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

How to minimise tax with a will

Inheritance tax implications in Australia may surprise some, as poor estate planning without proper wills or trusts can lead to costly tax bills and delays for beneficiaries.

Testamentary trusts post-budget: Estate planning, tax reform and the ‘death tax’ debate

Proposed Budget changes to taxation are casting new uncertainty over testamentary trusts, prompting closer scrutiny of estate planning structures and the real implications of reforms still taking shape.

Meg on SMSFs: The CGT changes don’t impact super but what about Div 296 tax decisions?

New CGT rules could tip the scales in the super vs non-super debate. For those facing the Division 296 tax, the case for withdrawing has gotten more complex. A "comparison rate" tool may help assess decisions.

High quality businesses are on sale

Beneath the dominance of the ASX's largest stocks, much of the market has been left behind. High-quality companies are now trading at levels rarely seen, offering opportunities for investors willing to look deeper.

The investment mistake killing your returns

Retail investors face an increasingly complex product environment, but simplicity may be the most overlooked advantage in building a portfolio you can actually live with.

Welcome to Firstlinks Edition 667 with weekend update

The downfall of the giant and three lessons for investors.

  • 18 June 2026

Latest Updates

SMSF strategies

Meg on SMSFs: How wide is the ban on LRBAs?

The government's recent deal with the Greens has put SMSF property borrowing on the chopping block. The change raises tricky questions about timing, exceptions and what SMSFs will still be able to buy.

Shares

Why Australian shares are falling behind the world

Australia’s market boasts a long record of outperformance, but recent results tell a different story. Is the ASX’s lagging performance a temporary setback or evidence that structural forces will keep global markets ahead?

Taxation

The strange effect of the 30% minimum capital gains tax

The 30% minimum tax on capital gains sits at the heart of the budget's proposed reforms. Yet the mechanics reveal anomalies that introduce unexpected distortions that raise questions about its design.

Shares

The next phase of Australian equity leadership

For years, banks have powered Australian sharemarket returns. But changing economic conditions, stretched valuations and global trends suggest the next generation of winners may not be found in familiar domestic sectors.

Economy

Global market growth hinges on Iran War and AI rollout

Global growth is facing mounting pressure from war, higher oil prices, inflation and trade tensions. But a wave of AI-related investment may prove powerful enough to support economic activity and reshape the outlook for markets.

Retirement

The retirees who can't spend

Why do so many retirees pass away with their wealth intact? Conventional wisdom blames pension rules for the reluctance to spend, but a case study from New Zealand shows that the answer may not be as predictable.

Investment strategies

Here’s my investment philosophy. What’s yours?

Investors often hear they need an “investment philosophy,” yet few know what that really means. Beneath the jargon sits a simple idea: a handful of core beliefs that shape every financial decision, for better or worse.

Sponsors

Alliances

© 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.