. The good news is that at that time, American corporations
0:08:41 pretty much gave lifetime employment. So I didn’t get sacked. But I’m in the bond department. And I get
0:08:45 a phone call from the head of the bond department saying that there’s some guy in California named
0:08:51 something like Milken. And he invests in something called high-yield bonds. Can you figure out what
0:08:59 that means? And I said, yes. And I became a high-yield bond investor. And you know what? When you buy a
0:09:05 bond, there’s a contract that says the borrower will pay you interest every six months and give
0:09:12 you your money back at the end. And you can figure out the return that is implied by that contract.
0:09:20 And if the borrower doesn’t keep that contract, overgeneralizing, oversimplifying, the creditors
0:09:25 get the company through the bankruptcy process. So the borrower has a lot of incentive to pay you,
0:09:32 and they almost always pay. I’ve been involved in high-yield bonds for 47 years. And I can tell you,
0:09:39 they’ve almost all paid. So today, you can buy high-yield bonds, whether it be the US or Europe
0:09:48 or variations on that theme, what we call low-grade credit. And you can buy it to get yields of seven
0:09:57 seven to eight. Now, seven to eight is pretty close to 10. So that’s a good thing. The bad thing is you
0:10:04 have to pay tax every year on the income. That’s a bad thing. But for those of us who are cautious,
0:10:15 like you and me, we might say, I’ll take eight, which in the long run will give me four after tax,
0:10:21 as opposed to 10, which after capital gains taxation will give me seven.
0:10:30 Or maybe I’ll mix them. Maybe I’ll own a little less S&P and a little more debt because I’m-
0:10:30 That’s what I do now.
0:10:37 Yeah, because I’m worried. It’s not all or nothing. And that’s why when I’m on TV shows and they say,
0:10:45 well, is this a sell or buy? Is this risk on or risk off? I resist that formulation because it’s
0:10:51 never one or the other. It’s a mix. And the only question that’s relevant is what mix?
0:11:01 I think the way when you manage your portfolio, the operative continuum to think about is the
0:11:09 continuum that runs from aggressive to defensive. And I think about a speedometer in the car. So zero
0:11:19 is no risk. A hundred is max risk. A hundred percent aggressive. You should have a sense for your
0:11:25 appropriate, normal posture. And it sounds to me like, Sam, you’re a little conservative guy.
0:11:31 You’ve made so much money, you can’t believe it, but you don’t want to give it back. So I would say
0:11:42 you’re a 65 and especially given your youth, you may be a 55 for your cohort. So I, and I think you
0:11:47 should figure out every, every listener, every investor should figure out the right place for
0:11:52 them and try to stay there most of the time. We need to get a couch here and you could just,
0:11:56 I’ll call you Dr. Marks and- Well, you know what? I run, I once wrote a memo called on the couch
0:12:00 because I think that once in a while, the market needs a trip to the shrink.
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0:12:33 I went back and I read a bunch of your old memos. And the one that stood out to me was
0:12:38 the bubble.com one. So you wrote this back in 2000. And I actually have a few of these where I feel like
0:12:48 there’s been moments in time, maybe 2000, 2008, 2012, 2020, where it seemed like consensus was going
0:12:54 one way. Maybe it was Mac’s greed and you went the other way. Or it was Mac’s fear and panic. And then you,
0:12:59 you were actually very aggressive. You did the thing where Buffett says, be fearful when others
0:13:03 are greedy and greedy when others are fearful. It’s cool to say, but it’s hard to actually do.
0:13:08 And I thought it’d be fun if you could kind of walk us through a couple of those moments.
0:13:13 And I don’t know, like, yeah, not to go too far down memory lane, but just, you know,
0:13:17 take us back to, you know, the one in 2000. What’d you see? What’d you do? How did it, you know,
0:13:20 how did that play out? What’d you learn from that? Take us through a couple of those. Cause I think
0:13:27 that’s your superpower. First of all, one of my sayings is we never know where we’re going,
0:13:37 but we sure as hell ought to know where we are. And at Oak Tree, we loudly proclaim our inability
0:13:45 to make macro forecasts and our non-reliance on macro forecasts. But if we want to do the right
0:13:53 thing vis-a-vis the macro, we should be able to figure out what’s going on at the present time
0:13:59 and what that implies for the future. It may not happen, the thing you think it implies,
0:14:05 but it probably has a higher chance of happening than not happening if you’re logical and understand
0:14:11 history and patterns. And I wrote a book called Mastering the Market Cycle, which was published
0:14:19 in 18. And I always say it’s a cheesy title, but it wasn’t my idea. The publisher wanted that title
0:14:25 because they thought it would sell more books. But I like the subtitle and the subtitle says,
0:14:32 getting the odds on your side. And I believe that where we stand in the cycle determines what
0:14:41 probably is going to happen and how likely it is. And understanding that can improve your odds.
