07 Howard Marks & Oaktree Capital

It's rare to discover an investment manager with a successful track record who is also willing to share his investing philosophies with others. Howard Marks is one such guru.

As a well-recognized investment guru on Wall Street， Howard Marks is admired in the investment community for his "memos", which detail his investment strategies and insight into the economy and are posted publicly online since the 1990s.

In his letter, he successfully predicted the crash of technology stocks in 2000 and the financial crisis of 2008.

In addition, he is the author of 《The Most Important Thing: Uncommon Sense for the Thoughtful Investor》and 《Mastering the Market Cycle: Getting the Odds on Your Side》, which are regarded as classic of investment books.

According to Warren Buffett, "When I see memos from Howard Marks in my mail, they're the first thing I open and read. I always learn something, and that goes double for his book."

Howard Marks’ professional career began at Citicorp Investment Management, where he worked from 1969 to 1985.

He served as an equity research analyst and then director of research during his early career, which lasted from 1969 to 1978. After that, he held the positions of Vice President and Senior Portfolio Manager from 1978 until 1985, responsible for managing convertible and high yield securities.

During the second phase of his career, which spanned the years 1985 to 1995, Marks worked at TCW Group, Inc., where he oversaw the teams in charge of distressed debt, high yield bonds, and convertible securities investments.

In 1995, Howard Marks and Bruce Karsh founded Oaktree Capital Management, a fund with an emphasis on investing in alternative or niche markets

As of March 31, 2022, Oaktree Capital managed $164 billion for its clientele.

Oaktree's clientele includes U.S. pension plans, 40 state retirement plans in the United States, over 400 corporations and/or their pension funds, over 300 universities, charitable and other endowments and foundations, and 15 sovereign wealth funds.

According to The Wall Street Journal, Oaktree has “long been considered a stable repository for pension fund and endowment money.

Howard Marks has shared his guiding tenets for success in an interview.

The first tenet is to control your risk.

“The most important thing for the money manager is not making a lot of money, it’s not beating the market, it’s not being in the top quartile - the most important thing is controlling risk. ”as Marks said, "If we avoid the losers, the winners will take care of themselves."

The second tenet is to look for bargains in less efficient markets.

Marks believes in the concept of market efficiency, but he doesn’t believe that any markets are fully efficient.

"There are less efficient markets in which dispassionate application of skill and effort should pay off for our clients, and it is only in such markets that we invest."Marks said.

In 1978, Marks keenly discovered an investment field that few people care about—the alternative fixed-income market (including leveraged loans, junk bonds, mezzanine financing, distressed bonds, etc.).

This space is a poster child for an inefficient market: little research, few transactions, and low liquidity. Because of this cold reception, alternative fixed-income products are underpriced, and the risk-adjusted point returns are extremely impressive.

Since its formation in 1995, Oaktree has become the largest distressed-debt investor in the world.

The third tenet is to be consistent.

According to Marks, it’s not important to beat the market when the market does well, he wants to beat the market when it does poorly.

"If we can deliver average returns in the good years and above-average returns in the bad years, we will have above-average returns overall, below-average volatility, and happy clients."