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

Australian stocks will crush housing over the next decade, 2025 edition

Two years ago, I wrote an article suggesting that the odds favoured ASX shares easily outperforming residential property over the next decade. Here’s an update on where things stand today.

Australia's retirement system works brilliantly for some - but not all

The superannuation system has succeeded brilliantly at what it was designed to do: accumulate wealth during working lives. The next challenge is meeting members’ diverse needs in retirement. 

Get set for a bumpy 2026

At this time last year, I forecast that 2025 would likely be a positive year given strong economic prospects and disinflation. The outlook for this year is less clear cut and here is what investors should do.

Meg on SMSFs: First glimpse of revised Division 296 tax

Treasury has released draft legislation for a new version of the controversial $3 million super tax. It's a significant improvement on the original proposal but there are some stings in the tail.

The 3 biggest residential property myths

I am a professional real estate investor who hears a lot of opinions rather than facts from so-called experts on the topic of property. Here are the largest myths when it comes to Australia’s biggest asset class.

Property versus shares - a practical guide for investors

I’ve been comparing property and shares for decades and while both have their place, the differences are stark. When tax, costs, and liquidity are weighed, property looks less compelling than its reputation suggests.

Latest Updates

Investment strategies

Building a lazy ETF portfolio in 2026

What are the best ways to build a simple portfolio from scratch? I’ve addressed this issue before but think it’s worth revisiting given markets and the world have since changed, throwing up new challenges and things to consider.

Investment strategies

21 reasons we’re nearing the end of a secular bull market

Nearly all the indicators an investor would look for suggest that this secular bull market is approaching its end. My models forecast that the US is set for 0% annual returns over the next decade.

Property

13 million spare bedrooms: Rethinking Australia’s housing shortfall

We don’t have a housing shortage; we have housing misallocation. This explores why so many bedrooms go unused, what’s been tried before, and five things to unlock housing capacity – no new building required.

Investment strategies

Market entry – dip your toe or jump in all at once?

Lump sum investing usually wins, but it can hurt if markets fall. Using 50 years of Australian data, we reveal when staging your entry protects you, and when it drags on returns. 

Investment strategies

The US$21 trillion question: is AI an opportunity or excess?

It has been years since the US stock market has been so focused on a single driving theme, and AI is unquestionably that theme. This explores what it means for US and global markets in 2026.

Economy

US energy strategy holds lessons for Australia

The US has elevated energy to a national security priority, tying cheap, reliable power to economic strength, AI leadership, and sovereignty. This analyses the new framework and its implications for Australia.

Strategy

Venezuela’s democratic roots are deeper than Trump knows

Most people know Maduro was a dictator and Venezuela has oil. Few grasp the depth of suffering or the country’s democratic history - essential context as the US ousts Maduro and charts Venezuela’s future. 

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.