PM Jar Exclusive Interview With Howard Marks - Part 1 of 5


“Investing is an art form. Take the hundred greatest painters, their paintings look nothing alike. The definition of great is not uniform.” When asked about the art on the walls, he answers he is not a collector, merely an admirer. There’s no corner office with custom or museum-quality furniture. There’s no glaring display of power or wealth. Yet the scent of importance and influence is most definitely present, only subtly so. Accepted and balanced, not flaunted.

Here is a thoughtful and reflective man who is acutely aware of himself and his environment. Here is a man who has been called ‘Guru to the Stars’ by Barron’s, whose admirers include Chris Davis, Warren Buffett, and Jeremy Grantham, and whose firm oversees nearly $80 billion in assets.

Ever gracious and generous with his time, Howard Marks, the co-founder and chairman of Oaktree Capital Management, sat down with PM Jar to discuss his approach to the art of investing: transforming symmetrical inputs into asymmetric returns. What follows are excerpts from that conversation.

Part 1: An Idea of What Is Enough

“I think that having an idea of a goal is something to work for, but it's also important to have an idea of what is enough.”

Marks: The goal of investing is to have your capital be productive. It's to make money on your money. Certain investment organizations – pension funds, insurance companies, endowments – have specific goals and requirements to make a certain amount of money that will permit them to accomplish their objectives. Everybody has a goal, and some are different from others. Some people don’t have a specific goal – they just want to make money.

In 2007, people said: “I need 8%. It would be nice to make 10%. It would terrific to make 12%. It would be wonderful to make 15%. It would be absolutely fabulous to make 18%. 20% would be fantastic.” Whereas they should have said: “I need 8%. If I get 10%, that would be great. 12% would be wonderful. I’m not going to try for 15% because to try for 15%, I’d have to take risks that I don’t want to take.” I think that having an idea of a goal is something to work for, but it’s also important to have an idea of what is enough.

PM Jar: In your book, The Most Important Thing, you wrote that it’s difficult to find returns if they’re not available, and chasing returns is one of the dumbest things that an investor can do. Does an investor’s return goal change with the market cycle or where the pendulum is located?

Marks: You should be cognizant of where you are buying because where you buy says a lot about the return which is implied in your investment. Every time we organize a fund, we talk about the return we can make, which is informed by where we expect to buy things. Consequently, sometimes we think we will get very high returns because we have the opportunity to buy stuff cheap. Sometimes we think we’ll get lower returns because we can’t buy that much stuff cheap. So clearly, different points in time and different positions of the pendulum imply different kinds of returns – not with any certainty, but you should have a concept of whether you are getting great bargains, so-so bargains, or paying excessive prices (in which case, you should be a seller not a buyer).

But we’re dangerously close to confusing two topics. A return goal is what you want, what you need to be successful, or what you aspire to. An expected return is what you think you can make on the things you can buy today – sometimes you should be able to make 5% and sometimes you should be able to make 15% – which may have nothing to do with your desired return or required return. 

Continue Reading -- Part 2 of 5: Real World Considerations