0:14:45 It can’t make you a sure winner, but it can improve your odds. And that’s the best we can do
0:14:51 in an uncertain world beset by randomness. So, you know, I don’t know if you know that
0:14:59 I started writing the memos in 1990. Bubble.com on the first day of 2000 was the first one that ever
0:15:06 garnered a response. I went 10 years. Not only did nobody say, hey, that was good. Nobody even said,
0:15:10 I got it. And, and, and, and, and so one of the mysteries is why I kept-
0:15:12 Who were you sending them to?
0:15:13 To our clients.
0:15:14 How many?
0:15:15 Crickets.
0:15:19 Well, you know, in 1990, a hundred.
0:15:20 Okay.
0:15:30 You know, and by mail, of course. I wrote Bubble.com January the 2nd of 2000, and it had two virtues. It was
0:15:38 right, and it was right fast. If you’re right slow, it doesn’t look like you were right. One of the
0:15:42 great sayings in our business is that being too far ahead of your time is indistinguishable from being
0:15:52 wrong. So the, the, the answer is I was not too far ahead. Uh, in, in the fall of 99, I read a book
0:15:58 called Devil Take the Hindmost. It’s a, it’s a history of financial speculation.
0:16:03 Were you looking for books about that because you had a hunch or you just randomly read this book?
0:16:09 No, I, I don’t remember why I read it. Uh, the idea comes first. Not, my books, my memos are not
0:16:16 research-based. They’re based on ideas that resonate with me. And so I’m reading this book. I am interested
0:16:22 in financial speculation. I’m interested in cycles. I’m interested in, in the extremes of, uh, financial
0:16:28 behavior. Uh, so that’s probably why I read it. But I’m reading this book and it talks about all these
0:16:35 crazy things that people did, especially in something called the South Sea Bubble. Uh, Britain had this
0:16:42 big national debt and they concluded that they could, uh, pay it off by starting a company called the
0:16:49 South Sea Company. Uh, and they granted them a license to trade with the South Sea by which they
0:16:57 meant not Samoa, but Brazil. And, and they would charge them a license fee and that would pay off the
0:17:05 debt. And it was one of the, one of the great bubbles. And so I’m reading in the book about what
0:17:13 people were doing in 1720 and, you know, people were quitting their day jobs and hanging out in
0:17:24 ale houses to trade the shares of the South Sea Company, et cetera, et cetera, et cetera. And I said,
0:17:30 that’s what’s going on now in the tech bubble. People, you may recall that people were quitting their
0:17:36 jobs, becoming day traders. People with no money could trade stocks as long as they didn’t carry
0:17:45 any balance overnight. And, um, and, and, uh, young people were quitting MBA programs because they had
0:17:51 an idea. And if they waited until they graduated, somebody else would take it. So, so it just resonated.
0:17:57 And one of the quotes I use the most now is from, uh, Mark Twain who said, history does not repeat,
0:18:04 but it does rhyme. There are certain themes that rhyme from generation to generation and cycle to
0:18:11 cycle because they are embedded in human nature. And so they recur. And so, uh, and when you, when you
0:18:17 get older in our business, you know, obviously one of the things I, uh, hasten to point out is there is
0:18:23 no such thing as knowing something about the future. And if you don’t know about the future
0:18:30 and you want to figure out the future, there’s no such thing as analyzing the future. It doesn’t
0:18:39 exist. And the only thing you can do to get a handle on the future is look at the past and, uh,
0:18:48 look for the repetition of patterns as Twain said, and try to figure out if they apply today.
0:18:53 So this was very easy. So I wrote this memo, bubble.com, and it said what they were doing,
0:19:00 people are doing today. And I point, tried to point out the folly of what I saw going on.
0:19:07 Companies with no profits and no revenues were being highly valued. Maybe no product, just an idea.
