Howard Marks Warning: Why I'm Getting Out Now

All right. Here's what I said. I said, describe Howard Marks in 280 characters. Here's what it gave you. Howard Marks is a legendary investor and co-founder of Oaktree Capital, known for his sharp memos, contrarian thinking, and risk-focused approach. He made billions zigging when others zag, especially in crises. When he writes, Wall Street listens. Pretty flattering.

Pretty, pretty good.

Yeah. Okay, well, I think the best place to start is that kind of zig while others zag. So I want to ask about the S&P because you don't know much about us, but the short version of, of the guy you see across from you there, Sam, is Sam's an entrepreneur. Sam built his company, he sold his company, and he took the money that he made and he said, look, I worked hard for this money. Now I want this money to work hard for me, but I need it to be safe. And so Sam went into a mostly, you know, best practice low-cost index funds in the S&P 500. And anytime I ask Sam about his strategy or I tell him, dude, you got to buy Bitcoin, Ethereum, you got to buy this, you got to put some money over here because I'm like, you know, if Sam is vanilla, I don't even know what I am. I'm some flavor off on the side. That's—

how about Tutti Frutti?

Yeah, I'm Tutti Frutti over here and I keep trying to pull him over here, but he says, no, no, no, I like vanilla. And so he basically just says the long-term average of the S&P 500 is 10%. If I just hold this for 50 years, I'm going to double, you know, this many times. I'm good. But, you know, I do get a little wary when anything seems too safe or too, too certain, or I guess too taken for granted that this 10% number over the long term will be the— be what it'll be. I guess what would your message be to Sam? Is Sam just, you know, is he right? Is he wrong? Would you give him a cautionary warning if he was your nephew? He looks like he might be your nephew. If he was your nephew, what would you be telling him?

Well, on the one hand, Sam, you're right. Because if you, if you have more money than you need to eat, the first purpose of your money should be to make you comfortable. It doesn't make any sense. 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.

But there's going to be a but on your statement, it sounds like.

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, their behavior suppresses prices to the point where everything's a giveaway. So I don't— I mean, look, in the long run, you're right about the S&P. And over the, over the coming years, American companies on balance are going to produce prosperity.

What, what's that defined as, long term, in this?

Well, I would say 20 or more is, is, is the, is the real long term. And I'll tell you in a minute how I get there. But my favorite cartoon, I have a file of cartoons from over the years. My favorite one, there's a guy, he's got his, is a car pulled over to the side of the road. The guy's in a phone booth. So, you know, it's an old cartoon because there are no more phone booths. And there's a factory. Going up in the background and he's screaming into the telephone, "I don't give a damn about prudent diversification, sell my Fenwick Chemical." In other words, prudent diversification calls for certain investment positions and a variety of them in a certain composition. Reality says, "I see Fenwick Chemicals burning to the ground, get me out." And you have, you can't ignore reality. Now, what's reality in this case for you? Reality is recognizing where things stand. And JPMorgan published a chart around the end of '24, and it was a scatter diagram showing over the years, if you bought the relationship between the S&P 500 at purchase and the return of the annualized return over the next 10 years. And it looked like this. On this axis we had return and on this axis we had P/E ratio. And it was a, it was a negative correlation, which means the higher the P/E ratio you pay, the lower the return you should expect. Makes perfect sense. And it showed there was a number here, 23, on the P/E ratio axis. And it showed— which is what the P/E ratio on the S&P was at the time. 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.

And what are we today?

What is it today? 23 or— 24, 24, 25. Because why? Because prices have risen. Now maybe the outlook has risen, so maybe it's still 23, but I think, let's say I think 24. Um, so you can say the S&P has returned 10% a year on average for 100 years. I, I'm happy with 10, I'm in. Or you can say it doesn't always return 10. By the way, one of the most interesting things about the S&P, if you do the research— and I did it for a memo— on average it has returned 10% a year for 100 years. But do you know that the annual return is almost never between 8 and 12?

Yeah, like it kills it or it dies. Yeah.

Think about what that means. The, the, the, the norm is not the average.

But the issue for someone like me— so a lot of our listeners, I'm one of them. You know, I was fortunate. I had a business. I made a relatively large sum of money at a very young age. But I'm not an investor.

