Howard Marks (investor) on Risk and Investing: A Comprehensive Guide

Howard Marks is a renowned investor and chairman of Oaktree Capital Management, a global investment firm. He's known for his insightful views on risk and investing.

Marks emphasizes the importance of understanding risk in investing, which he believes is often misunderstood. He distinguishes between risk and volatility, noting that risk refers to the possibility of a permanent loss of capital.

In his book "The Most Important Thing: Uncommon Sense for the Thoughtful Investor", Marks outlines his approach to risk management, which involves a thorough analysis of potential downsides. He encourages investors to consider multiple scenarios and think critically about potential risks.

Marks has a straightforward approach to investing, focusing on fundamental analysis and a disciplined investment process. He believes in being prepared for unexpected events and having a clear plan in place.

Howard Marks is a generous philanthropist, particularly when it comes to his alma mater, the University of Pennsylvania. In 1992, he created the Howard S. Marks Terms Scholarship to provide renewable scholarships to undergraduates.

He's also invested in the next generation of writers, endowing the Marks Family Writing Center at the University of Pennsylvania in 2009. This center likely provides valuable resources to students and faculty alike.

In recent years, Marks has made a significant $5 million gift to the University of California, Los Angeles to support women's health research. This gift will help ensure that women's health research efforts at UCLA Health are led by an esteemed physician-scientist.

Howard Marks is a devoted philanthropist, having created the Howard S. Marks Terms Scholarship in 1992 to provide renewable scholarships to undergraduates at the University of Pennsylvania.

He also endowed the Marks Family Writing Center at the university in 2009, demonstrating his commitment to supporting education and the arts.

In a recent example of his philanthropic efforts, Nancy and Howard Marks made a $5 million gift to the University of California, Los Angeles in March 2023, endowing a faculty chair held by the Vice Chair of Women’s Health Research.

This gift will provide resources to help ensure that women’s health research efforts at UCLA Health are led by an eminent physician-scientist, highlighting the importance of funding research and education in critical areas.

Marks has a significant presence on the East Coast, owning an oceanfront property in East Hampton that he purchased for $30 million in 2010.

He also has a home in Beverly Hills, which he bought for $23.7 million in 2015.

Howard Marks believes that over-diversification can lead to suboptimal outcomes, and most portfolios are over-diversified and over-traded.

Developing a mindset that you make money on what you hold, rather than what you buy and sell, can be beneficial. Think more, trade less, and make fewer, but more consequential, trades.

The key to building wealth in the stock market is time, not timing, as Bill Miller once said. Howard Marks has devoted a good portion of his work to warning investors about the difficulties of improving returns through short-term market timing.

If you don't try to get in and out of the market as appropriate, you're not necessarily not earning your fees. Assembling a portfolio that will perform well over the long run is the job of a good investment manager.

Risk is not a function of asset quality, contrary to common belief. High-quality assets can become risky if their prices are bid up to unsustainable levels, while low-quality assets can be safe if they're priced low enough.

What you pay for an asset is more important than the asset itself. Investing success is less about finding the best companies and more about paying the right price for any asset.

Risk is inevitable in investing, but it can be managed and controlled intelligently. Assessing risk constantly, being prepared for unexpected events, and ensuring that the potential upside outweighs the downside can position you for long-term success.

Investors should focus on holding quality investments rather than frequently trading, as excessive trading often leads to suboptimal outcomes.

Howard Marks advocates for a "sitting on your hands" strategy, where investors hold onto their investments and avoid frequent trading.

Over-diversification and excessive trading can reduce the importance of each trade, allowing investors to take actions without adequate investigation or great conviction.

Developing a mindset that you make money on what you hold, rather than what you buy and sell, is key to achieving strong investment returns.

At Citicorp, Marks worked as an equity research analyst from 1969 until 1978. He then moved to a more senior role as Director of Research.

Marks' experience at Citicorp gave him valuable insight into portfolio management, which he later applied in his own investments. He served as a Vice President from 1978 to 1985.

During his time at Citicorp, Marks was also a senior portfolio manager overseeing convertible and high-yield debt.

TCW Group played a significant role in Marks' early career, where he led high-yield debt and convertible securities investments. He was instrumental in organizing one of the first distressed debt funds from a major financial institution in 1988.

Marks' experience at TCW Group laid the groundwork for his future endeavors, including the creation of Oaktree Capital Management. He, along with Bruce Karsh and three others, left TCW in 1995 to start their own firm.

Oaktree Capital is a global investment management firm founded by Howard Marks and several other investors in 1995.

Oaktree Capital is known for its distressed debt and special situations investments.

The firm has over $120 billion in assets under management, making it one of the largest investment managers in the world.

Howard Marks, the co-founder of Oaktree Capital, has been instrumental in shaping the firm's investment approach.

He has written several memos, including the "Memorandum on the Nature of Market Volatility", which has been widely read and respected in the investment community.

These memos provide insight into Marks' investment philosophy and approach to risk management.

Howard Marks is a member of the Democratic Party, which is a notable fact about his political affiliation.

He has been critical of the economic policy of Donald Trump, and his views are not aligned with some of his fellow Democrats, like Representative Alexandria Ocasio-Cortez.

Marks contributed over $200,000 to the Hillary Victory Fund and similar organizations in 2016, showing his support for the Democratic Party's candidate at the time.

However, he has criticized Ocasio-Cortez's tax plan, stating that it doesn't align with his views on economic progress.