0:19:14 And that is the epitome of a bubble. So I wrote the memo, uh, as I say, January the 2nd,
0:19:22 sometime around mid year, the tech bubble started to collapse. So as I said, in the introduction to one
0:19:28 of my books, after 10 years, I became an overnight success. Did you actually bet against it or did you
0:19:34 just preserve capital by not FOMOing into every, you know, tech company, basically? Like what was the,
0:19:40 what was the win of that for you? First of all, we’re not involved. We’re basically not involved in
0:19:48 the U S stock market and we’re not involved at all in technology. So we wouldn’t have a chance to apply
0:19:58 that. But I think what we did is we recognized that, and by the way, things don’t happen in
0:20:06 isolation uniquely. So when you, when you see something like I described in the tech bubble,
0:20:14 you should realize that maybe there are ramifications in other world, parts of the world. And we figured out
0:20:21 that people were engaging in optimism, not pessimism, greed, not fear, uh, credulousness,
0:20:28 not skepticism, risk tolerance, not risk aversion. And when, uh, as Buffett says about prudence,
0:20:38 when nobody’s afraid, unwise deals can get done easily. Simple as that. And the people who buy that
0:20:44 stuff, it usually ends badly. The way that you explain it, I think everything makes sense and I
0:20:49 totally buy into it, but that’s actually quite challenging to understand this like macro environment
0:20:59 and to say, this is where we are. Yeah. Well, uh, you have to be clinical. You have to observe and,
0:21:06 and without emotion understand what’s going on and what the, what the implications are. And of course, the,
0:21:15 what we call, what I call emotion is part of what’s called human nature. If you succumb to human nature,
0:21:22 it tends to get you to do the wrong thing at the wrong time. I came across a great quote within the last year
0:21:27 from a guy who’s a retired trader. When the time comes to buy, you won’t want to.
0:21:38 And, and that, that, that, that encapsulated, encapsulates so much wisdom because what is it
0:21:46 that causes the great moments to buy? It’s probably the point of lowest, uh, consensus. So when most
0:21:51 people don’t believe would be the time that the price is going to be the lowest, right? It’s the time
0:21:58 either the most uncertainty or the most pessimism or the most fear, most conservatism. Uh, so you also
0:22:03 want to be all those things. What causes those things you’re talking about? You’re talking about
0:22:12 the manifestation. What’s the cause? Hmm. Bad news. I don’t know. Bad, uh, bad, uh, bad events,
0:22:20 bad news, either, either exogenous or geo or, or, or in the economy, faltering corporate fortunes,
0:22:29 declining stock prices, widespread losses, and a proliferation of articles about how terrible
0:22:36 the future looks. So the point, that’s why you don’t want to buy at the low. Who would want to buy
0:22:45 under those circumstances? Right. And so you, you talked before in your introduction, uh, about
0:22:54 zigging when others zag. The only thing I’m sure of is if you zig when they zig, you’re not going to
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0:24:00 check show notes for details. Do you still feel that fear? Uh, you know, the, of you, like when
0:24:05 you know, you’re supposed to buy, do you still feel fearful or do you feel like nice? Hello, my old
0:24:11 friend. I love this emotion. This is what I’m supposed to do. Right. Yeah. I mean, it’s not easy,
0:24:20 easy, but you have to know, you have to do it. You have to know that if, that, that what, what makes
0:24:28 buying opportunities. And if you think about it, the fortunes of companies and the outlook for
0:24:33 companies doesn’t change much. What, and I’m, I’m writing a memo about this that’ll come out one of
0:24:39 these days. And what changes is how people think about what’s going on and think about the future.
0:24:48 And so what changes is the relationship of price to what I’ll call value. Sometimes they hate them.
0:24:55 Sometimes they love them. When they love them too much, you should expect them to probably go down.
0:25:01 That sounds like a bull market or a bubble. And when they hate them too much, you should expect them to
0:25:09 go up. That sounds like a bear market or a crash. And so you have to do the opposite. And, and the same
0:25:17 developments in the environment that, that affect everybody else will affect you. You’re subject to
0:25:22 them. You feel them, you read about them, you hear about them. Everybody tells you how dire the outlook
0:25:30 is. And you know, uh, it’s hard to ignore them, but you have to do the right thing in the face of them.
0:25:40 Uh, 1998, we had, uh, uh, the Russian ruble devaluation, the debt crisis in, in Southeast Asia
0:25:48 and, um, the meltdown of long-term capital management. And one of our portfolio managers who,
0:25:53 who was young came to me and he said, I think this is it. I think we’re going to melt down. I think it’s
0:25:59 all over. I’m terribly pessimistic. I said, tell me why he went through his reasoning. Uh, I said,
0:26:06 okay, now go back to your desk and do your job. A, a, a battlefield hero. And I don’t want to
0:26:13 compare what we do to being a battlefield hero, but a battlefield hero is not somebody who’s unafraid.
0:26:19 It’s somebody who does it anyway. And that’s, that’s the way you have to be.
0:26:24 Can I actually, can I ask, let me ask you about that because, so it’s funny, interestingly enough,
0:26:30 even though I’m the conservative one, I’m actually way more emotional. Sean’s like a more, uh, mostly is,
0:26:34 is, is, is a pretty stable guy emotionally. I go up and down, which I think is actually closer to the
0:26:40 average for, um, uh, average folks. You said something really, you said a bunch of stuff about emotion,
0:26:44 uh, in the past. I think you said to be a good investor, you better, uh, be able to invest
0:26:50 without emotion or at least act as if you don’t have a lot of emotion. Has there ever been anything
0:26:56 like a mindset shift or a practice or something that you’ve had to use in order to learn to be
0:26:58 less emotional when investing?
