Howard Marks

Don't risk what you have and need to get what you don't need

Marks tells Sam that the first purpose of money is to make you comfortable. Quoting Buffett, he says it makes no sense for someone with a surplus to make daily life less pleasant by chasing investments that put them under pressure.

“Buffett says don't risk what you have and need. To get what you don't have and don't need. It makes no sense for somebody with a surplus of money to make their daily life less pleasant by going to investments that put them under pressure.”

The riskiest thing in the world is the belief that there's no risk

Howard Marks argues market risk comes from people's behavior, not from companies or exchanges. When others are carefree you should be terrified, because their behavior raises prices and makes them precarious; when others are terrified, be aggressive.

“But on the other hand, the riskiest thing in the world is the belief that there's no risk. The risk in the markets does not come from the companies, the securities, or the institutions like the exchanges. The risk in the markets comes from behavior of people. And it's that, for that reason that Buffett says, when others are imprudent, you should be prudent. When other people are carefree, you should be terrified because their behavior unduly raises prices and makes them precarious.”

Buy the S&P at a P/E of 23 and your 10-year return is 2% to -2%

Howard Marks cites a JP Morgan scatter diagram from late 2024 showing that in every historical case where the S&P was bought at a P/E of 23 (its level at the time), the annualized return over the following 10 years landed between +2% and -2%.

“And it showed that historically, if you bought the S&P when the P/E ratio was 23, in every case, there were no exceptions, in every case, your annualized return over the next 10 years was between 2 and -2. That's all you have to know.”

Winning the loser's game: avoid losers instead of hitting winners

Marks credits Charlie Ellis's 1974 article 'Winning the Loser's Game': since you can't predict the future, don't try to hit winners like a pro tennis player. Instead avoid hitting losers and keep the ball in play. This has defined his style of fewer losers.

“I think Charlie Ellis wrote an article, "Winning the Loser's Game." where he said that because you can't predict the future, active investing doesn't work. He was a believer in the efficient market. So rather than try to hit winners like the tennis player, you should try to avoid hitting losers and keep the ball in play. And that has always defined my investing style.”

Steal thisCompete by avoiding unforced errors, not by swinging for spectacular winners.

Second-quartile every year compounds to the top

Marks recounts a General Mills pension fund that for 14 years was never above the 27th percentile or below the 47th, solidly second-quartile. Its cumulative rank over the whole period was 4th. Consistent above-average with no blowups beats chasing top-decile years.

“Now, if you said to the normal person not in the investment business, so this thing fluctuated between the 27th and the 47th, where do you think it was for the whole period? They would say, well, let me think, probably around 37th. The answer is 4th. So if you can do well for 14 years in a row, and avoid the tendency to shoot yourself in the foot in a bad year, you can pop up to the top.”

Steal thisAim to be reliably above average and never bottom-quartile; consistency compounds into a top rank over time.

When the time comes to buy, you won't want to

Howard Marks shares a retired trader's line that captures contrarian timing: the great moments to buy are exactly the moments that feel terrible, when bad news, falling prices and pessimism make buying feel unthinkable.

“When the time comes to buy, you won't want to. And that encapsulated, encapsulates so much wisdom because what is it that causes the great moments to buy?”

The battlefield hero is afraid and does it anyway

Marks says prices move because people's feelings about companies swing, not because fundamentals change much. Buying when everyone is terrified is hard, but like a battlefield hero, courage isn't the absence of fear, it's acting in spite of it.

“A battlefield hero, and I don't want to compare what we do to being a battlefield hero, but a battlefield hero is not somebody who's unafraid. It's somebody who does it anyway. And that's the way you have to be.”

The riskiest thing is believing there's no risk

Howard Marks argues market risk doesn't come from companies or exchanges but from human behavior: when others are carefree you should be terrified, and when others are terrified you should be aggressive, because their behavior moves prices to extremes.

