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I'm 80 and I wasted 25 years of my life. Don't make my mistake. - Howard Marks — Transcript

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0:00If you wait until you have nothing to be
0:03afraid about, probably the opportunity
0:06has passed.
0:13>> Howard, it's good to see you again. We
0:15had a lot of fun last time and we were
0:16like, "Look, I don't know if other
0:18people are going to like that, but we
0:19loved that." And then over a million
0:20people listened to the last one. And so,
0:22this morning I was reading you wrote
0:24this blog post about how you changed
0:26your mind about AI. You You had written
0:30I don't know, a couple months back about
0:33the possibility of an AI bubble and then
0:36as
0:37a good thinker tends to do, you got new
0:39facts, you sort of reassessed the
0:41situation, you wrote a new post about
0:42AI. Do you want to summarize the story
0:44of how you you changed your mind on AI?
0:47>> Uh well, the story's very simple. I have
0:49this son named Andrew. He's a VC.
0:52He's dealing with AI AI every day. His
0:55companies use AI, some of them create
0:57AI, etc. Uh I had written the first memo
1:00around December 9th, as I recall, and
1:02then in early February he said, "Dad, so
1:05much has happened. You have to update
1:07the memo." And so, I I rewrote the memo
1:10entirely.
1:11>> You I was read I was rereading one of
1:13your old books.
1:14And uh you repeat this phrase a bunch,
1:17which is like, it's important to be
1:19rational and you can't get seduced into
1:21thinking something is a good idea
1:22because that's when smart people can
1:23make bad decisions, when you get
1:25emotional about something. But then when
1:26I was reading part two, I was reading it
1:29and I was like, "Howard,
1:31you sound a little seduced. You sound a
1:33little seduced. You sound like you're
1:34into this.
1:35Are you at all approaching this in an
1:37emotional way, you think?"
1:39>> It It depends on your definition of
1:40emotional. I
1:42upgraded my opinion of AI and its
1:46potential because it's
1:49um ability to talk about its own
1:53strengths and weaknesses,
1:55to use humor
1:58to
1:59put information in the context of me.
2:03To use what it knows about me. And you
2:05know, this is really uh
2:08uh exceptional stuff.
2:11There's a quality to AI
2:14uh or more than one quality, which uh
2:17are unprecedented, in my opinion.
2:20The first
2:22the obvious one is autonomy.
2:25All the other technological innovations
2:28from the railroad to
2:32computers, to the internet, etc., were
2:34all tools or uh things to speed up uh
2:38and increase productivity.
2:40There's never been anything with the
2:42quality of autonomy.
2:45The idea
2:47that it you can
2:49give it a job
2:51and not tell it how to do it, and it'll
2:53figure it out.
2:55Is really unique. And the it what comes
2:57with that yeah, of course, is this
3:00nagging concern
3:03that it may take over. So, that's that's
3:05really important. The other thing
3:08and this is not uh
3:11kind of uh quantifiable is
3:13there's never been anything, in my
3:15opinion so unpredictable.
3:18I don't think anybody knows the shape of
3:19the future. So, I I have never had that
3:22sense before.
3:23I never say I never thought that that
3:26the internet, for example was uh beyond
3:30comprehension or beyond prediction.
3:33>> Do you think that
3:36AI will be able to do what you do? And I
3:39know you talk about this in the the
3:41memo.
3:42And I got to be honest, when I read it I
3:46I you know, I almost felt like you know,
3:48you read stories about Warren Buffett
3:50reading the Moody's manual page by page
3:53800 companies and trying to digest that
3:55information. Well,
3:56AI can do that in in a heartbeat, right?
3:58Like you know, a lot of the things that
4:00that go into making investment decisions
4:02it can do very well, very fast.
4:04And then also it's advancing so fast.
4:07So, you know, whatever we thought it
4:08could do 3 years ago is laughable
4:10compared to what it can do today. And as
4:12you pointed out, even 3 months ago. So,
4:14I guess in your heart of hearts, do you
4:15think, you know, in the in the future
4:17the next Howard Marks is not a not a
4:19human, but but maybe a human with AI or
4:21just AI?
4:23>> Everything I say on the subject I
4:25preface with I'm no expert, but I think
4:28I told the story in the memo about the
4:29fact that indexation uh put a lot of
4:33people out of the equity business
4:35because uh you know, it it disclosed
4:38that they couldn't do
4:40uh what they claimed to do. And most
4:43active equity investors underperformed
4:45the averages.
4:47And uh AI [clears throat] will unfrock
4:50or defrock another group of people whose
4:54talents are not as great as as they
4:57purport.
4:58I used to say about computers, you know,
5:00when I went to school and learned about
5:02computers, uh all they could do
5:05was read
5:06remember
5:08add, subtract, and compare.
5:10They could do it with a lot of data.
5:12They could do it really fast. They could
5:14do it without making
5:15arithmetic mistakes. They could do it
5:17without making emotional mistakes.
5:20So, while the list was limited
5:23it was still better than most people.
5:25Now, what's the list
5:27for AI? Is the list for AI unlimited
5:31or
5:32limited? That's that's a big part of the
5:34question right there.