0:27:01 No, these things are not intentional on my part.
0:27:03 You think you were born like that?
0:27:08 I was born unemotional by the way. And, and I want to point out here, uh, cause my wife’s
0:27:13 downstairs having lunch that, that, uh, I, I wrote in my book that it’s really important to be
0:27:20 unemotional and investing, uh, not so good to be unemotional in life in, in arenas like marriage.
0:27:27 Uh, so there it’s not an advantage, but, uh, no, for me, it came naturally. I don’t have to,
0:27:31 I don’t have to say, Oh, there I go again. I’m getting emotional. I have to restrain that blah,
0:27:36 blah, blah. It’s it. And, and, and my partner, Bruce Karsh, who’s been my partner successfully
0:27:42 for 37 years, he’s pretty much the same. So that makes it easy. I don’t have to restrain him.
0:27:47 We’ve gassed you up about some of your, your best moves. What’s the worst mistake you made
0:27:52 due to an emotional mistake where you, you didn’t control your temperament properly and you made a
0:27:57 mistake. My worst mistake is not, and I know you’re talking about a point in time.
0:28:05 My worst mistake is that I have always been too conservative. My parents were traumatized by the
0:28:11 depression. I always say the question is not whether your parents were alive during the depression,
0:28:17 but whether they were adults. My parents were adults. They were born in the 19 aughts. And so in
0:28:24 the depression, they were in their thirties and they were, you know, and the depression was really
0:28:33 traumatic. Nobody knows what it was like. And it ground on for over 10 years. And, and so you,
0:28:39 when you grow up with parents of the depression, they say things like, don’t put all your eggs in
0:28:44 one basket saved for a rainy day, you know, that kind of stuff. And I ended up too conservative.
0:28:51 And if I, if it wasn’t as conservative, I’d be richer today. I’m not sure I’d be happier.
0:28:56 Because what’s an example. What do you mean you were too conservative? Like, I guess like,
0:28:59 what makes you say that? What would you have done differently? Had that not,
0:29:04 had that wiring not been done in you? Well, I mean, I don’t know. I might’ve,
0:29:11 I might’ve gone to an, into an, a more aggressive asset class than credit like equities. I might’ve
0:29:17 become a venture capitalist or, uh, you know, like my son, Andrew or a private or a leveraged buyout
0:29:24 investor. But, you know, the reason I was talking about the appropriateness of credit for Sam is
0:29:31 because while the returns are a little lower, there’s much less uncertainty and downside. So I,
0:29:36 I would say that if I, I’ve been in this business 56 years, if I would’ve spent those 56 years in
0:29:43 less conservative asset classes, uh, I would have made more money. Having said that, it happens that
0:29:49 I went into things like high yield bonds in 78 and distress debt in 88. And if I had not been a
0:29:53 conservative person, I probably wouldn’t have had any clients because they would have been scared
0:29:59 off by the risk. So it served me well in, in pioneering in those businesses. But that was my,
0:30:07 I mean, I, I, we never had a mistake. Like we were too defensive at a, uh, in a crisis or too
0:30:15 aggressive in a bubble. We just, I just was too conservative all my life. And that kind of makes
0:30:19 sense because you, I don’t think you started Oak tree until your late forties, right? Just short of
0:30:26 my 49th birthday. Yeah. And so I guess leading up to it, were you already financially successful?
0:30:32 Were you a success leading up to that? Yeah. And, and so was it a big risk to start Oak tree?
0:30:40 I was secure. I, I wasn’t rich by today’s standards and I may not have been rich by the standards at the
0:30:48 time, but I had, I had a lot, I had good money and I lived well. So I started running money in 78.
0:30:57 I joined my Oak tree founder partners in 85 is 86, 87, 88. We did a great job through a variety of
0:31:03 environments and we weren’t worried about the ability to do a good job. And we had enough money
0:31:12 to eat. So it wasn’t, I mean, it, it, it, I had to overcome my innate caution. My wife had to give me a
0:31:18 kick in the ass, uh, which he, uh, happily did. Um, I may not have done it without her. Probably
0:31:23 wouldn’t have. You, uh, you said you’re, you’re too conservative, but there’s been times when you’ve
0:31:29 been very aggressive. Oh yeah. And, uh, you know, I think the sort of 07, 08 financial crisis, I read
0:31:37 something that as the crisis happens, you go raise $10 billion. Cause you see the opportunity and you
0:31:44 started deploying something like $600 million a week, which is, it just sounds bad-ass to be honest.