“But on the other hand, the riskiest thing in the world is the belief that there's no risk. The risk in the markets does not come from the companies, the securities, or the institutions like the exchanges. The risk in the markets comes from behavior of people. And it's for that reason that Buffett says, "When others are imprudent, you should be prudent." When other people are carefree, you should be terrified because their behavior unduly raises prices and makes them precarious. When other people are terrified, You should be aggressive because their behavior suppresses prices to the point where everything's a giveaway.”

Steal thisTreat extreme investor sentiment as the real signal: get defensive when everyone is carefree and aggressive when everyone is terrified.

Buying the S&P at a P/E of 23 has always meant ~0% returns for 10 years

Marks cites a JP Morgan scatter plot: historically, every time investors bought the S&P 500 when its P/E ratio was 23, the annualized return over the following 10 years landed between +2% and -2%, with no exceptions.

“if you bought the S&P When the P/E ratio was 23, in every case, there were no exceptions, in every case, your annualized return over the next 10 years was between 2 and -2. That's all you have to know.”

The S&P averages 10% a year but almost never returns 8-12%

Marks points out that while the S&P 500 has averaged 10% annually over 100 years, the actual yearly return is almost never between 8% and 12% — the norm is not the average.

“But do you know that the annual return is almost never between 8 and 12? Think about that.”

High-yield bonds yield 7-8% and almost always pay

Marks pitches low-grade credit as the alternative to an expensive S&P: high-yield bonds carry a contractual obligation to pay interest and return principal, and after 47 years in the business he says they've almost all paid, currently yielding 7-8%.

“I've been involved in high yield bonds for 47 years, and I can tell you they've almost all paid. So today you can buy high yield bonds, whether it be the US or Europe or variations on that theme, what we call low-grade credit. And you can buy it to get yields of 7 to 8. Now 7 to 8 is pretty close to 10. So that's a good thing.”

Steal thisWhen stock valuations are stretched, shift some allocation into high-yield bonds for a contractual 7-8% with less downside.

The aggressive-to-defensive speedometer

Marks frames portfolio management not as a binary risk-on/risk-off choice but as a speedometer from 0 (no risk) to 100 (max aggression). Every investor should know their appropriate normal posture and stay near it most of the time.

“I think the way, when you manage your portfolio, the operative continuum to think about is the continuum that runs from aggressive to defensive. And I think about a speedometer in a car. So zero is no risk, 100 is max risk. 100% aggressive. You should have a sense for your appropriate normal posture.”

Steal thisSet your personal risk number on a 0-100 aggression dial and try to stay parked there instead of flipping between all-in and all-out.

Being too far ahead of your time looks exactly like being wrong

Marks notes his Bubble.com memo worked because it was right and right fast. One of his maxims: being too far ahead of your time is indistinguishable from being wrong.

“I wrote bubble.com January 2nd, 2000, and it had two virtues. It was right, and it was right fast. If you're right slow, it doesn't look like you were right. One of the great sayings in our business is that being too far ahead of your time is indistinguishable from being wrong.”

You can't analyze the future, only the rhyme of the past

Marks argues there's no such thing as analyzing the future because it doesn't exist; the only handle you get is studying past patterns and asking whether they apply today, since human nature makes history rhyme.

“And if you don't know about the future and you want to figure out the future, there's no such thing as analyzing the future. It doesn't exist. And the only thing you can do to get a handle on the future is look at the past and look for the repetition of patterns, as Twain said, and try to figure out if they apply today.”

When the time comes to buy, you won't want to

Marks shares a line from a retired trader that encapsulates contrarian investing: the great buying moments are created by bad news, falling prices, and dire forecasts — exactly the conditions that make you not want to buy.

“I came across a great quote within the last year from a guy who's a retired trader. "When the time comes to buy, you won't want to." And that encapsulated, encapsulates so much wisdom because what is it that causes the great moments to buy?”

The battlefield-hero test for buying through fear

During the 1998 ruble devaluation and LTCM meltdown, a young Oaktree PM told Marks he thought it was all over. Marks heard him out and sent him back to do his job — because a battlefield hero isn't someone who's unafraid, but someone who acts anyway.

