On Howard Marks
I was drawn to Fred’s post yesterday on returns and ridicule and have been a huge fan of this logic for some time. Fred mentions Bill Gurley and his interview with Om where Bill paraphrases the great Howard Marks and his quote from a 1993 investor letter: “Being ‘right’ doesn’t lead to superior performance if the consensus forecast is also right.”
For those that don’t know Howard, he is an absolute legend in the investment business going back to founding Oaktree Capital in 1995. Here are some other great ones from him throughout the years that have stuck with me:
“A hugely profitable investment that doesn’t begin with discomfort is usually an oxymoron.”
“Inefficiencies – mispricings, misperceptions, mistakes that other people make – provide potential opportunities for superior performance. Exploiting them is, in fact, the only road to consistent outperformance. To distinguish yourself from the others, you need to be on the right side of those mistakes.”
"The thing I find most interesting about investing is how paradoxical it is: how often the things that seem most obvious – on which everyone agrees – turn out not to be true."
[On why some money managers are not successful] “Unconventionality – Along similar lines, there’s the risk of being different. Stewards of other people’s money can be more comfortable turning in average performance, regardless of where it stands in absolute terms, than with the possibility that unconventional actions will prove unsuccessful and get them fired… Concern over this risk keeps many people from superior results, but it also creates opportunities in unorthodox investments for those who dare to be different.”
"In dealing with the future, we must think about two things: a) What might happen and b) The probability that it will happen."
“There are two primary elements in superior investing: a) Seeing some quality that others don’t see or appreciate (and that isn’t reflected in the price), and b) Having it turn out to be true (or at least accepted by the market).”
"Certain common threads run through the best investments I’ve witnessed. They’re usually contrarian, challenging and uncomfortable – although the experienced contrarian takes comfort from his or her position outside the herd. Whenever the debt market collapses, for example, most people say, ‘We’re not going to try to catch a falling knife; it’s too dangerous.’ They usually add, ‘We’re going to wait until the dust settles and the uncertainty is resolved.’ What they mean, of course, is that they’re frightened and unsure of what to do. The one thing I’m sure of is that by the time the knife has stopped falling, the dust has settled and the uncertainty has been resolved, there’ll be no great bargains left. When buying something has become comfortable again, it’s price will no longer be so low that it’s a great bargain. Thus a hugely profitable investment that doesn’t begin with discomfort is usually an oxymoron. It is our job as contrarians to catch falling knives, hopefully with care and skill. That’s why the concept of intrinsic value is so important. If we hold a view of value that enables us to buy when everyone else is selling – and if our view turns out to be right – that’s the route to the greatest rewards earned with the least risk."