Yeah.

Like, I don't know anything about public markets. And so when I hear you say that, I think, well, I don't have an alternative.

Well, you do have an alternative. You could figure out an algorithm to rebalance your position based on relative price, and you could put it on autopilot. I don't recommend, you know, making judgments about the future. And the appropriateness of today's price for the future you perceive. But you can do that. And there are ways to do these things, even if you just use common sense.

What would you be rebalancing into? So let's say S&P PE is high. What would be the second best for the sort of non-full-time active investor?

Okay, so I've tried to suppress my tendency to talk my book until now, but I think an alternative is bonds. You know, and in 19— I joined Citibank in the investment research department in 1969 as an equity analyst. And the bank did so horribly that in '78, I was banished to the bond department. And the bond department was the equivalent of Siberia. The good news is that at that time, American corporations pretty much gave lifetime employment. So I didn't get sacked. But I'm in the bond department and I get a phone call from the head of the bond department saying that there's some guy in California named something like Milken and he invests in something called high-yield bonds. Can you figure out what that means? And I said, yes. And I became a high-yield bond investor. And you know what? When you buy a bond, there's a contract that says the borrower will pay you interest every 6 months and give you your money back at the end. And you can figure out the return that is implied by that contract. And if they— if the borrower doesn't keep that contract, overgeneralizing, oversimplifying, the creditors get the company through the bankruptcy process. So the borrower has a lot of incentive to pay you, and they almost always pay. 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. The bad thing is you have to pay tax every year on the income. That's a bad thing. But for those of us who are cautious, like you and me, we might say, I'll take, you know, 8, which in the long run will give me 4 after tax, as opposed to 10, which after capital gains taxation will give me 7. Or maybe I'll mix them. Maybe I'll own a little less S&P and a little more debt because I'm—

That's what I do now.

Yeah, because I'm worried. It's not all or nothing. And that's why I, when I'm on TV shows and they say, well, is this a sell or buy? Is this risk-on or risk-off? I resist that formulation because it's never one or the other. It's a mix. And the only question that's relevant is what mix? 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 the car. So 0 is no risk, 100 is max risk, 100% aggressive. You should have a sense for your appropriate normal posture. And it sounds to me like, Sam, you're a little conservative guy. You've made so much money, you, can't believe it, but you don't want to give it back. So I would say that you're a 65, and especially given your youth, you may be a 55 for your cohort. So I, and I think you should figure out, every listener, every investor should figure out the right place for them and try to stay there most of the time.

We need to get a couch here and you could just, I'll call you Dr. Marks and you can do my therapy.

Well, you know what, I once wrote a memo called "On the Couch" because I think that once in a while the market needs a trip to the shrink.

I went back and I read a bunch of your old memos, and the one that stood out to me was the bubble.com one. So you wrote this back in 2000, and I actually have a few of these where I feel like there's been moments in time, maybe 2000, 2008, 2012, 2020, where, uh, it seemed like consensus was going one way. Maybe it was max greed and you went the other way, or it was max fear and panic, and then you, you were actually very aggressive. You did the thing where Buffett says, be fearful when others are greedy and greedy when others are fearful. It's cool to say, but it's hard to actually do. And I thought it'd be fun if you could kind of walk us through a couple of those moments. And I don't know, like, you know, not to go too far down memory lane, but just, you know, take us back to, you know, the one in 2000. What did you see? What did you do? How did it, you know, how did it play out? What did you learn from that? Take us through a couple of those, because I think that's your superpower?

First of all, uh, one of my sayings is, "We never know where we're going, but we sure as hell ought to know where we are." And at Oaktree, uh, we loudly proclaim our inability to make macro forecasts and our non-reliance on macro forecasts. But if we want to do the right thing vis-à-vis the macro, We should be able to figure out what's going on at the present time and what that implies for the future. It may not happen, the thing you think it implies, but it probably has a higher chance of happening than not happening if you're logical and, and understand history and patterns. And I wrote a book called Mastering the Market Cycle, which was published in '18, and I always say it's a cheesy title, but it wasn't my idea. The publisher wanted that title 'cause they thought it would sell more books. But I like the subtitle. And the subtitle says, "Getting the Odds on Your Side." And I believe that where we stand in the cycle determines what probably is gonna happen and how likely it is. And understanding that, can improve your odds. It can't make you a sure winner, but it can improve your odds. And that's the best we can do in an uncertain world beset by randomness. So, you know, I don't know if you know that I started writing the memos in 1990. Bubble.com on the first day of 2000 was the first one that ever garnered a response. I went 10 years, not only did nobody say, "Hey, that was good," Nobody even said, "I got it." And so one of the mysteries is why I kept—

Who were you sending them to?

