Howard Marks Investment Memo Secrets Revealed

Success in the stock market can be elusive, and only a handful of top investors eventually amass billion-dollar fortunes. Some of the greats include Warren Buffett (net worth $117.4 billion), Carl Icahn (net worth $10.3 billion), and George Soros (net worth $6.7 billion).

Over the course of decades, they mastered the skills and discipline required for investing in the stock market, and they have been generous with sharing what they have learned.

The name Howard Marks (net worth $2.2 billion) doesn’t come up quite as often, but that’s not because Marks’ insight is any less valuable. His long career has delivered extraordinary returns for his clients, and his investment memos are considered required reading by those attempting to match his results.

What Is Howard Marks Famous For?

Howard Marks can’t be lumped into the same category as the rest of the world’s best investors. While everyone else puts most of their attention into choosing high-quality companies that will deliver long-term profits, Marks has an entirely different approach.

His career has focused almost entirely on investing in alternative assets and distressed debt. He started in this niche while working at The TCW Group from 1985 to 1995, and he applied what he learned there when launching and managing his own firm, Oaktree, in 1995.

Marks and his Oaktree co-founders developed a clear mission and investment philosophy for Oaktree early on, and the firm has remained aligned with its original tenets for almost 30 years. A key element of the firm’s mission and investment philosophy includes seeking out winners and avoiding losers – not just blanket acceptance of risk. Another is the fact that the firm is intent on delivering consistent returns rather than soaring and crashing from quarter to quarter or year to year.

Most important of all – Oaktree doesn’t make any attempt to time the market. In documenting Oaktree’s investment philosophy, Marks and his co-founders noted that “Because we do not believe in the predictive ability required to correctly time markets, we keep portfolios fully invested whenever attractively priced assets can be bought.”

As of June 30, 2023, Oaktree has $179 billion in assets under management, and its client list includes 39 of the 50 state retirement plans in the US, along with 65 of the 100 biggest pension plans in the US. More than 500 global corporations trust Oaktree with their capital, as do 300+ foundations and endowments and 17 sovereign wealth funds.

Clearly, Howard Marks and Oaktree are doing a lot of things right – the firm is still growing, and clients have enjoyed above-average returns. What secrets has Marks shared in his investment memos? How does Howard Marks manage his portfolio during periods of economic volatility?

Lessons From Howard Marks’ Investment Memos

Howard Marks has always been open about his investment philosophy. He’s the author of several popular books on the topic, including Mastering the Market Cycle and The Most Important Thing. He has never claimed to know the secret of picking a winner every time, but he has told his readers that it is possible to improve their odds of generating a profit.

Aside from his books, Marks publishes periodic memos on the Oaktree website. The timing and frequency of these pieces depend on what’s going on in the financial world.

For example, in April 2023, Marks wrote Lessons from Silicon Valley Bank, followed by Taking the Temperature in June 2023. In the former, he made the point that “Surviving on average is a useless concept; you have to be able to survive all the time, including – no, especially – in bad times.”

In the latter, Marks reflected on the fact that he has only made market predictions five times in 50 years because timing the market is contrary to his personal investment philosophy as well as his firm’s core philosophy. He did, however, note that on the rare occasions he made a prediction, he was correct 100 percent of the time.

That may be because Marks doesn’t really consider what he does “predicting” at all. He assumes that the market will generally follow historic patterns, and he infers what is likely to happen next based on those patterns.

One of the most important lessons from this memo is what Marks considers the “cardinal sin” in investing: selling at the bottom of the market. He explained it this way:

If you buy at what later turns out to have been a market top, you’ll suffer a downward fluctuation. But that isn’t cause for concern if the long-term thesis remains intact. And, anyway, the next top is usually higher than the last top, meaning you’re likely to be ahead eventually.

But if you sell at a market bottom, you render that downward fluctuation permanent, and, even more importantly, you get off the escalator of a rising economy and rising markets that has made so many long-term investors rich.

Howard Marks: What Really Matters?

One of Marks’ most memorable memos came out in November of 2022. He titled it What Really Matters? The biggest takeaway from that article is deceptively simple: buying stock should be regarded as buying an ownership interest in a company – not as an asset to trade for a profit.

It’s worth noting that this is the same message Warren Buffett has emphasized in his own letters to shareholders and media appearances.

Marks explained his point this way:

Wanting to own a business for its commercial merit and long-term earnings potential is a good reason to be a stockholder, and if these expectations are borne out, a good reason to believe the stock price will rise.

In the absence of that, buying in the hope of appreciation merely amounts to trying to guess which industries and companies investors will favor in the future.

Howard Marks Investment Memo Secrets Revealed

If there is a common lesson woven throughout Marks’ memos, it is that investing success comes down to making careful observations and comparing current conditions to historical patterns.

For the most part, the future will reflect historical patterns, which means discerning investors can draw reasonably accurate conclusions when they are well informed.

Some of the factors worth giving attention to include levels of investor sentiment, the availability of credit, the valuation of assets, and the pace of economic growth. These four, in particular, are useful in estimating where the market is in its cycle. Armed with that information, investors can make better decisions – and they are far more likely to see their portfolios grow.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.