5:36Uh I don't I don't know the answer. I
5:39Maybe you do.
5:40Um and then
5:42is there anything left that AI can't do?
5:46And one example is I think we've helped
5:50our clients
5:51over the years by not investing with bad
5:54people.
5:56And sometimes you talk to people
5:59and
6:00for undefinable reasons you just say,
6:02you know what?
6:04It doesn't feel right. As as somebody
6:06said to me, the hair on your back on
6:08your neck goes up.
6:09And if that's true
6:13and if AI doesn't have hair on its neck
6:16then maybe there's a role left for
6:19experienced investors with judgment.
6:22I I believe so.
6:24First of all, there will always be
6:26things for which there is no history to
6:28train on.
6:30And to the extent that that
6:34a certain big percentage of what AI does
6:36is knowing history and recognizing
6:41and extrapolating patterns.
6:43There will always be stuff
6:45for which there is no history.
6:47There are just some people who have a
6:49better understanding of the probability
6:52distribution that defines future events.
6:55>> I was reading this book on Steve Cohen.
6:58And there was this part where they were
7:00describing how he was kind of like the
7:01man at a very young age. They were like,
7:04he can just feel the ticker. He just
7:07like is in tune and in flow with it. And
7:09I was like, oh, that's beautiful, but
7:11like this I can't replicate that. And I
7:13was always curious about that because I
7:15think in one of your books, I think you
7:16had said something like, I can't make I
7:18can make someone better, but I don't
7:19think I can make them great. Can you
7:21talk to that about like what it is that
7:23makes someone who is a good investor
7:26good, but also how the average person
7:29could get better? Like or do you believe
7:31that's not that's not even possible that
7:33you just you have it or you don't?
7:34>> Well, in in my first book, The Most
7:37Important Thing
7:38Columbia, which published the book
7:41Uh, were talking about the They said,
7:42"Well, write us a sample chapter."
7:45So, I sat down and I wrote a chapter
7:48that I had never even thought about.
7:50And it turned out to be the first
7:51chapter in the book and it says,
7:54>> On this show, we have spent hours
7:56talking to some of the best investors
7:58alive. Well, lucky for you, the team at
8:00HubSpot, they have pulled out the
8:02principles that matter most and turned
8:04it into a very simple, easy-to-read
8:06wealth guide.
8:08It's 35 principles from the top
8:10investors. We're talking guys who have
8:11been on the pod like Howard Marks,
8:13Monish Pabrai, Morgan Housel, Cathie
8:16Wood, and a ton others. So, these are
8:18all their frameworks, their mental
8:19models, their rules, basically how to
8:21play the long game, and how to avoid
8:22ruin. You can get it in the link below.
8:26>> The most important thing is second-level
8:28thinking. Second-level thinking
8:30basically says, "If you don't see
8:32anything different from everybody else,
8:34you can't possibly be superior. So, to
8:37be superior,
8:39you have to at some point see something
8:42different from other people." What's
8:44called a variant perception.
8:46That you have to either think that the
8:48the the that the consensus of investors
8:50overstates the quality of the company,
8:52the growth rate of the company, the
8:54earning power of the company, or or
8:56maybe the multiple it deserves. And you
8:59have to have this variant perception and
9:01you have to bet
9:02on your perception. And you have to be
9:05right.
9:06So, that's for that's second-level
9:07thinking. I say in the book and when
9:09people ask me, I say,
9:11"Can you teach me to be a second-level
9:12thinker?" And the answer is no. I I said
9:14I say in the book, "I don't know." Uh,
9:16but I think it's I think it's more of no
9:19than yes. Because I what I say is, "I
9:22can teach you the importance of being a
9:24second-level thinker like I just have in
9:27this chapter,
9:28but I can't
9:29tell you how to have perceptions
9:34that are at odds with the consensus of
9:37investors and correct. You know, in
9:39basketball there's a saying you can't
9:41coach height.
9:43And I think there's something called
9:45insight.
9:47And I think some people have it and I
9:50don't know if AI can have it because
9:52when you know, when you talk about
9:54artificial general intelligence and and
9:57AGI is when a computer
10:01or AI can do everything that a human can
10:04do.
10:05Can it do that?
10:07Don't know.
10:09And that when I talk about the the
10:12the mysteries of AI, that's that's a big
10:14one of them. Are there things it can't
10:17won't be able to do even when it reaches
10:19full flower?
10:21>> Can you think back to some of the
10:22biggest calls that you've had? How
10:24strong did that feel? Did you still have
10:27doubt or was it 100% conviction? I'm
10:30curious to hear what it feels like.
10:32>> Great. I think in our last episode we
10:34talked about the day Lehman went under,
10:36you know, September 15th maybe of '08.
10:40And we had thought that there was going
10:42to be a mess and we had raised it in the
10:46distressed debt world, the biggest fund
10:48in history prior to '07 was our '02 fund
10:52which was 2 and 1/2 billion and in
10:56'07-'08 we raised 11 billion
11:00for
11:01a distressed debt fund because we
11:03thought that that there was a lot of
11:06distress coming.
11:08And we had it on the shelf, it wasn't it
11:10was for deployment
11:12when the stuff hit the fan. And Lehman
11:14goes under which I think qualifies as
11:16saying the stuff has hit the fan. But
11:18people are talking about the end of the
11:19world.