To our clients.

How many?

Crickets.

Well, you know, in 1990, 100.

Okay.

You know, and by mail, of course. 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. So the answer is I was not too far ahead. In the fall of '99, I read a book called "Devil Take the Hindmost." It's a history of financial speculation.

Were you looking for books about that because you had a hunch, or you just randomly read this book?

No, I don't remember why I read it. The idea comes first. Not my books. My memos are not research-based. They're based on ideas that resonate with me. And so I'm reading this book. I am interested in financial speculation. I'm interested in cycles. I'm interested in the extremes of financial behavior. So that's probably why I read it. But I'm reading this book and it talks about all these crazy things that people did, especially in something called the South Sea Bubble. Britain had this big national debt and they concluded that they could pay it off by starting a company called the South Sea Company. And they granted them a license to trade with the South Sea, by which they meant not Samoa, but Brazil. And they would charge them a license fee and that would pay off the debt. And it was one of the great bubbles. And so I'm reading in the book about what people were doing in 1720. And, you know, people were quitting their day jobs and hanging out in alehouses to trade the shares of the South Sea Company, et cetera, et cetera, et cetera. And I said, that's what's going on now in the tech bubble. People, you may recall that people were quitting their jobs, becoming day traders. People with no money could trade stocks as long as they didn't carry any balance overnight. And young people were quitting MBA programs because they had an idea, and if they waited until they graduated, somebody else would take it. So it just resonated. And one of the quotes I use the most now is from Mark Twain, who said, "History does not repeat, but it does rhyme." There are certain themes that rhyme from generation to generation and cycle to cycle because they are embedded in human nature, and so they recur. And when you get older in our business, you know, obviously one of the things I hasten to point out is there is no such thing as knowing something about the future. 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. So this was very easy. So I wrote this memo, bubble.com, and it said what they were doing, people are doing today. And I point— tried to point out the folly of what I saw going on. Companies with no profits and no revenues were being highly valued. Maybe no product, just an idea. And that is the epitome of a bubble. So I wrote the memo, uh, as I say, January 2nd. Sometime around mid-year, the tech bubble started to collapse. So as I said in the introduction to one of my books, after 10 years, I became an overnight success.

Did you actually bet against it or did you just preserve capital by not FOMOing into every, you know, tech company basically. Like, what was the, what was the win of that for you?

First of all, we're not involved. We're basically not involved in the US stock market, and we're not involved at all in technology. So we wouldn't have a chance to apply that. But I think what we did is we recognized that, and by the way, Things don't happen in isolation uniquely. So when you see something like I describe in the tech bubble, you should realize that maybe there are ramifications in other parts of the world. And we figured out that people were engaging in optimism, not pessimism, greed, not fear, credulousness, not skepticism. Risk tolerance, not risk aversion. And when, as Buffett says about prudence, when nobody's afraid, unwise deals can get done easily. Simple as that. And the people who buy that stuff, it usually ends badly.

The way that you explain it, I think everything makes sense and I totally buy into it. But that's actually quite challenging to understand this like macro environment and to say this is where we are.

Yeah, well, you have to be clinical. You have to observe and without emotion understand what's going on and what the implications are. And of course, what I call emotion is part of what's called human nature. If you succumb to human nature, it tends to get you to do the wrong thing at the wrong time. 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?

It's probably the point of lowest consensus. So when most people don't believe would be the time that the price is going to be the lowest, right? It's the time with either the most uncertainty or the most pessimism or the most fear, most conservatism. Uh, so you also want to be all those things.

What causes those things you're talking about? You're talking about the manifestation. What's the cause?

Um, bad news. I don't know, bad events, bad news.