“A battlefield hero, and I don't want to compare what we do to being a battlefield hero, but a battlefield hero is not somebody who's unafraid. It's somebody who does it anyway. And that's, that's the way you have to be.”

The battlefield-hero test for buying through fear

During the 1998 ruble devaluation and LTCM meltdown, a young Oaktree PM told Marks he thought it was all over. Marks heard him out and sent him back to do his job — because a battlefield hero isn't someone who's unafraid, but someone who acts anyway.

“A battlefield hero, and I don't want to compare what we do to being a battlefield hero, but a battlefield hero is not somebody who's unafraid. It's somebody who does it anyway. And that's, that's the way you have to be.”

Marks's worst mistake: a lifetime of being too conservative

Marks says his biggest career mistake wasn't being too defensive in a crisis or too aggressive in a bubble — it was being too conservative his whole life, wiring inherited from Depression-era parents who were adults in the 1930s.

“My worst mistake is that I have always been too conservative. My parents were traumatized by the Depression. I always say the question is not whether your parents were alive during the Depression, but whether they were adults. My parents were adults. They were born in the 1900s. And so in the Depression, they were in their 30s.”

Oaktree invested $650M a week for 15 weeks after Lehman

After Lehman Brothers declared bankruptcy in September 2008, Oaktree deployed $450 million a week into its Fund VIIb and averaged $650 million a week across the firm for the next 15 weeks.

“So as you say, we invested $450 million a week for the next 15 weeks in that fund, which was $7 billion. And Oaktree overall invested an average of $650 million a week for the next 15 weeks.”

Oaktree invested $650M a week for 15 weeks after Lehman

After Lehman Brothers declared bankruptcy in September 2008, Oaktree deployed $450 million a week into its Fund VIIb and averaged $650 million a week across the firm for the next 15 weeks.

“So as you say, we invested $450 million a week for the next 15 weeks in that fund, which was $7 billion. And Oaktree overall invested an average of $650 million a week for the next 15 weeks.”

Winning the loser's game: avoid losers, keep the ball in play

Marks built his style on Charlie Ellis's idea that since you can't predict the future, you shouldn't try to hit winners like a pro; instead avoid hitting losers and keep the ball in play, like an amateur tennis player.

“Charlie Ellis wrote an article, "Winning the Loser's Game," where he said that because You can't predict the future. Active investing doesn't work. He was a believer in the efficient market. So rather than try to hit winners, like the tennis player, you should try to avoid hitting losers and keep the ball in play. And that has always defined my investing style.”

Steal thisOptimize for fewer losers instead of more winners — consistency beats heroics over decades.

Second-quartile every year = top 4% over 14 years

Marks tells of the General Mills pension fund, which for 14 straight years ranked between the 27th and 47th percentile. People guess it averaged ~37th overall, but it was actually 4th — proof that avoiding bad years compounds into elite performance.

“So 14 years in a row, solidly in the second quartile. Now, if you said to the normal person not in the investment business, so this thing fluctuated between the 27th and the 47th, where do you think it was for the whole period? They would say, well, let me think, probably around 37th. The answer is 4th. So if you can do well for 14 years in a row and avoid the tendency to shoot yourself in the foot in a bad year, you can pop up to the top.”

The three big mistakes checklist for investors

Marks's closing checklist: (1) thinking you understand what the future holds, (2) assuming the world will stay as it is and current trends will continue, and (3) letting your emotions drive you to do what they want instead of what you should.

“Number 1, do you think you hold— do you think you understand what the future holds? And do you reasonably think that's accurate? Number 2, I think the biggest single mistake that investors make is that they think the world will remain the way it is, that the things that are working today will continue to work, the things that aren't working will continue not to work. That the trends or the emotion will continue and that there won't be any new trends. So are you part of that? And then number 3 is, do your emotions rise and fall and get you to do what they want as opposed to what you should do?”

Steal thisRun every investing decision through three checks: am I overconfident about the future, am I assuming the status quo holds, and am I being driven by emotion?