Value Investing, Videos

Howard Marks Fireside Chat – Context Leadership Day 2019

Howard Marks of Oaktree Captial sits down with Context’s John Culbertson to talk about his early career and walks through is logic to making financial decisions centered around patience and fundamental value investing.

high yield bonds

Keynote: Howard Marks Fireside Chat – Context Leadership Day 2019

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Well my dad was an accountant and when I went to high school I took a course in accounting. And it's embarrassing to say it but I loved it. And. And so I went to Wharton for my undergraduate. I thought I'd be an accountant that is major in accounting but then I started taking courses in finance and found that more interesting. So I witched over, when I got out of University of Chicago with the master's, I really didn't know what I wanted to do other than that it would be in finance so I applied for six jobs in six different fields. And I ended up going back to Citibank in the investment research department because I had a good summer job there the year before. And like they say that's history. So you know I did that for 10 years became the bank's director of research for equities. That worked out quite poorly.

Because the bank was what was called the nifty fifty investor. And if you put your money in the 50 best companies in America in 1968 when I started. Within ten years you lost almost all your money. And so the boss put in well, we got a new boss and he put it in a new director of research and he said to me what do you want to do next. And I said I'll do anything except spend the rest of my life choosing between Merck and Lily and scrammed fortunately he said Well I'd like to start a convertible bond fund. And then that summer I got a call asking me to see if I could. They said there's some guy named milkin or something in California. And can you figure out what high yield bonds are. And so that was 1978 and that was the beginning of high yield bonds. You know it's great to get in at the beginning and the markets were quite inefficient in those days. You know nowadays we pull out our our our phone to check any fact. I always say there's no such thing as not knowing something but 50 40 years ago there was a lot we didn't know and the few of us who ventured into what is now called alternative investing had the world to ourselves.

So that's that's the origin. It's critical. So how did you decide to start with. My cofounders and I were working together at TCW as Kevin described and. Well first of all.

You know when we when we went there we were not investing in funds with Kerry. And then we developed in 1988 I think the. Mainstream world's first distressed debt fund and now we are getting Kerry and they wanted to have the carry. And you know if you're if you're good and you can reliably turn to dollars into three there's no reason to part with half the country so that you know and the other reason was that. You know that was a big tent kind of place with many managers running many strategies in many ways. And I was uncomfortable fronting or strategies I didn't believe in. So we wanted to have a firm that ran our way and we left as a group and that's what we started Israel.

The rest is history residence history. When you talk about your memos for a minute. Yes writing for 30 years. Warren Buffett has famously said when he sees your memos show up in his inbox he makes the party read them because you always gain something from them. And honestly on a personal level. I was trained as a derivatives trader never trained as an investor. And in the mid 90s late 90s one of my mentors said you only need to read one letter if you want to learn how to be an investor. So it's been 25 years and you're part of my education as well. Thank you very kind. Q Why did you start and how you kept at it for 30 years. You know the latter question is the more interesting I started in 1990 because I.

Saw two related events that I thought the juxtaposition of the two was very interesting and I'm not going to belabor it. Anybody who wants to can read all the memos that we're going to talk about Iran the oak tree website and they are all free and you can sign up for a subscription if you like. So but the point is there was there was an interesting occurrence that I just thought I'd write about I didn't have a. Business plan I didn't I don't think I thought it would. Produce any clients and we only sent them to the client you know this was the days of of paper and stamps. They were hard to get in the 90s. Yes that's right. But but the interesting thing is what kept me doing it because in the first 10 years literally not exaggerating John literally I never had a response. Not only did nobody ever say they were any good. Nobody ever said they got it. And. So what kept me going is an interesting question. But I think the answer is that I enjoy the writing part as my creative outlet.