0:31:48 I don’t even, maybe that’s, maybe that’s not, not, not as crazy in the financial world, but that sounds
0:31:54 crazy to me. Well, it, your, your fact set is inaccurate in one regard. We did not raise 10
0:32:00 billion after the crisis hit because remember what I said about the guy who said, when time comes to
0:32:05 invest, you won’t want to, you can’t raise money in a crisis. You, if you went to people who say,
0:32:08 the world’s melting down, we’re going to buy all this stuff. We’re going to, it’s going to be a
0:32:13 bonanza. We’re going to get rich. Nobody will give you money. Why? Because the same factors that
0:32:17 influence the world influence the people you talk to and know everybody will stick their hands in
0:32:23 their pockets and say, maybe later after the, after the dust settles and, and light, and a lot of people
0:32:28 say, uh, you know, we’re not going to try to catch a falling knife. And I believe that you make the big
0:32:34 money catching falling knives carefully. So what happened is we, like I described about the tech
0:32:43 bubble in 2000, we detected in Oh five, six, that the world was behaving in a, in a carefree manner.
0:32:50 And, and I, I would wear out the carpet between my office and Bruce’s with the wall street journal.
0:32:54 And I’d say, look at this, look at this piece of junk that got issued yesterday. There’s something
0:33:00 wrong. If a deal like this can get done, the world is exercising inadequate prudence.
0:33:04 Specifically on mortgage is, or just generally.
0:33:07 No, I didn’t know about mortgage. I never heard of mortgage. I never heard of sub, I know, I don’t
0:33:11 think I ever heard the word subprime. I don’t think I ever knew what a mortgage-backed security was.
0:33:18 It just seemed that the world was operating in a pro-risk fashion. And when people are pro-risk,
0:33:23 they, they, they, they permit bad deals and they pay prices higher than they should.
0:33:30 So what happened was on, on the first day of Oh seven, we went out to our clients and we said,
0:33:36 we think there’s an opportunity. Uh, we didn’t, I don’t think we raised funds in Oh five or six for
0:33:41 his, uh, distressed debt area. But on the first day of Oh seven, we went out and we said, we think
0:33:46 there’s a great opportunity coming and we’d like to have 3 billion. The, at that time, the biggest
0:33:53 distressed debt fund in history was our, Oh one fund, which preceded the Enron meltdown and so forth.
0:34:01 And it was two and a half billion. And so two and a half. Yeah. Around there. So, uh, we went out
0:34:05 to the clients. We said, we’d like to have three. That would be the biggest distressed debt fund in
0:34:13 history. So within a month we had eight and we said, you know, we can’t do anything with 8 billion.
0:34:19 It’s, it’s, it exceeds our ability to invest it wisely. So we’re going to take three and a half
0:34:26 billion and we’re going to close the fund. But we would like to have the remainder of your interest
0:34:33 in a standby fund that will implement if the stuff hits the fan. So the first fund was seven and it
0:34:39 was three and a half billion. And the next fund was seven B. And by the time we finished raising money
0:34:47 for it a year later, it was 11 billion and we, and we, and fund seven got fully invested. So we started
0:34:53 investing, gradually investing seven B, uh, in June of 08. It’s sitting there on the shelf.
0:35:07 And by September 18th, 15th, it was, uh, no 18th. It was, uh, uh, 12% invested. So just over a billion
0:35:17 and Lehman brothers declares bankruptcy. And so the question, which you implied was, do you invest it
0:35:22 or not? You’re sitting there with all that money, but the, it looks like the world’s going to melt
0:35:30 down. Do you invest it? Very simple. And, uh, this, as you say, I think this was one of our, uh, best
0:35:38 moments because I reached a very simple conclusion. If we invest it and the world melts down, it doesn’t
0:35:46 matter what we did. But if I don’t invest it and the world doesn’t melt down, then we didn’t do our job.
0:35:55 QED, you have to move forward. I also wrote that it’s hard to predict the end of the world.
0:36:01 It’s hard to assign a high probability to it. It’s hard to know what to do if the world is going to
0:36:06 melt down. If you do those things and the world doesn’t melt down, it’s probably a disaster. And
0:36:13 most of the world time, the world doesn’t melt down. That was the, that was the sum of our analysis
0:36:18 because there was nothing to analyze. There had never been a global financial crisis before. The,
0:36:24 the meltdown of the financial sector had not been anticipated since the great depression.
