Keynote Q&A

Howard Marks presented his in-depth investment thesis on Keynote Q&A at Best Ideas 2015.

Selected quotations from the session transcript (lightly edited, may contain errors):

No matter how I try to do something else, my thinking always goes back to Buffett. The most important single, tactical question for an investor is at any given point in time whether to be emphasizing offense or defense, aggressiveness or caution. If you get that right, the other stuff doesn’t matter that much – picking managers, picking strategies, picking individual securities – and if you get it wrong, the other stuff doesn’t help that much. The single best way to augment performance in general is to be right on the question of offense versus defense. Warren Buffett said some time ago, “The less prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own affairs.”

Contrarianism itself is a very, very important virtue among investors and, especially, value investors. The goal of investing is to buy things for less than they are worth. How do you buy things for less than they are worth? You need somebody to sell it for less than its worth. Who wants to do that? People who are disheartened, afraid, disillusioned, depressed, unduly negative. These are the people we want to buy from, and it’s when these opportunities become available that we want to turn up the wick and be more aggressive. On the other hand, when everybody’s optimistic, confident, comfortable, sanguine, complacent, they are unlikely to want to sell things and, especially, to sell them at prices below their worth. This is not a good time for us to be aggressive, when there are no bargains available and perhaps only things that are too high. That’s the basic issue.

I have felt over the last three and a half years, [dating] back to the spring of 2011, that most people have been, if not optimistic, then willing to invest optimistically because they could not get the returns they want by being conservative given the low levels of rates the central banks have mandated. Investing has not been cautious. It has not been pessimistic. It has not been prudent. This is especially true in the credit area in which Oaktree works. My comments are only relevant to portions of the equity market and more universally to credit. People certainly have not been prudent or cautious over the last three and a half years.

When the price of oil, which had been on a slow decline, gained so much momentum in November and December [2014] and collapsed even into January [2015], that converted a lot of people from optimistic to pessimistic, from aggressive to scared. I said in my December [2014] memo on oil that, using Doug Kass’s term, there had been a bull market in complacency. We don’t want to buy when people are complacent. We want to buy when they are in a panic, and that is why there were so few opportunities. Some of that complacency has given way to panic or, at least, disillusionment.

About the instructor:

Since the formation of Oaktree in 1995, Howard Marks has been responsible for ensuring the firm’s adherence to its core investment philosophy; communicating closely with clients concerning products and strategies; and contributing his experience to big-picture decisions relating to investments and corporate direction. From 1985 until 1995, Howard led the groups at The TCW Group, Inc. that were responsible for investments in distressed debt, high yield bonds, and convertible securities. He was also Chief Investment Officer for Domestic Fixed Income at TCW. Previously, Howard was with Citicorp Investment Management for 16 years, where from 1978 to 1985 he was Vice President and senior portfolio manager in charge of convertible and high yield securities. Between 1969 and 1978, he was an equity research analyst and, subsequently, Citicorp’s Director of Research. Howard holds a B.S.Ec. degree cum laude from the Wharton School of the University of Pennsylvania with a major in finance and an M.B.A. in accounting and marketing from the Booth School of Business of the University of Chicago, where he received the George Hay Brown Prize. He is a CFA® charterholder and a Chartered Investment Counselor. Howard serves on the Investment Committee of the Helmsley Charitable Trust, the Board of Trustees of Mount Sinai Hospital, and the Board of the University of Pennsylvania, where from 2000 to 2010 he chaired the Investment Board.