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

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. 

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

The investment that sidesteps the new tax traps

Tax rules have changed, but many investors are still using yesterday’s strategies. Insurance bonds may offer advantages for those seeking greater control, tax efficiency and certainty about their wealth.

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

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.

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.

Latest Updates

Planning

Testamentary trusts survived the trust tax. The drafting battle has just begun.

The fight over testamentary trusts looked settled. Then the draft legislation arrived. Hidden in a technical detail is a question that could force many families to rethink wills they thought were already future-proof.

Investment strategies

The new capital gains tax trap for your portfolio

Investors have long accepted one portfolio rule without much question. A major tax shift could change that calculation entirely, forcing difficult trade-offs between risk, discipline and an overlooked cost lurking beneath.

Economy

Population growth masks Australia’s productivity problem

For years, investors have benefited from a seemingly reliable growth story. But recent national accounts raise uncomfortable questions about what has really been driving Australia’s economy and whether that can continue unchecked.

Investment strategies

Why tomorrow’s winners may not be today’s index leaders

The stocks that built retirement balances over the past decade now dominate many portfolios. The new challenge is whether these companies can continue meeting the increasingly high expectations embedded in today's share prices.

Investing

What earnings surprises reveal about future returns

Sometimes the most important information in an earnings result isn't the number itself. It's the possibility that the market's assumptions have been fundamentally wrong and future earnings may look very different.

SMSF strategies

Individual SMSF Trusteeship directly liable for ATO fines

A rarely discussed detail buried in SMSF structures could dramatically change who wears the cost when something goes wrong. With penalties rising, a decision many dismissed as administrative may deserve a second look.

Investment strategies

The currency bet you didn’t know you made

Buying global shares means making two bets: on the companies and on the Australian dollar. Most investors consciously choose only the first. Last financial year, the second bet cost 8.5% in returns for many investors.

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.