11:21And all the financial institutions are
11:23going to melt down and everything having
11:25to do with money is going to atomize.
11:27So,
11:28we were faced with the question.
11:31Do you the money?
11:33And there's no pattern recognition
11:36for the end of the world.
11:38And there's no, you know,
11:41in the in the pandemic,
11:44a Harvard epidemiologist
11:47said, "When we make decisions, we have
11:50data,
11:52analogies to past experience, and
11:54supposition."
11:56Well, at the time of the Lehman
11:57bankruptcy, we had no data
12:00and no prior experience.
12:02We only had supposition.
12:04So, this is an interesting question. Can
12:06AI have engaged in this kind of
12:09thinking?
12:11And what we said is
12:12that if the world if the financial world
12:14melts down
12:15and we invest,
12:18doesn't matter.
12:20But if
12:22we don't invest and the financial world
12:24doesn't melt down, then we didn't do our
12:26job. So, we have to do it.
12:29And we invested on that basis. And
12:31Bruce,
12:32who runs those funds, invested an
12:34average of $450 million a week for 15
12:37weeks, $7 billion
12:40On that, well, was it only on that? We
12:43also on quantitative measures, assuming
12:46the world doesn't melt down, we were
12:48getting great bargains.
12:50We were buying cup the debt of companies
12:52where we would break even
12:55if companies that had been bought out by
12:58private equity guys two, three, four
13:00years earlier, if they ended up being
13:04worth
13:05a fifth or a fourth of what they had
13:08paid, we would still be okay.
13:11So,
13:11that was pretty easy
13:13quantitatively. But we we were
13:15absolutely not confident.
13:17>> You weren't confident?
13:18>> No.
13:18>> I thought you were going to say the the
13:20opposite of that.
13:22>> No, but I mean, we we're the kind of
13:24people
13:26who always say,
13:28I could be wrong or it could work in a
13:32in a way that's never been seen before.
13:35And so
13:36we all we always I wrote a memo
13:40three or four years ago
13:41called taking the temperature about the
13:43five major calls
13:46macro calls that I made
13:48in the last
13:49well in the last 26 years and they're
13:52all
13:54with some doubt.
13:56When the markets are crashing
13:58why are they crashing?
14:00They're crashing because the news is
14:02terrible.
14:03I read the same newspapers.
14:05I watch the same shows on TV. I'm
14:08I'm attached to the same news feeds. I
14:10see the terrible news.
14:13It looks terrible to me.
14:15I overcome it in some way and conclude
14:18no, I should invest.
14:20But
14:22I'm not immune
14:23to have what everybody else is reading.
14:26If you do these things without
14:28any
14:30trepidation
14:31you know, maybe there's something wrong
14:33with you.
14:34But you know, people who look at
14:37the world probabilistically
14:39and admit to
14:41uh
14:42ignorance and uncertainty
14:44can't act
14:46without trepidation.
14:48>> Hey, can you tell me about raising $11
14:50billion cuz you said that like very
14:53casually like so we raised an $11
14:54billion fund and that's like if I just
14:57said hey, I just turned water into wine.
14:59I think for for for most people
15:01so I'm just actually curious. How does
15:02that happen? Is that is that you go to
15:04people and you say hey, we think the
15:06world's you make a really persuasive
15:08case. Are you using a pitch deck? Is
15:10this just prior relationships? Are you
15:11selling upside? Are you selling safety
15:14against downside and fear? Like what
15:16what actually goes in
15:18to raising $11 billion like that?
15:20>> So there's a list of things.
15:22Number one, certainly prior experience.
15:25Relationships. People have, you know, we
15:28started this business in 1988.
15:31And
15:32so, we're talking about 20 years later.
15:35And in the 80 in the 20 years, we
15:38managed a lot of money and had very good
15:40results for a lot of people. And so, you
15:43can work on that reservoir of goodwill.
15:47Number two, that this strategy is
15:51particularly well suited for crisis.
15:54And we had managed money through a few
15:57crises,
15:581991 and 01 02,
16:01and done
16:03exceptionally well. So, we were able to
16:05convince people that number one, so many
16:07of your investments are set up for
16:09prosperity,
16:11this is a good way to hedge it by making
16:13an investment that will do particularly
16:15well if if the stuff hits the fan. But
16:18we were also able to call attention to
16:21flaws
16:23in the environment.
16:25The things that gave rise to the global
16:27financial crisis, we could talk about
16:29and we could point out. And you know,
16:31the fact that the market
16:33was not acting as a disciplinarian,
16:36which is its main job. Main job is to is
16:39to, you know, people come in and say, "I
16:41want money for this, this, and this."
16:43And the market's job is to say, "No,
16:44that doesn't make any sense. That's a
16:45stupid idea. We're not going to invest
16:48in that." That's the job. And sometimes
16:51the market doesn't do that job. And when
16:54the market doesn't do that job, then
16:55dumb ideas get financed.
16:58And
16:59and when they turn out to be dumb,
17:00people lose money.