Either exogenous or in the economy, faltering corporate fortunes, declining stock prices, widespread losses, and a proliferation of articles about how terrible the future looks. So the point, that's why you don't want to buy at the low. Who would want to buy under those circumstances? Right. So you talked before in your introduction about zigging when others zag. The only thing I'm sure of is if you zig when they zig, you're not gonna outperform.

Do you still feel that fear, you know, of you, like when you know you're supposed to buy, do you still feel fearful or do you feel like nice? Hello, my old friend. I love this emotion. This is what I'm supposed to be on.

Oh yeah, right.

Yeah.

I mean, it's not easy, but you have to know you have to do it. If you think about it, the fortunes of companies and the outlook for companies doesn't change much. What— and I'm, I'm writing a memo about this that'll come out one of these days. And what changes is how people think about what's going on and think about the future. And so what changes is the relationship of price to what I'll call value. Sometimes they hate 'em, sometimes they love 'em. When they love 'em too much, you should expect them to probably go down. That sounds like a bull market or a bubble. And when they hate 'em too much, you should expect them to go up. That sounds like a bear market or a crash. And so You have to do the opposite. And the same developments in the environment that affect everybody else will affect you. You're subject to them, you feel them, you read about them, you hear about them. Everybody tells you how dire the outlook is and, you know, it's hard to ignore them, but you have to do the right thing in the face of them. '98, we had the Russian ruble devaluation, the debt crisis in Southeast Asia, and the meltdown of Long-Term Capital Management. And one of our portfolio managers who was young came to me and he said, "I think this is it. I think we're going to melt down. I think it's all over. I'm terribly pessimistic." I said, "Tell me why." He went through his reasoning. I said, okay, now go back to your desk and do your job. 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.

Can I ask you about that? Because so it's funny, interestingly enough, even though I'm the conservative one, I'm actually way more emotional. Shawn's like a more, mostly is, is, is a pretty stable guy emotionally. I go up and down, which I think is actually closer to the average for average folks. You said something really— you said a bunch of stuff about emotion in the past. I think you said to be a good investor, you better be able to invest without emotion, or at least act as if you don't have a lot of emotion. Has there ever been anything like a mindset shift or a practice or something that you've had to use in order to learn to be less emotional when investing?

No, these things are not intentional on my part.

You think you were born like that?

I was born unemotional, by the way. And I wanna point out here, 'cause my wife's downstairs having lunch, that I wrote in my book that it's really important to be unemotional in investing. Not so good to be unemotional in life, in arenas like marriage. So there it's not an advantage. But no, for me it came naturally. I don't have to, I don't have to say, oh, there I go again, I'm getting emotional, I have to restrain that, blah, blah, blah. And my partner Bruce Karsh, who's been my partner successfully for 37 years, he's pretty much the same. So that makes it easy. I don't have to restrain him.

We've gassed you up about some of your best moves. What's the worst mistake you made due to an emotional mistake? Where you didn't control your temperament properly and you made a mistake?

My worst mistake is not— and I know you're talking about a point in time. 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 19 aughts. And so in the Depression, they were in their 30s and they were, you know, and the Depression was really traumatic. Nobody knows what it was like. And it ground on for over 10 years. And so when you grow up with parents of the Depression, they say things like, "Don't put all your eggs in one basket, save for a rainy day," you know, that kind of stuff. And I ended up too conservative. And if I wasn't as conservative, I'd be richer today. I'm not sure I'd be happier because—

What's an example? What do you mean you were too conservative? Like, I guess like what makes you say that? What would you have done differently had that wiring not been done in you?

Well, I mean, I don't know. I might have gone into a more aggressive asset class than credit, like equities. I might have become a venture capitalist, or, you know, like my son Andrew, or a private or a leveraged buyout investor. But, you know, the reason I was talking about the appropriateness of credit for Sam is because while the returns are a little lower, there's much less uncertainty and downside. So I would say that if I've been in this business 56 years, if I would've spent those 56 years in, less conservative asset classes, I would've made more money. Having said that, it happens that I went into things like high yield bonds in '78 and distressed debt in '88. And if I had not been a conservative person, I probably wouldn't have had any clients because they would've been scared off by the risk. So it served me well in pioneering in those businesses. But that was my, I mean, we never had a mistake like, we were too defensive at a, in a crisis or too aggressive in a bubble. We just, I just was too conservative all my life.

