Howard Marks on Oaktree Capital, Investment Philosophy, and Market Cycles

Founding Oaktree Capital

• 🚀 Howard Marks co-founded Oaktree Capital Management in 1995 with partners from TCW, bringing 95% of their original team.
• 📈 The firm quickly grew, raising $5 billion by the end of 1995 and $10 billion by 1997, largely due to their strong reputation and client goodwill.
• 💡 They started without a formal business plan, driven by a desire to continue working together under their established investment philosophy and business principles.

Core Philosophy and Principles

• 🔑 Oaktree's investment philosophy is based on six unchanging tenets, including risk control, consistency, and focusing on less efficient markets.
• ✅ Beyond investing, they established business principles emphasizing avoiding conflicts of interest, fostering a non-hierarchical environment, and candid communication.
• 🎯 Marks believes in a "long-term greedy" approach, prioritizing sustained economic value over short-term profits, even if it means sacrificing immediate gains.

Navigating Market Extremes

• ⚠️ During the 2009-2021 period, characterized by a near-zero Fed funds rate, Oaktree experienced a "low return world" but adhered to risk control, refusing to take excessive risks.
• 🔥 A career highlight was anticipating the 2008 Global Financial Crisis; Oaktree sold off assets and raised a $11 billion distressed debt standby fund by 2008.
• 💰 With $10 billion unspent when Lehman Brothers collapsed, Oaktree aggressively invested, with Bruce Karsh deploying $450 million per week for 15 weeks.

The Power of Contrarianism

• 🧠 Marks emphasizes that contrarian investing involves understanding current market behavior and often doing the opposite of the crowd, especially at market extremes.
• 🛡️ This approach requires a "thick skin" as being "too far ahead of your time is indistinguishable from being wrong" and can lead to looking incorrect in the short term.
• 💡 Superior investors must adopt "uncomfortably idiosyncratic positions" rather than following the herd, as stated by Dave Swenson.

Lessons from Financial History

• 📚 Studying financial history is crucial because "history does not repeat, but it does rhyme," revealing recurring themes in market cycles and bubbles.
• 📉 Common patterns include a lack of risk aversion, excessive leveraging, and the "fear of missing out" (FOMO), which often lead to magnified failures.
• 📖 Marks recommends books like "Devil Take the Hindmost" by Edward Chancellor and "A Short History of Financial Euphoria" by John Kenneth Galbraith to understand these tendencies.