0:36:30 And there was, there was, there were no past patterns to extrapolate. So you have to resort
0:36:38 to logic. That was the logic. So as you say, we invested 450 million a week for the next 15 weeks
0:36:46 in that fund, which was 7 billion and Oak tree overall invested an average of 650 million a week
0:36:51 for the next 50, uh, 15 weeks. How did that turn out? So that’s what you put in. How did,
0:36:54 what was the sort of result of that, that investing during that time?
0:37:04 Well, it was great except for, I mean, we got good buys and we made good money, but the fed mobilized,
0:37:11 uh, uh, very astutely cutting interest rates to zero for the first time in history at the beginning of
0:37:21 2009 and introducing QE. And those two things saved the economy. So we didn’t get the meltdown that
0:37:28 everybody was afraid of. And there were relatively few bankruptcies, especially outside the financial
0:37:35 sector that result resulted from the global financial crisis. So we had, we’ve had some barn burner funds
0:37:38 in crises. Uh, this was very good, but not a barn burner.
0:37:44 You’ve, you’ve, you’ve, you’ve done something that I love, which is, um, you, you, you’ve quoted a ton of
0:37:47 different people. You’ve quoted Mark Twain a bunch of times. You’ve have all these quotes, which like
0:37:53 clearly shows that you retain information that you read. And I imagine you read a lot. Can I ask you
0:37:56 about your reading habits? How do you pick what books you read?
0:38:04 I’ve never read any books about how to be an investor, like, you know, multiply this by that
0:38:09 and add this and subtract that. And the books I’ve found most interesting have always been the ones
0:38:17 about investor behavior. And I mentioned Devil Take the Hindmost, uh, 99. Uh, uh, one of the greatest
0:38:24 books I ever read was, uh, before that, uh, John Kenneth Galbraith’s book, uh, uh, called the short
0:38:30 history of financial euphoria. That was really pivotal for me. And since I’m a slow reader, uh, I
0:38:37 like the fact that it was only about a hundred pages. And then, you know, back in, back in, uh, 74,
0:38:43 I think Charlie Ellis wrote an article winning the losers game where he said that because, uh, you can’t
0:38:50 predict the future, uh, active investing doesn’t work. He was a believer in the efficient market. So rather
0:38:55 than try to hit winners, like the tennis player, you should try to avoid hitting losers and keep the
0:39:02 ball in play. Um, and that has always defined my, uh, investing style. In fact, I wrote a memo in the
0:39:09 summer of 24 or 23 called fewer winners, fewer losers or more winners. And that’s the basic choice
0:39:15 of investing style. There’s a great, I think like sort of math paradox that you’ve pointed out,
0:39:19 which is that, you know, a fund, I don’t know if it was your fund, but any fund, it could be,
0:39:25 you know, never above, never in the top 10%, but sort of never in the bottom 50%. And there’s a
0:39:32 strategy of just consistently being above average will place you in the top 5%, right? It’ll place you in
0:39:36 the top percent. Uh, can you unpack that idea a little bit? I just, I just sort of butchered it.
0:39:43 In, uh, 1990, I wrote a memo called the route to performance. And I had, uh, dinner in Minneapolis
0:39:48 with my client, Dave Van Benskoten, who ran the General Mills pension fund. And he, Dave explained
0:39:55 to me that he had run the fund for 14 years. And in 14 years, the, the equities, General Mills equity
0:40:02 portfolio was never above the 27th percentile or below the 47th percentile. So 14 years in a row,
0:40:07 solidly in the second quartile. Now, if you said to the normal person, not in the investment
0:40:12 business, so this thing fluctuated between the 27th and the 47th, where do you think it was
0:40:19 for the whole period? They would say, well, let me think probably around 37th. The answer is fourth.
0:40:28 So if you, if you can do well for 14 years in a row and avoid the tendency to shoot yourself in the foot
0:40:35 in a bad year, you can pop up to the top. At the same time, uh, another investment management firm
0:40:39 had a terrible year because they were deep value investors and they were heavy in the banks and
0:40:46 the banks suffered terribly. So they were at the bottom. So the president comes out and of course
0:40:51 things, people in the investment business are great rationalizers and communicators. And he says,
0:40:56 the answer is simple. If you want to be in the top 5% of money managers, you have to be willing to be
0:41:03 in the bottom. Well, that makes great sense, except that my clients don’t care if I’m ever in the top
0:41:09 5 and they absolutely don’t want to see me in the bottom 5. So my reaction is the first guy’s approach
0:41:15 is the right one for me. So that’s why at Oatree, we go for fewer losers, not more winners.
0:41:22 Yeah. I love that because it’s one of the, um, unsexy ideas. Like I think any idea you can’t,
0:41:28 you know, make a movie about or won’t make you sound really cool are generally undervalued ideas when
0:41:33 they, when they actually logically math out the way, the way that one does. And so I sort of,
0:41:37 that was one that stuck out to me is I think nobody’s going to, nobody’s going to give you a
0:41:41 motivational video about being consistently above average and just never shooting yourself in the foot.
