Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 181

Insights from legendary fund manager, Howard Marks

Howard Marks spoke at the Sohn Hearts & Minds Investment Leaders Conference in Sydney on 11 November 2016.

Howard Marks is a successful investor and writer, and Co-Chairman of Oaktree Capital Management, which he co-founded in 1995. Howard has become known in the investment community for his 'Oaktree memos' to clients which detail investment strategies and he has published several books on investing.

Howard Marks and his Oaktree Capital manage about US$100 billion, predominantly in distressed credit, and he has been writing his ‘Oaktree memos’ since 1990.

On Donald Trump, he said he’s in the ‘I don’t know’ camp. It’s premature to take action, at least until some of his appointments are known. The investment implications depend on how much he will try to implement what he's said during the campaign, and how cooperative the Senate will be. He does not have the control of the Senate to the extent many think as there are narrow margins including people who said will not support him.

Trump should be a pro business on paper, probably more than Clinton, although his view on trade is a big negative. Infrastructure spending and tax cuts would be good for business.

The move to populism is a big issue. Trump touched on an anger, he didn’t create one. He received 55 million votes, including from old rural, non-college educated white guys who are not doing too well. The minority of Americans think their kids will be better off than their parents. The economy will grow more slowly as America has already reached much of its potential.

The idea of efficient markets is compelling. If something is cheap, don’t expect it to stay cheap. Trends tend to eliminate cheapness. Some markets are more efficient than others, which is why he does not operate in well-known, well-appreciated stocks. Knowledge is cumulative, and inefficient markets move to efficient, although there are cyclical inefficiencies.

Oaktree is the leading firm in distressed debt. What is perfect distressed debt theme? It looks worse than it is, so it’s cheap. He avoids technology and fashion stocks, and he needs a sector which can be analysed from the outside, which is why he avoids financial institutions. It’s not possible to evaluate millions of derivative transactions that sit in banks.

He invests in traditional manufacturers which he can analyse. He likes good companies with bad balance sheets, often due to over leverage. He uses bankruptcy laws where the old owners are wiped out and the debt holders take control. His business depends on the availability of distressed companies, but default rates are below average at the moment. This is not prime season for him.

Second level thinking requires a different type of thinking at a deeper level, and the best investors must move from first to second level. In order to outperform, you have to do things differently, you need to think differently. But also need to be better. That’s the hard part as most people flock to the consensus. That’s why there are few superior investors.

There’s a saying that 'you can’t coach height'. It’s not clear you can create second level thinking. When an analyst says he should buy Ford because they just brought out a great new Mustang, he asks whether everyone else also knows that. There's no value in having the usual information.

Predicting how people will react is major requirement. Everything that is useful is counterintuitive. If you’re not confused, you don’t know what’s going on. None of this is easy, and anyone who thinks it is is stupid. The most uncertain thing in markets at the moment is central bank activity. It’s what you know for certain that just ain’t true that gets you into trouble.

Money is to be made in doing things others aren’t. He believes you can’t make money trading, jumping in and out of stocks or bonds, and trading should only be used to make long-term investing decisions. He only buy bonds which he expects to hold to maturity.

Leverage does not make any investment better. “The more you bet, the more you win when you win, as they say in Las Vegas.” If you would not buy without leverage, a company does not suddenly become a better investment with leverage. A margin call could stop you out, and then you don’t enjoy the recovery, and that’s the worst time. Distressed debt buyers then obtain the recovery.

He never considers himself a futurist. Some people have different skills. It’s hard to be right about the major societal trends, but some people can do it. It should become harder over time to make exceptional returns, but superior investors will still do well.

The first great piece of investment wisdom he learned was that you need to be aware of the pendulum swinging from optimistic to pessimistic. Once everyone thinks improvement will last forever, no price is too high and that’s the worst time to invest.

 

This is general information and the investments may not be suitable as the personal circumstances of any investor are unknown. Cuffelinks accepts no responsibility for the performance of the investments.

 

  •   11 November 2016
  •      
  •   

 

Leave a Comment:

banner

Most viewed in recent weeks

Are you making these SMSF mistakes?

After four decades advising investors, there are a few common mistakes I've seen SMSF investors make. From holding too much cash and chasing yield to overtrading and trusting tips. Are these errors costing you?

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Retirement spending is not one-size-fits-all

New data challenges the idea that Australians are underspending their super. The bigger issue may be helping retirees navigate complexity, make confident decisions and use their savings to support security, wellbeing and choice.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

The missing link in the CGT debate

A little-noticed consequence of Labor’s tax changes could have implications well beyond investors’ tax bills. The issue raises bigger questions about incentives, capital allocation and the drivers of long-term economic growth.

Latest Updates

SMSF strategies

Meg on SMSFs: What do we think about reversionary pensions these days?

Reversionary pensions have long been a staple of SMSF estate planning, but are they still the best option? Meg Heffron revisits a once-clear favourite and asks whether changing super rules have shifted the balance.

The ageing ‘crisis’ has not and will not happen

Rising age dependency is frequently treated as a warning sign for economies. But when actual workforce participation is examined, a strikingly different picture emerges about ageing, productivity and economic sustainability.

Retirement

How does the 4% rule stack up?

The 4% rule has long been retirement's gold standard. But after a difficult period for investors, fresh analysis suggests a more conservative approach may significantly improve the chances of making savings last.

Shares

Four charts that expose market concentration risk

Investors have recently been rewarded for backing market leaders, but history suggests this eventually comes at a cost. Now may be the time to review whether your portfolio is carrying unintended risks beneath the surface.

Investment strategies

The case for gearing beyond property

Most Australians gear into property but ignore shares. That may be a mistake. Used carefully, geared equity strategies can enhance long-term returns, reduce cash tied up in growth assets and support retirement income goals.

Economy

Australia's $1 trillion debt pile

The headlines exclaiming that Australian government debt has hit A$1 trillion and US government debt has hit $40 trillion has turned heads, but how serious are they really? Will Australia's mix of debt create challenges?

Economy

Has 100 years of growth made us any happier?

For decades, GDP has been the benchmark for economic success, but has it made us materially happier? If happiness does not rise in lockstep with prosperity, are we overlooking what constitutes a successful society?

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.