17:02So, I think we were able to convince
17:03people that some dumb things were
17:06happening. And then, of course, there's
17:08great respect for for Bruce Karsh, for
17:11the investing he's done of over the
17:13years. I think those are the main
17:15reasons
17:16why we were able to do it.
17:18And by the way, you hit the nail on the
17:20head. We did it in advance of the
17:22crisis.
17:23The best time to invest is in a crisis.
17:26You can't raise money during the crisis
17:29because the news is so terrible.
17:31So, you know, my wife and I have a
17:33favorite movie we watched called uh Spy
17:36Game
17:37with Robert Redford.
17:39And uh
17:40he says in the Red- Redford says, "When
17:43did Noah build the ark?"
17:46Before the flood.
17:48>> [laughter]
17:48>> You got to build the ark before the
17:50flood. You have to have some sense that
17:52the that there may be a flood. But, one
17:55other point.
17:56In the in the prior 20 years,
18:00there had been these occasions when we
18:02thought there was going to be a great
18:04investment opportunity.
18:06And it
18:07we were generally right because we took
18:09the temperature of the market
18:10accurately, and we raised a large fund,
18:13and we invested in it, and we made a lot
18:15of money.
18:17But then,
18:18our next fund was smaller
18:20because we thought the opportunities
18:22weren't as good. Now, most people in the
18:24investment business, if they have a fund
18:25that does great, the next fund is bigger
18:28cuz they can sell on the back of those
18:29results.
18:31But we make it smaller because we think
18:33those results mean
18:35that things have appreciated and are not
18:37so attractive.
18:39I I think that having done that for 20
18:41years,
18:42I think we gained a lot of credibility,
18:44and people tend I think people tend to
18:47say when Howard and Bruce say there's
18:51a great opportunity, they're not just
18:52trying to raise money, they really
18:53believe it, and they're and they tend to
18:56be right.
18:57And sometimes you have to speak against
19:00your own interest.
19:02And admit your limitations, and admit
19:05your uncertainties. So, in 19
19:08uh
19:0998,
19:10we had the meltdown of Long-Term Capital
19:12Management, we had a Russian Ruble
19:14crisis, we had a
19:16panic in Southeast Asia.
19:19And
19:20especially with Long-Term going under,
19:22one of the skilled portfolio managers,
19:24young portfolio managers at Oaktree,
19:26came to me. He says, "I think this is
19:27it.
19:28I think we're melting down.
19:31It's all over."
19:32And I said, "Well, tell me your
19:34concerns." And he laid out his concerns.
19:36And I said, "Okay, I I understand it.
19:40Now go back to your desk and do your
19:41job."
19:43You know,
19:45a battle hero
19:48is not somebody who's unafraid.
19:51It's somebody who's afraid, but does it
19:53anyway. If you're running into a hell of
19:56bullets and you're not afraid, there's
19:57something wrong with you.
19:59But you do it anyway, because it's what
20:00you have to do.
20:02And I don't want to elevate, I'm not
20:04saying we're analogous to a
20:07a combat hero, but
20:09you have to do it despite your
20:11trepidation. And if By the way, if you
20:14wait until you have nothing to be afraid
20:17about,
20:18probably the opportunity has passed.
20:22>> That's a great point. You mentioned
20:23Bruce, and I wanted to ask you about
20:25this, cuz it seems like you guys have
20:26had a very long-term partnership now at
20:28what, 30-plus years?
20:30I think people don't talk about that
20:32enough, the value of compounding in a
20:35relationship, and how to be a good
20:37partner for the long-term. You know, a
20:39bad partnership can ruin you, but we
20:42don't really talk about what it takes to
20:44make a great partnership at the same
20:45time. If you were going to teach me and
20:47Sam, if we said, "Hey, Ben and Sam want
20:49to do this podcast for 30 years." Or,
20:50you know, I have a business partner,
20:51Ben, I want to be in business with him
20:52for 30 years. What do we got to get
20:54right to do that?
20:56>> Well, it's a great question, Jen, and
20:57it's very important. Bruce and I have
21:00been partners for 39 years this month.
21:03And it's one of the greatest things in
21:05our lives.
21:07After I think we would both say that
21:09after family
21:10and and maybe some good friendships
21:13it's really the best thing we've had.
21:15We've worked together closely for all
21:18that period. We've obviously produced a
21:20lot of success.
21:22Had a lot of fun.
21:24Have have never had a fight. We have
21:26intellectual disagreements but we've
21:29never had a fight. Probably because
21:32neither of us is really a financial
21:34maximizer.
21:35And a lot of fights
21:37are probably about money. The bedrock of
21:40our relationship is mutual respect.
21:43And I think it would be very hard to
21:46have a
21:47successful long-term relationship with
21:49the partner if you didn't have respect
21:52for each other. And that ties into
21:54something I wrote in '02, I think. But
21:58in '02, I wrote a memo called The Most
22:01Important Thing. And
22:03there was a section in there which
22:05talked about having a successful
22:06partnership.
22:07And I said the key to a successful
22:09partnership
22:10is shared values and complementary
22:14skills.
22:16If you don't share values, I don't think
22:18you can have a successful partnership.
22:20Let's say one person is super aggressive
22:23and the other is a chicken.