0:41:47 It’s all about heroic greatness and huge risks you can take and, you know, being willing to do it.
0:41:49 And so, you know, that’s all you hear.
0:41:56 But, but, you know, uh, the, uh, financial times of London every Saturday, they, they have an article,
0:42:01 uh, called the lunch with the FT and they take somebody to lunch and they write an article about
0:42:09 the person, the restaurant and the food. And they did that with me in late 22. And, uh, I, uh,
0:42:15 took the reporter to, uh, my favorite Italian restaurant near the office in New York, where I go
0:42:23 a hundred percent of the time, if I have a lunch. And I, and I said to her, eating in this restaurant
0:42:31 is like investing at Oak tree, always good, sometimes great, never terrible. Now that to me,
0:42:41 that sounds like a modest boast, but if you can do that for 40 or 50 years, I think it’ll compound to
0:42:47 great results. Uh, if you never shoot yourself in the foot. And I think it’s, I think, I, I don’t know
0:42:52 if the sec is listening, but I think it’s descriptive of what, of what we’ve accomplished.
0:42:56 There’s like this, um, class of investor that’s like kind of become like folk hero,
0:43:02 you know, like Warren Buffett’s an obvious one where the, like a folk hero, sort of, uh, their high
0:43:08 integrity, they make greatness seem achievable and relatable, uh, which is like a whole skill in
0:43:13 itself. And, and you’ve become one of these like folk heroes. Um, you know, and a lot of them,
0:43:17 they have in common where they like write a lot, they write well, they’ve got wonderful sayings.
0:43:23 Uh, they make challenging things easy to understand. Did you purposely try to become
0:43:29 like this public figure? Well, first of all, you can’t ask somebody who did whether they did,
0:43:35 cause they’ll say no, nobody will admit that. Nobody will say my, my public persona is a facade.
0:43:41 Me and Sam were joking before this, we were saying it’s cool how, uh, it’s interesting how
0:43:45 I think when you started as an investor, there was like no celebrity investors. There’s no like
0:43:51 famous person who was doing what you were doing. And then now you have, whether it’s Buffett or
0:43:57 Munger, there’s like the investment guys are now like the philosophers. Yeah. The tech CEO nerds
0:44:04 are now like the power players of the world. Right. Uh, podcaster comedians are now like
0:44:10 the new trusted media. It’s like this very strange shift on all fronts where, um, you know,
0:44:16 influence has sort of shifted, but I find the like investment crossover life philosopher to be
0:44:20 just like one of the really wholesome ones that I personally really like, you know?
0:44:25 Well, you know, I, I hesitate to put myself as the same category, but I think Warren
0:44:30 has always tried to just educate people and share his knowledge. And, and people say, well,
0:44:33 why do you give away your secrets? Aren’t you afraid that other people will emulate you and,
0:44:38 and catch up with you? But I, I don’t think so because, you know, we can tell them all day long
0:44:43 what, what you should do, but it’s hard to do. Like we said, at the beginning of the podcast,
0:44:49 friend of mine, Richard Oldfield in London wrote a book once entitled simple, but not easy.
0:44:55 I think the things we have to do are simple. They’re just not easy to do. I think Buffett
0:45:03 makes investing seem simple because he boils it down to the essential ingredients. By the way,
0:45:08 you said there were no famous investors, but I think Buffett started around 53, if I’m not mistaken.
0:45:15 Uh, he just wasn’t famous. Uh, but, and, and there were a few people who were famous in the
0:45:22 investment business, but I don’t think anybody was, was, uh, famous in the, in the wider world.
0:45:27 Oh, it’s interesting for like the normal guys like me and, and, and Sean is like, we learned from you
0:45:32 about how to live life and you just, and you, and, and that’s kind of cool. And it just like investing
0:45:36 is just your way of like testing. If your way of living is true.
0:45:42 Right. Well, investing is a lot like life, but, but, and, and by the way, uh, I’m working on a book
0:45:51 along those lines, Sam, what’s it called? Uh, I don’t know yet. Uh, but, but, uh, uh, if you wait a
0:45:56 few years, I think it’ll be out. Well, we appreciate you coming. Uh, I do want to leave you with one.
0:46:00 It’s a question for, for, for you. So we’ve asked you a bunch of questions, but I actually
0:46:05 think it’d be interesting. Um, what question do you think people who listen to this should ask
0:46:10 themselves? What’s a, what’s a useful question that you think people could ask themselves as a,
0:46:15 as a final, final note here? Well, I would think in terms of the mistakes that investors made,
0:46:22 and I would ask yourself whether you make them. Uh, so what are the big mistakes investors make?
