Money, Nerve, and a Lucky Birthday


“I’ve been very lucky,” Howard Marks W’67 declared. “I can’t believe how lucky I’ve been. And one of the things I’ve been lucky about was to be born in 1946.”

Marks, the chairman of Oaktree Capital Management, a global asset management firm he co-founded in 1995, was on campus in February to kick off a lecture series he has established as a forum for successful investors to share their real-world, practical perspectives. Having been asked for his own outlook on the current investment environment, the revered value investor had just uttered the three words least likely to cheer a budding financier: “low-growth period.”

“From the 1950s until maybe the [2008 financial] crisis or just before,” he continued, “we had a great environment in this country for growth. A lot of management people say, ‘Well when are we going to get back to normal?’ As if that was normal. I don’t think that was normal. I think that was the best of times. I think that the period ahead will be generally lackluster compared to those decades.”

What made those decades special? Among other things—including the uplifting effect of a public education system that Marks believes was superior to the present one—Marks highlighted a tool so deeply ingrained into the lives of his student audience that few of them probably realize how radically it expanded economic activity in their lecturer’s lifetime.

“When I was a freshman,” Marks recalled, “I had two choices. I could spend the money in my pocket, or I could write a check against the money I had in the bank. The one thing I couldn’t do was spend money I didn’t have.

“Then credit cards were invented in the 1960s,” he continued, “and now, in the last several decades, the whole world has bought on credit.” Which has now run out for any number of overly indebted individuals—not to mention entire nations, like Greece and Portugal.

“So I don’t think that credit is going to play as big an expansionary role as it did” back in the free-spending golden days, he said.

Marks has disseminated his thoughts on investing widely, via memos he began writing for clients 24 years ago—as well as his 2011 book The Most Important Thing: Uncommon Sense for the Thoughtful Investor. At Huntsman Hall he emphasized the role he believes integrity has played in his firm’s success.

This was especially critical during the global financial crisis. Between March 2007 and March 2008, he said, Oaktree raised $11 billion to buy distressed debt—a large sum for a firm whose funds typically weighed in at $1 or $2 billion.

“We told our clients we wouldn’t invest until something happened. Our clients gave us money on that basis,” he said. “Because they trusted us. They believed that we’d always conducted ourselves with integrity.”

Oaktree invested $6.5 billion of that money in the fourth quarter of 2008, soon after the Lehman Brothers bankruptcy.

“That’s all you had to do,” Marks remarked. “You didn’t have to have risk control, conservatism, caution, discipline, selectivity. All you had to do in the fourth quarter of 2008 was have money and nerve. Our clients gave us the money, and our un-emotionalism and our contrarianism supplied the nerve.”

Marks also highlighted a practice that distinguishes his firm from many others: the compensation of employees based more on qualitative than quantitative measures of performance.

“We don’t have a list of whether the analysts made recommendations that went up or down. Because number one, the proof of an investment is not what happens in the first year. And number two, the first thing I learned at Wharton in 1963, when I took my first course here, is that you can’t tell a good decision from the outcome. Lots of good decisions fail in the short term, and even in the long. Lots of bad decisions succeed.

“So if you agree with that, isn’t it a mistake to compensate people based on whether or not their decisions turned out to be quantitatively right in the first year, or in any year?” he continued. “And I believe strongly that it is. So we pay people for how the company did, how the team did, how the portfolios did, and how we think they did generally in qualitative terms.”

Marks credits his time at Wharton for contributing to the success he has enjoyed in the nearly 50 years since—but perhaps not in exactly the way today’s hard-charging finance majors might expect.

“When I went to Wharton,” he said, “You had to have one semester of the literature of a foreign country, and you had to have a non-business concentration.”

“For some reason I had it in my head that Japan was an interesting country,” he recalled. “In 1964, when this happened, Japan was a commercial non-entity. Japan was synonymous with cheap radios, and that was it. They were not the world force that they became soon thereafter. But something about Japan interested me … and I ended up taking 15 credits in the Japanese-studies department.

“And I loved it,” he said. “That’s what turned me from an indifferent student into a serious student. And the philosophy that I learned in Japanese studies really contributed to my philosophy as an investor,” he added.

Though all things being equal, it helps to have a birthday ending in ’46. —T.P.

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