22:26One person is super ethical
22:29and the other one likes to cut corners.
22:32I don't think you can have a successful
22:34relationship partnership. And I've seen
22:36many, many, you know, I mean
22:39a friend of mine
22:40when I was a kid, AT&T went public. Can
22:43you imagine the days before AT&T was was
22:45public? But anyway, they went public.
22:46They It was the biggest deal in history
22:48and and they had a full-page tombstone
22:50ad in the newspaper.
22:52And it listed all the investment firms
22:55that were the investment bankers. And
22:57there were probably 40.
23:00And a friend of mine, Ed Ramsdell
23:02he used to carry that out around and
23:04every time one went out of business he
23:06would
23:06mark it off. And eventually I think they
23:08almost all disappeared except for
23:10Goldman Sachs.
23:11But why do they why do they go under?
23:14You have some cowboys and some chickens.
23:18And you know
23:20and when in bad times the chickens say
23:24the cowboys are getting us killed.
23:26And in good times the cowboys say the
23:28chickens are holding us back.
23:30And they disparage each other. So you
23:33have to share values in my opinion.
23:36The other thing is
23:37you have to have complementary skills.
23:40So
23:41the beauty of a partnership is when your
23:44partner can do things you can't.
23:47That means that you are both additive to
23:50each other, synergistic. If I can do
23:52everything you can do or if I think
23:54that, what do I need you for?
23:56It's not going to last very long cuz
23:58eventually I'm going to say you're
23:59overpaid. I don't need you.
24:01And
24:03the beauty of my relationship with Bruce
24:05is that we both recognize that there are
24:07things that the other is good at that
24:09we're not
24:10and that the other wants to is willing
24:14to do that we don't want to do. For
24:15example, from the very beginning Bruce
24:17approached me in in '87
24:20with the idea of a distressed debt fund.
24:22You know, I went into the high yield
24:23bond business in '78 and
24:26he had a a background in law and got
24:29into
24:30some distressed investments which went
24:33well and he said came to me said we
24:34should do a distressed debt fund. And
24:36and it was quite a novel idea. But from
24:39the beginning
24:41you know, I go on the road and talk to
24:44people
24:45and Bruce stays back and manages the
24:47money. I go on podcasts with people like
24:50you
24:51and Bruce doesn't. But the third element
24:54is you got to be appreciative.
24:56And you have to
24:57thank your lucky stars that you have a
24:59partner who will do the stuff you don't
25:01want to do.
25:02>> Can you do the same towards parenting?
25:05Because both on this episode and last
25:06one,
25:07you reference your son a bunch. Do you
25:09have any insights into how you've been
25:10able to raise a kid that you not just
25:12love, but you enjoy being around?
25:14>> Well, you know,
25:15uh
25:16I think it was Forbes
25:1830 or 40 years ago had an article about
25:21so-and-so who was the only shrink with
25:24an office on Wall Street.
25:27And they asked this guy
25:29about his patients'
25:32problems.
25:33And he said that his patients' problems,
25:36and they were all men, of course, cuz it
25:37was Wall Street a long time ago, his
25:40patients' problems were inversely
25:42proportional to the support they got
25:44from their fathers. We had people over
25:46for dinner last night,
25:47uh and one of the guys
25:49we we and we're talking about so-and-so
25:51who was a character of some kind. And
25:54one of the guys said, "Well, you know
25:55what? His father treated him like hell.
25:58I just never wanted to be that father."
26:00And it's amazing how many men, and
26:04especially so successful men, have to
26:09assert
26:11their superiority over their sons.
26:14Maybe daughters, too, but I think it's
26:15more with sons. And I guess it's
26:17Freudian or or something else. But it's
26:20What a terrible thing
26:22that you have to you you had this kid
26:25and you have to prove you're smarter.
26:27And so, you know, I mean, I always let
26:30Andrew
26:31be smarter than me in in some things.
26:34Uh and of course, I always gave him full
26:38support in the things he wanted to do.
26:40If your kids want to do something, and
26:43A, it's not going to be injurious,
26:45uh and uh yeah, I think
26:47maybe there's no B. Let him do it.
26:50Like when when uh
26:53when my daughter was getting out of
26:55lower school and had to choose an upper
26:57school,
26:58uh she applied to the two good schools
27:01in LA, got in,
27:03and
27:04we let her choose. My wife and I had a
27:07sense for which one we wanted her to go
27:08to,
27:09but we concluded that
27:12like I always say, we could be wrong.
27:15Our choice could be the wrong choice.
27:18And anyway,
27:19of the two choices, while one might be
27:22better than the other, neither was a bad
27:24choice. So, if that's true, let the kid
27:26make the choice. And they get experience
27:29with making choices. And maybe they get
27:31a
27:32uh experience with making
27:34incorrect choices, which is very
27:36important.
27:37>> On the subject of choice, I have a I'm
27:40I'm interested to know, you know, when
27:42you were younger, you let's say you're
27:4421 years old and you're trying to figure
27:46out what you want to do with your life.