0:46:30 Uh, I, I can think of three. Number one, do you think you hope, do you think you understand what
0:46:38 the future holds? And, and do you reasonably think that’s accurate? Uh, number two, uh, I think the
0:46:43 biggest single mistake that investors make is that they think the world will remain the way it is,
0:46:47 that the things that are working today will continue to work. The things that aren’t working
0:46:52 will continue not to work, uh, that the trends or the emotion will continue and that there won’t be
0:46:58 any new trends. So do you, do you, are you part of that? And then number three is, do your emotions,
0:47:07 uh, rise and fall and get you to do what they want as opposed to what you should do? Uh, so, uh, I think
0:47:12 you just have to have a checklist. You know, in my first book, the most important thing, I had a thing
0:47:21 in there called the, uh, poor man’s guide to market assessment. And, and it says on the left a bunch of
0:47:25 things and on the right, there’s a bunch of things and, and, and it was half tongue in cheek or maybe
0:47:31 more than half, but I mean, it says, you know, uh, are the, is the market rising or falling? Are the,
0:47:36 are the TV shows about investing popular or unpopular? If an investor goes to a cocktail party,
0:47:41 is he mobbed or shunned? Uh, are, are, do deals get done easily or hard? Do people rate,
0:47:46 are, are, are, are deals oversubscribed or left begging? You know, that kind of thing.
0:47:53 And you can tell, you can figure out from that checklist, whether the market is overheated and
0:48:01 too popular or, uh, frigid and, and, and too shunned. And this can tell you a lot of what to do
0:48:03 if you’re methodical and clinical.
0:48:08 Well, um, Sean and I have, have read your stuff forever. We’ve listened to so many of your podcasts.
0:48:11 It’s been an honor. We really appreciate you doing this. I think the best part of our,
0:48:16 uh, best part of our job is we have an excuse to hang out with amazing people who are way out of
0:48:19 our leagues. And, uh, this is, this is one of those occasions. So thank you so much.
0:48:24 Well, thank you, Sam. Thank you, Sean. I’ve enjoyed your questions and let’s do it again sometime.
0:48:26 All right. You’re the best. We appreciate you.
0:48:27 Bye-bye.
0:48:41 My friends, if you like MFM, then you’re going to like the following podcast. It’s called
0:48:46 Billion Dollar Moves. And of course, it’s brought to you by the HubSpot Podcast Network, the number
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0:49:21 HubSpot Podcast Network. Again, Billion Dollar Moves. All right, back to the episode.
Want our 9 investment principles playbook? Get it here: https://clickhubspot.com/kcm
Episode 738: Sam Parr ( https://x.com/theSamParr ) and Shaan Puri ( https://x.com/ShaanVP ) talk to Howard Marks about principles of value investing.
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Show Notes:
(0:00) The S&P 500
(11:48) Legendary memos
(18:45) Investing without emotion
(29:32) You can’t raise money in a crisis
(36:05) Recommended Reading
(41:49) Higher than average returns
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Links:
• Oaktree – https://www.oaktreecapital.com/
• Memos – https://www.oaktreecapital.com/insights/memos
• The Most Important Thing – https://tinyurl.com/47amrzhj
• Mastering The Market Cycle – https://tinyurl.com/mr33mjbr
• Devil Take The Hindmost – https://tinyurl.com/yx9ce7xn
• A Short History of Financial Euphoria – https://tinyurl.com/uavcnunx
• Winning a Loser’s Game – https://tinyurl.com/55ch2rh9
• Mistakes Were Made (But Not By Me) – https://tinyurl.com/yc85ek63
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Check Out Shaan’s Stuff:
• Shaan’s weekly email – https://www.shaanpuri.com
• Visit https://www.somewhere.com/mfm to hire worldwide talent like Shaan and get $500 off for being an MFM listener. Hire developers, assistants, marketing pros, sales teams and more for 80% less than US equivalents.
• Mercury – Need a bank for your company? Go check out Mercury (mercury.com). Shaan uses it for all of his companies!
Mercury is a financial technology company, not an FDIC-insured bank. Banking services provided by Choice Financial Group, Column, N.A., and Evolve Bank & Trust, Members FDIC.
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Check Out Sam’s Stuff:
• Hampton – https://www.joinhampton.com/
• Ideation Bootcamp – https://www.ideationbootcamp.co/
• Copy That – https://copythat.com
• Hampton Wealth Survey – https://joinhampton.com/wealth
• Sam’s List – http://samslist.co/
My First Million is a HubSpot Original Podcast // Brought to you by HubSpot Media // Production by Arie Desormeaux // Editing by Ezra Bakker Trupiano