ValueWalk interview with Howard Marks of Oaktree Capital Management on his new book Mastering the Market Cycle: Getting the Odds on Your Side, value investing, reading, his life and much more
Howard Marks On Mastering The Market Cycle
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
Mastering the Market Cycle: Getting the Odds on Your Side by Howard Marks
You know all I can say is I have great education and I have. I went to Wharton when it was totally. Qualitative and practical. And then Chicago was totally quantitative and theoretical. I figured out how to burst into. Then I went into the real world and I worked for a long time. I experienced some great losses which is what you learn from. You don't learn anything from success. I talked to a lot of people like fraternise with a lot of people it's not. This is not an active activity that should be practiced in solitude.
I've read royalty and you know the key is just to put it together. I have you know when.
You should buy this because nobody else does. Does that make sense or not. Most people say What are you crazy if nobody else find that it must be that I'm going to buy a few people say oh yeah that makes sense since nobody else is buying it must keep on going to buy.
So does contrarianism click for you did for me and there is no magic but you know and if you read the introduction to my last people the most important thing I think it says that nobody arrives on the doorstep of an investment career with an investment philosophy that's worth anything because you can only get from practical experience.
You. We to the last one. I'm afraid so. I wonder. I'm just wondering what your thoughts are on the leverage loan market and specifically the rise of CEOs. In the last cycle and styles. And I wonder what the business organization looks like when a CEO is on the other. Well you should read the memo I put out last week. As he leveraged loans which are senior instruments and floating rate had been the beneficiary of great popularity. First of all 20 years ago nobody had a fixed income and the fixed income did well when stocks did poorly so the desire to fixed income as it is now the trend of this century.
So far the money has flowed. Basically these stocks have disappointed. The money has flowed from stocks the bonds. People like the idea of the certainty of payment.
Leveraged loans have benefited from their floating rate. Because for the last five six years people have been worrying about rising rates and with liver's loans you got to worry about that. So leverage loans have become extremely popular and the investment business is popular. And basically you know you have to realize that investment in everything that happens has two sides.
So let's say appreciation. What are the two sides to two side coin. What are the two sides appreciation. On one side it's making money. Things do even if you if you have superior appreciation you make more than others. What's on the other side. The things you own are now more expensive than the other things. So making more money than other people is good. The things you want are more expensive. That's bad. So the blogs have been the subject of popularity letters lots of concern popularity that is. There. In the sense that they've become expensive. They have been ground zero for many of these negative trends that I describe in terms of the fact of too much demand Celo those are vehicles structured structured internally levered vehicles for owning leveraged loans collateralized debt obligations and they have paid the the number inside Zidlicky alone. They run very strongly in last by getting there with credit discredited in the global financial crisis and they disappeared for a while in terms of issuance and now they're holding back strongly and they operate in a very large source of demand for leverage loans. And when the demand for security tight is too strong it becomes too expensive and it's quality decline. So I think that leveraged loans seal those mines. The race to the bottom in the present time. Thank you all. I'm sorry I couldn't get into your.