27:48Probably one of the more important
27:50questions you should figure out at some
27:52point is what do I want to actually do
27:53every day for 8 hours a day, that half
27:55my waking hours. And I doubt that, you
27:57know, a lot of 19-year-olds wake up and
28:00say,
28:01"I want to work with distressed debt and
28:03bonds." You know, it's not a That's not
28:05a knowable answer at that stage. What do
28:08you think is the right approach to
28:09figuring out your thing?
28:12>> First, I want to say up front and that
28:15the thing you describe I did a
28:17a terrible job of. I was unconscious.
28:20The decisions I made in my first
28:2520 years,
28:26as they say in in in religion, I did not
28:29apply intention.
28:31I just I let other people make the
28:34decision. I made decisions haphazardly.
28:36I didn't think about it a lot. Um I'm
28:40embarrassed uh
28:42at at how terrible my decision-making
28:45process was. In fact, it's it's a
28:47misnomer to apply that term.
28:49But, having said that, I I think it's
28:52desirable to make
28:54your choices with intention,
28:56well-reasoned, etc. And what I tell kids
28:59is my favorite quote is from a writer
29:01named Christopher Morley
29:03who said there is only one success
29:06to live your life your own way.
29:09I think it's a beautiful quote.
29:11You know, I go to Wharton and Harvard
29:12and and all these places and Columbia.
29:16And and I say, "And you know, the fact
29:18that you're
29:19in this room probably means
29:22that you can live your life your own
29:24way. You probably have what it takes to
29:27live your life your own way,
29:29intellectually and
29:31work ethic is a word."
29:32But you have to figure out what it is.
29:35That's the hard part.
29:37Who are you?
29:39And what I say to them is, "Try to find
29:41something that will play to your
29:43strengths,
29:44avoid your weaknesses,
29:46and make you happy." What that means is,
29:49"Well, that sounds obvious. Well, who
29:50would who the hell wouldn't wouldn't
29:52follow that instruction?"
29:54Well, the answer is what it means is you
29:56can't let your friends decide what you
29:58should do.
30:00You can't do things because your friends
30:02are doing them.
30:03You can't let society decide what you
30:05should do.
30:06You can't let your parents decide what
30:08you should do.
30:10You have to think it out for yourself.
30:12Having said that
30:14it's very difficult because
30:18it's hard to know yourself.
30:20And
30:21we know
30:23that in 20 years you'll be a different
30:24person.
30:26How can you make a decision today on
30:27what will make that person happy? Very
30:29difficult, but you got to try.
30:31That's my advice which which I didn't
30:33take when I was a kid and I was
30:34derelict, but I got lucky.
30:37>> Well, you eventually did become
30:39as you described what living
30:41well-intentioned.
30:42>> Yes. must have changed. What Do you
30:44remember Did you do any exercises to
30:46become that way?
30:47>> Not that I recall.
30:49I think part of it, you know, and I said
30:52I said for the next
30:5325 years I didn't do it.
30:56That took me up to
30:58roughly 95, which is when I left with
31:01Bruce to start Oaktree.
31:03That was really
31:04>> That's so interesting. So you think that
31:05up until the age of 50 or 49 you were
31:09floating
31:10or living according to other people.
31:12>> Well, not not just that, but just not
31:15making good decisions, conscious
31:17decisions.
31:19You know, why did I go to Citybank
31:21Investment Research Department when I
31:22got out of University of Chicago in
31:241969? Because I had a a good summer
31:27there the year before. Why did I move
31:30from the equity research department to
31:32the bond department?
31:35Because my work in equity research was
31:38unsuccessful and I was told to get out.
31:42Why did I
31:43move to California in 1980?
31:47Sunshine.
31:48Palm trees.
31:49I just can't claim
31:52that I was making good decisions. I got
31:54sent to the bond department at Citybank
31:56in 1978.
31:59And
32:003 months later the head of the bond
32:01department calls me up.
32:03Since I was I didn't have that much to
32:04do. I was fairly idle.
32:06And he says
32:08there's a guy named Milken or something
32:09in California and he deals in something
32:11called high-yield bonds. Do you think
32:12you can figure out what that means?
32:15That was just luck.
32:17You know, if you if you read Malcolm
32:19Gladwell in Outliers, it was just luck.
32:22Right time, right place.
32:24And if that call if that call came at
32:27lunchtime
32:28and I had been out at lunch, maybe
32:31somebody else would get the call.
32:33And and they'd be me.
32:35>> Your uh your humility is very striking
32:38to me. We have a lot of people on this
32:39podcast that I I think, you know, claim
32:41to be humble or try to be humble. You
32:43You really are extremely humble person.
32:46I mean, one note I wrote down is from
32:48now on at the top of all my investor
32:50memos, I'm just going to start it with I
32:52could be wrong, but um because I I I
32:55think whenever I make an investment, I'm
32:56so boastful about the my my excitement
32:59and my exuberance and why this is right
33:01and why it's the right move to do. And I
33:03think, you know, you've you've kind of
33:04infected me with a little bit of your
33:06your humility there.
33:07>> Well, you you make the investment
33:09because you believe in it.
33:11But, it's important to see the other
33:12side
33:13and know what you're doing. By the way,
33:15Churchill said he's a he's a humble man
33:18and he has a lot to be humble about.
33:20But, Mark Twain says, "It ain't what you
33:23don't know that gets you into trouble.
