Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 92

Howard Marks on the unpredictability of commodity prices

Howard Marks of Oaktree Capital Management gave Cuffelinks exclusive permission to reproduce this presentation on risk in September 2014, following a meeting with Chris Cuffe.

He spoke at the Goldman Sachs Financial Services Conference in New York on 9 December 2014 to update his views. Oaktree Capital is a major distressed-debt investor, and Marks told the conference that he is buying bonds of energy companies as the oil price falls. High-yield bonds of energy companies have fallen by about 12% in the last few months, although he acknowledged that some leveraged companies will struggle to service their debt.

At the New York conference, Marks said:

"Six months ago, you wouldn’t have said there are opportunities to invest in the energy industry. It looked like a booming industry. Today, there clearly are, and they may get better from our standpoint ... I pretty much tend to the big picture. And I think that the most important single question that any fund manager or portfolio strategist has to answer at any point in time is whether to be on offense or defense and how aggressive, how defensive. And I believe that if you get that question right, then you don’t have to get security selection and selection of strategies and managers exactly right. And vice versa, if you get that wrong all the security selection you do in the world isn’t going to help you, probably. So, I tend to spend my time on the big picture. And while one of the tenets of our philosophy is that you can’t see the future, we believe that by judging from what’s going on around us at the present time we can make some appropriate adjustments.”

As Marks said in his previous presentation on risk, he prefers to stay out of positions with a higher likelihood of unforeseen risk. “The world can adjust to the things it can think about, but there’s always the possibility of the unforeseen. And I’m the dead-set against the efficacy of forecasting. And if you need any evidence, think back six months. Where were the people who predicted that oil would go down 40%? I would imagine that oil was $110 and the bulls said it would go to $112, and the bears said it would go to $108, where are the people who said it could go down 40%? We shouldn’t think we know what’s going to happen in the future. Mark Twain said, “It’s not what you don’t know that gets you into trouble; it’s what you know for certain that just ain’t true" ... I put out a memo on gold about this time in 2010, and I said there’s nothing intelligent that can be said about the price of gold. And you can’t predict the price level of a good that does not produce income. And I think it’s true in gold and I think it’s true in oil. And what’s a low price for oil? What’s a high price for oil? Who knows? Why was oil at $110 six months ago? And aren’t those reasons still true today, with it at $60? And the people who at $110 said, oh, I missed my chance to buy oil at $100. I’m kicking myself. I hope it gets backs there. Have they bought oil at $65? The answer is, no, because there’s no place you can get comfort on the price of a commodity, in my opinion."


Comments taken from a transcript of the talk. This extract is for general information purposes only and does not address any investor's personal circumstances. 


Leave a Comment:


Most viewed in recent weeks

How to enjoy your retirement

Amid thousands of comments, tips include developing interests to keep occupied, planning in advance to have enough money, staying connected with friends and communities ... should you defer retirement or just do it?

Results from our retirement experiences survey

Retirement is a good experience if you plan for it and manage your time, but freedom from money worries is key. Many retirees enjoy managing their money but SMSFs are not for everyone. Each retirement is different.

A tonic for turbulent times: my nine tips for investing

Investing is often portrayed as unapproachably complex. Can it be distilled into nine tips? An economist with 35 years of experience through numerous market cycles and events has given it a shot.

Rival standard for savings and incomes in retirement

A new standard argues the majority of Australians will never achieve the ASFA 'comfortable' level of retirement savings and it amounts to 'fearmongering' by vested interests. If comfortable is aspirational, so be it.

Dalio v Marks is common sense v uncommon sense

Billionaire fund manager standoff: Ray Dalio thinks investing is common sense and markets are simple, while Howard Marks says complex and convoluted 'second-level' thinking is needed for superior returns.

Fear is good if you are not part of the herd

If you feel fear when the market loses its head, you become part of the herd. Develop habits to embrace the fear. Identify the cause, decide if you need to take action and own the result without looking back. 

Latest Updates


The paradox of investment cycles

Now we're captivated by inflation and higher rates but only a year ago, investors were certain of the supremacy of US companies, the benign nature of inflation and the remoteness of tighter monetary policy.


Reporting Season will show cost control and pricing power

Companies have been slow to update guidance and we have yet to see the impact of inflation expectations in earnings and outlooks. Companies need to insulate costs from inflation while enjoying an uptick in revenue.


The early signals for August company earnings

Weaker share prices may have already discounted some bad news, but cost inflation is creating wide divergences inside and across sectors. Early results show some companies are strong enough to resist sector falls.


The compelling 20-year flight of SYD into private hands

In 2002, the share price of the company that became Sydney Airport (SYD) hit 80 cents from the $2 IPO price. After 20 years of astute investment driving revenue increases, it sold to private hands for $8.75 in 2022.

Investment strategies

Ethical investing responding to some short-term challenges

There are significant differences in the sector weightings of an ethical fund versus an index, and while this has caused some short-term headwinds recently, the tailwinds are expected to blow over the long term.

Investment strategies

If you are new to investing, avoid these 10 common mistakes

Many new investors make common mistakes while learning about markets. Losses are inevitable. Newbies should read more and develop a long-term focus while avoiding big mistakes and not aiming to be brilliant.

Investment strategies

RMBS today: rising rate-linked income with capital preservation

Lenders use Residential Mortgage-Backed Securities to finance mortgages and RMBS are available to retail investors through fund structures. They come with many layers of protection beyond movements in house prices. 



© 2022 Morningstar, Inc. All rights reserved.

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. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.