Howard Marks on Specialists vs. Generalists

A timeless insight by Howard Marks, Co-Chairman of Oaktree Capital Management:

Q: One of your business principles is proprietary, in-depth research, and you make that distinction between “specialists” and “generalists”. That’s a big dilemma for startup managers, “Do I specialize?” Warren Buffett seems to suggest there are benefits to being a generalist, to attaining worldly wisdom. Give us a sense of that dilemma.

A: When I was a kid in 1970, 24 years old, I was an analyst and I had an orange piece of paper (so I knew it came from the FT) posted above my desk. It said that an analyst is someone who knows a great deal about a few things and learns more and more about less and less until he knows everything about nothing. A portfolio manager is somebody who knows a little bit about a lot of things and learns less and less about more and more until he knows nothing about everything. A client is someone who starts off knowing a reasonable amount about a fair number of things, but through an association with analysts and portfolio managers learns less and less about more and more until he knows nothing about anything. It is a dilemma. Do you want to know everything about a micro-specialty or a fair bit about a broad number of things?

I think what you’re referring to about Buffett is different. I think what you’re referring to is the importance of taking whatever knowledge you have and understanding the context and having knowledge which is not limited to your area of specialization.

Buffett and maybe even to a greater extent Charlie Munger — Charlie’s a Renaissance man, a polymath — knows a great deal about history, philosophy, science. We all have different ways of thinking about problems. Some of us learn or derive our conclusions through analogies. We see a process going on in a company and we analogize it to something that might go on in nature. It helps to understand history, it helps to understand science. There’s a book, Investing: The Last Liberal Art, which talks about philosophy and psychology and metallurgy and physics. You can see in each of those disciplines lessons to be taken to the investment process.

I read fairly broadly and I’m not a specialist in any one thing, and I never really have been, ever since my days in 1969-70 when I started off as an analyst in conglomerates, but even that wasn’t specialized. I was a specialist in generalized companies. It helps to read broadly because what good is it to know everything about one little thing if you don’t know how it fits into the world and how the world’s going to affect it.

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