33:26It's what you know for certain that just
33:27ain't true." And I always tell people,
33:30in line with what you just said, John,
33:33no sentence that starts with I could be
33:36wrong, but
33:38or I don't know, but
33:41ever got anybody into trouble. The
33:43sentences that get people into trouble
33:45are I'm 100% convinced that
33:49and if you if you really feel that
33:52you're 100% right
33:54and you bet like you're 100% right
33:57and it turns out it was only 80/20 and
34:00the 20 comes up, that's how you get into
34:02big trouble.
34:03So, I think the thing that I think the
34:05thing that Mark Twain said was
34:06incredibly important.
34:08>> Yeah, last memo Sean sent me about some
34:10deal he had was uh
34:12bet everything you have, this is it.
34:14>> [laughter]
34:16>> Mortgage the house. Um hey, can I ask
34:18you about Buffett? You know, Buffett
34:19famously has said, you know, he reads
34:20your memos. Uh I assume you guys have
34:23interacted. Do you guys hang out? What's
34:25What's he like? And uh give me some some
34:27Warren Buffett stories from from your
34:29your life, your experience.
34:30>> Well, Bruce actually was
34:33always a Buffett watcher.
34:35And if you go back to the '80s, no, I
34:39don't think anybody had heard of
34:41Buffett. Maybe not the '90s. I don't
34:43remember exactly. In the in the late
34:45'90s, people said, "Well, Buffett's lost
34:46it
34:47because he's not in tech." And then, of
34:49course, tech blew up. And then they
34:51said, "Ah, maybe Buffett knows what he's
34:53doing." But anyway, when
34:56Enron
34:57melted down,
34:59Enron did most of its
35:01misbehavior
35:03through
35:04off-balance sheet entities.
35:07And there was a lot of
35:09opportunity there. And so, we became the
35:13largest holder of the debt of one of
35:14them.
35:15It was called Osprey.
35:17And Warren was the second largest
35:20holder.
35:21And I don't remember how it came to
35:23pass, but he gave us his proxy. And he
35:27let us run that position for him. And
35:30Bruce did a masterful job of
35:32restructuring that company, and we came
35:35out with a big old big win.
35:37So,
35:39this was around '02.
35:41So, around '03 or '04, Warren writes
35:44Bruce a letter.
35:45And he says, you know, "Nice job on on
35:48Osprey. And if you ever find yourself in
35:52Omaha, let me know. We'll have lunch."
35:54So, Bruce and I write him a letter or
35:56Bruce writes him a letter. It says, "It
35:58happens
35:59that Howard and I will be in Omaha this
36:01week. Can we take you to lunch?" And and
36:04so, with that's how we met.
36:06And the relationship had a lovely start.
36:09And it went on like that. We never
36:11actually did any business together after
36:13that because, you know, he was always
36:16looking for something big that he could
36:18acquire. And and we don't we don't
36:21really deal in big acquirable things.
36:25But it was a very nice personal
36:26relationship and
36:29I don't I've never said this to anybody
36:31else before but in '09
36:35I wrote a memo in which I mentioned him
36:37and I sent it to him and I said I want
36:39to make sure that you see this memo
36:41because it mentions you. And he says I
36:43do see the memos and blah blah blah and
36:47I have seen this. He says and by the way
36:49you should write a book
36:51and if you do I'll give you a
36:53a blurb for the book.
36:56And that's why I wrote the first book.
36:58Most important thing I always thought
36:59I'd write a book when I retired but
37:01instead you know when when you get that
37:03kind of note from a guy like Warren
37:05Buffett you you can't let it sit. So
37:08that was that was the start of that but
37:10you know
37:11I've been fortunate to visit him a few
37:14times and
37:16and it's it's a big plus.
37:18>> Is there any part about the Warren
37:20mystique the Buffett personality that
37:23you think like popular lore gets wrong
37:26or is inaccurate?
37:28>> No I think it's mostly what you see is
37:29what you get. The one thing I'll say
37:32that I don't think people know about
37:34they don't get wrong they don't know
37:35about is the depth of his love for
37:38Charlie.
37:40And Warren sent out a a note
37:44I think it was at Thanksgiving last
37:46year.
37:47And he said you know I'm not going to be
37:50at the Berkshire meeting and I'm not
37:51going to be writing this or that
37:54whatever it was.
37:55And he talked about his relationship
37:58with Charlie and anybody who wants to
38:00should get a get a hold of that letter
38:02and see it because it's it's you know we
38:04talked earlier about the importance of
38:06the a partnership and how great a
38:09contributor to your life it can be. And
38:12and that's what that's what uh
38:15he had with Charlie. I think he I think
38:18he as I recall he talked about
38:21Charlie being the big brother
38:24and and and himself being the little
38:26brother. And I think we can say that
38:29about my relationship with Bruce.
38:31And
38:33for one reason or another, he's always
38:35been very kind to me
38:37uh about my role,
38:41you know, and generous
38:44about my role and he look, he's he's
38:47he's certainly
38:49as smart as I am and as talented as I
38:53am, maybe in different ways.
38:54But
38:55there was always this this feeling of
38:57respect and affection and love and
39:00and and the as the more time passes, the
39:03more we're conscious of that, he and I.
