Howard Marks, the co-founder and co-chairman of Oaktree Capital Management, is widely regarded as one of the most influential and insightful investors of our time. Known for his sharp intellect and deep understanding of market cycles, Marks has built a career around the principles of risk management, contrarian thinking, and disciplined decision-making. His investment memos, written with a clarity and wisdom that have captivated readers for decades, have become essential reading for anyone seeking to understand the intricacies of investing.
Early Life and Education
Howard Stanley Marks was born on April 23, 1946, in Queens, New York. Raised in a modest middle-class household, his father worked as an accountant, and his mother was a homemaker. Marks often reflects on his upbringing as being defined by practicality and a respect for education. From an early age, he exhibited a curious and analytical mind, characteristics that would later become hallmarks of his career.
Marks excelled academically, eventually earning admission to the Wharton School at the University of Pennsylvania, where he pursued a degree in finance. It was at Wharton that Marks’ interest in markets began to crystallize, though his initial aspirations leaned toward accounting, a field he viewed as secure and straightforward. However, exposure to the dynamic and unpredictable nature of financial markets piqued his curiosity, and his focus shifted toward investment management.
After graduating from Wharton, Marks attended the University of Chicago Booth School of Business, where he earned his MBA in 1969. The University of Chicago’s emphasis on rigorous analysis and rational decision-making resonated deeply with Marks and helped shape his investment philosophy. Armed with two prestigious degrees and a growing passion for finance, Marks was ready to embark on a career that would redefine his industry.
Early Career: Laying the Foundation
Marks began his professional journey at Citibank in 1969, joining the investment research department. It was here that he developed his expertise in high-yield bonds, also known as "junk bonds," and other non-traditional asset classes. Marks quickly gained a reputation for his ability to analyze complex investments, often seeing opportunities where others saw risk. During his time at Citibank, Marks managed portfolios for convertible securities and high-yield bonds, gaining invaluable experience in understanding the nuances of credit and market behavior.
In 1985, Marks joined TCW Group, where he continued to specialize in high-yield bonds and distressed debt. It was at TCW that Marks began to refine his approach to risk management and develop the contrarian mindset that would later define his career. By focusing on distressed and underperforming assets, Marks demonstrated a keen ability to identify value in overlooked areas of the market. His success at TCW laid the groundwork for what would become the defining chapter of his professional life: the founding of Oaktree Capital Management.
The Birth of Oaktree Capital Management
In 1995, Marks co-founded Oaktree Capital Management with several colleagues, including Bruce Karsh, another seasoned investor. Oaktree was built on the principles Marks had honed over decades: disciplined risk management, a focus on less efficient markets, and a long-term investment horizon. The firm specialized in alternative investments, including distressed debt, private equity, and real estate, carving out a niche in areas often overlooked by traditional investors.
Under Marks’ leadership, Oaktree quickly established itself as a powerhouse in the world of alternative investments. The firm’s disciplined approach to managing risk, combined with its ability to navigate market cycles, allowed it to deliver consistent returns for its clients. Marks often emphasizes that Oaktree’s success is rooted in understanding and managing risk, rather than simply chasing returns. This philosophy has resonated deeply with institutional investors, who have entrusted the firm with billions of dollars in assets.
Marks’ ability to foresee and navigate market downturns has been a key factor in Oaktree’s success. During the financial crisis of 2008, for example, the firm’s focus on distressed debt allowed it to capitalize on opportunities created by the market turmoil. Oaktree’s disciplined approach to risk management not only protected its clients but also positioned the firm to emerge stronger in the aftermath of the crisis.
Investment Philosophy: The Art of Thinking Differently
At the heart of Marks’ investment philosophy is the idea of contrarian thinking. Marks believes that achieving superior investment results requires going against the crowd and having the courage to act on one’s convictions. This philosophy is rooted in a deep understanding of market cycles and the recognition that markets are often driven by emotion rather than rational analysis.
Marks frequently speaks about the importance of understanding where the market stands in its cycle. He argues that investors must be able to distinguish between times of excessive optimism, when assets are overpriced, and times of excessive pessimism, when assets are undervalued. By identifying these extremes, Marks has been able to position Oaktree’s portfolios to capitalize on market inefficiencies.
Another cornerstone of Marks’ philosophy is the emphasis on risk management. He often says, “You can’t predict. You can prepare.” For Marks, managing risk is not about avoiding it entirely but about understanding and mitigating it. This disciplined approach has enabled him to navigate periods of market volatility while preserving capital for Oaktree’s clients.
Marks also champions the concept of “second-level thinking,” a term he uses to describe the ability to think beyond the obvious and consider the deeper implications of a decision. While most investors focus on what is likely to happen, second-level thinkers like Marks ask, “What’s the probability that I’m right? And what’s already priced into the market?” This nuanced approach has been instrumental in Marks’ ability to identify undervalued opportunities and generate superior returns.
The Power of the Written Word: Marks’ Investment Memos
One of the most distinctive aspects of Howard Marks’ career is his commitment to sharing his insights through his widely read investment memos. These memos, which Marks began writing in 1990, cover a wide range of topics, from market cycles to behavioral finance. Written with a rare combination of clarity and depth, the memos offer readers a window into Marks’ thought process and serve as a valuable resource for investors at all levels.
Marks’ memos are characterized by their candid and thoughtful tone. He often reflects on his own successes and failures, offering lessons that go beyond the technical aspects of investing. For Marks, the memos are not just a way to communicate with clients but also a means of crystallizing his own thinking. They have become so influential that even seasoned investors like Warren Buffett have praised them for their insights.
Achievements and Legacy
Over the course of his career, Howard Marks has built a reputation as one of the most respected voices in the investment world. Under his leadership, Oaktree Capital Management has grown to become a global powerhouse, managing over $160 billion in assets as of recent years. The firm’s success is a testament to Marks’ disciplined approach to investing and his ability to navigate complex markets.
Marks’ influence extends far beyond the confines of Oaktree. His book, The Most Important Thing: Uncommon Sense for the Thoughtful Investor, distills the principles and insights he has accumulated over decades. The book has been widely acclaimed for its practical wisdom and has become a staple in the libraries of professional and amateur investors alike.
In addition to his professional accomplishments, Marks is deeply committed to philanthropy. He and his wife, Nancy, have donated generously to educational and cultural institutions, including their alma maters, the University of Pennsylvania and the University of Chicago. Marks sees philanthropy as an extension of his belief in creating lasting value, whether in business or in society.
Lessons from Howard Marks
Howard Marks’ career offers a wealth of lessons for investors and business leaders. Perhaps the most important is the value of disciplined thinking. Marks has shown that success in investing is not about predicting the future but about understanding the present and preparing for a range of possible outcomes. His emphasis on risk management and second-level thinking underscores the importance of looking beyond the obvious and considering the broader implications of every decision.
Another key lesson from Marks is the power of patience. He often emphasizes that great investments require time to mature and that the best opportunities often arise during periods of market stress. For Marks, the ability to remain calm and rational in the face of uncertainty is a critical skill that separates successful investors from the rest.
Conclusion
Howard Marks’ journey from a modest upbringing in Queens to the pinnacle of the investment world is a story of intellect, discipline, and integrity. His contributions to the field of investing, both through his leadership at Oaktree Capital and his insightful writings, have left an indelible mark on the industry.
As Marks continues to share his wisdom through his memos and public appearances, his influence shows no signs of waning. For those who seek to understand the art and science of investing, Howard Marks remains an enduring source of inspiration and guidance, embodying the principles of thoughtful analysis, disciplined decision-making, and a commitment to long-term success.