39:06And that's what Warren and Charlie had
39:08and it was beautiful thing to watch. And
39:11also, the Warren used to love telling
39:13funny stories about Charlie,
39:15of which there were a lot. And their
39:18relationship was always suffused
39:21with humor.
39:22>> Did they make a lot of the decisions
39:23together?
39:25I mean, I've read a little bit about
39:26them and their relationship was a a
39:28little challenging for me to understand
39:30because I don't think they've ever lived
39:31in the same place.
39:32>> Yeah.
39:32>> Did they
39:33talk daily?
39:34>> I don't know exactly how they made their
39:36decisions, but I think I think Warren
39:38used Charlie as a sounding board.
39:41A logic checker.
39:42You know, I think this, do you think
39:44this makes sense? That kind of thing.
39:46Of course, Charlie's great credit is
39:50that Warren Buffett used to engage in
39:52what we call cigar butt investing. I
39:54don't know if you know about this.
39:56But
39:57cigar butt investing means you're
39:59walking down the street and you look in
40:01the gutter and you see a used cigar and
40:04you pick it up and you conclude that it
40:06has three puffs left. So, you pick it
40:09up. This is a disgusting thought. You
40:11pick it up and you smoke it
40:13and you get three puffs for free.
40:15That's the butt investing.
40:17But
40:18and and you know,
40:19Warren would buy
40:21uh you know, really cats and dogs
40:24because they were cheap.
40:26And Charlie's great contribution was
40:28talking Warren out of
40:31cats and dogs.
40:33Out of cigar butts.
40:34And his revolution was that he convinced
40:38Warren not any company at a great price.
40:42Great companies at a good price.
40:44Most people credit that as Charlie's
40:46greatest contribution.
40:48So, but it you know, synergistic, mutual
40:52respect, love, complementary skills. It
40:55it interestingly, they probably had the
40:58highest combined IQ of any partnership
41:01in history.
41:03But they were different kinds of IQ.
41:05Charlie was more of a classicist and
41:09he humanist and a man of letters. And
41:12Warren, of course, was
41:15an incredible
41:17uh
41:18uh computing machine.
41:19>> A man of a a man of letters. Sean, we
41:22need to bring that back. That sounds
41:23that sounds beautiful. I would be a man
41:25of letters.
41:26>> Charlie, you know, when we would get
41:28together, he wouldn't talk about
41:29investments or money
41:31or companies, mostly. He would talk
41:33about ideas.
41:35>> Well, let let's wrap it with one one
41:37last quick one, which is uh give us some
41:39homework. Give us a book
41:41that
41:42shaped the way you think or you thought
41:43brought some good ideas to the
41:45forefront. What's a book we should read
41:47as recommended by Howard Marks?
41:49>> So, one is uh a short history of
41:53financial euphoria
41:55by John Kenneth Galbraith. This was very
41:57uh influential in my thinking and it
42:00teaches you about uh
42:02the
42:03mental weakness that gives lot give rise
42:06to booms and busts. And of course, you
42:09know, uh
42:10taking a uh
42:12objective view of cycles is a big part
42:16of what I do. So, that was very
42:18influential and I was lucky to get to
42:20meet Galbraith.
42:22And then the other book would be Fooled
42:23by Randomness
42:25uh by Nassim Nicholas Taleb.
42:28And it talks about
42:30See, I'm a great believer that a lot in
42:33life is random.
42:35And uh
42:37so, this is one of the reasons
42:39maybe it's my rationale for not being
42:41such a decisive thinker. Taleb basically
42:44says, "In the short run,
42:47uh
42:47anything can happen
42:49because of randomness. And this
42:52determines our attitude toward risk, our
42:55attitude toward portfolio construction,
42:57our attitude toward published records.
43:00You know, you see a published record,
43:01the guy had a great return that year.
43:03Is he a great investor or did he get
43:05lucky that year?
43:06etc.
43:07So, and I So, I think that I think that
43:09Fooled by Randomness is really
43:11uh and I've written the memos if anybody
43:14wants to you you the what we used to
43:16call the classic comic version,
43:19uh they can read the memos rather than
43:20reading the whole book.
43:22Uh but I think it's very valuable and I
43:24would recommend it strongly.
43:27>> Well, we appreciate you, man. This is
43:29fun.
43:29>> I hope so.
43:32>> We got to do one with your son,
43:33actually. That would be a lot of fun.
43:34>> Uh well, we did one in January of '21
43:38called Something of Value because uh he
43:40moved during the last during the
43:41pandemic and I thought that the the
43:44opportunity to for three generation of
43:46Markses to live together was a great was
43:49of great value and we spent most of the
43:51time arguing about value investing. Uh
43:55and and uh and I think that
43:58uh I think with the possible exception
43:59of the latest AI memo, I think that one
44:01got the most positive reception. But but
44:04uh we'll we'll we'll keep on working
44:06together and uh
44:09you guys don't don't need
44:11an excuse for
44:13for another session.
44:14Thanks.
44:15>> Thank you for playing therapist for us.
44:16>> Okay.
44:17>> Thank you so much Howard.
44:18>> That's it. That's a pop.

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