And that kind of makes sense because you, I don't think you started Oaktree until your late forties, right?

Just short of my 49th birthday.

Yeah. And so, well, I, I guess leading up to it, were you already financially successful? Were you, were you a success leading up to that?

Yeah.

And, and so was it a big risk to to start Oaktree?

I was secure. I wasn't rich by today's standards, and I may not have been rich by the standards at the time, but I had, I had lot, I had good money and I lived well. So I started running money in '78. I joined my Oaktree founder partners in '85, '86, '87, '88. We did a great job through a variety of environments. And we weren't worried about the ability to do a good job. And we had enough money to eat. So it wasn't, I mean, but it, I had to overcome my innate caution. My wife had to give me a kick in the ass, which she happily did. I may not have done it without her, probably wouldn't have.

You said you're too conservative, but there's been times when you've been very aggressive. Oh yeah.

Oh yeah.

You know, I think the sort of '07-'08 financial crisis. I read something that as the crisis happened, you go raise $10 billion because you see the opportunity and you started deploying something like $600 million a week, which is— it just sounds badass, to be honest. I don't even— maybe that's— maybe that's not, not as crazy in the financial world, but it sounds crazy to me.

Well, your fact set is inaccurate in one regard. We did not raise $10 billion after the crisis hit. Because remember what I said about the guy who said, "When time comes to invest, you won't want to?" You can't raise money in a crisis. If you went to people, you say, "World's melting down, we're gonna buy all this stuff, it's gonna be a bonanza, we're gonna get rich." Nobody will give you money. Why? Because the same factors that influence the world influence the people you talk to. And no, everybody will stick their hands in their pockets and say, "Maybe later after the..." after the dust settles. And a lot of people say, you know, we're not going to try to catch a falling knife. And I believe that you make the big money catching falling knives carefully. So what happened is we, like I described about the tech bubble in 2000, we detected in '05, '06 that the world was behaving in a carefree manner. And I would wear out the, carpet between my office and Bruce's with the Wall Street Journal. And I'd say, look at this, look at this piece of junk that got issued yesterday. There's something wrong. If a deal like this can get done, the world is exercising inadequate prudence.

Specifically on mortgages?

No, I didn't know about mortgages. I never heard of mortgages. I never heard of sub— I don't think I ever heard the word subprime. I don't think I ever knew what a mortgage-backed security was. It just seemed that the world was operating in a pro-risk fashion. And when people are pro-risk, they permit bad deals and they pay prices higher than they should. So what happened was on the first day of '07, we went out to our clients and we said, we think there's an opportunity. We didn't, I don't think we raised funds in '05 or '06 for his distressed debt area. But on the first day of '07, we went out and we said, we think there's a great opportunity coming and we'd like to have $3 billion. At that time, the biggest distressed debt fund in history was our '01 fund, which preceded the Enron meltdown and so forth. And it was $2.5 billion. And so— $2.5 billion? Yeah, around there. So we went out to clients, we said, we'd like to have $3 billion. That would be the biggest distressed fund in history. So within a month we had $8 billion. And we said, you know, we can't do anything with $8 billion. It exceeds our ability to invest it wisely. So we're going to take $3.5 billion and we're going to close the fund. But we would like to have the remainder of your interest in a standby fund that we'll implement if the stuff hits the fan. So the first fund was VII and it was $3.5 billion. And the next fund was VIIb. And by the time we finished raising money for it a year later, it was $11 billion. And Fund VII got fully invested. So we started investing, gradually investing VIIb in June of '08. It's sitting there on the shelf and by September, 18th, 15th, it was, no, 18th, it was 12% invested. So just over a billion. And Lehman Brothers declares bankruptcy. And so the question, which you implied, was do you invest it or not? You're sitting there with all that money, but it looks like the world's going to melt down. Do you invest it? Very simple. And, uh, this, as you say, I think this was one of our, uh, best moments because I reached a very simple conclusion. If we invest it and the world melts down, it doesn't matter what we did. But if I don't invest it and the world doesn't melt down, then we didn't do our job. QED. You have to move forward. I also wrote that it's hard to predict the end of the world. It's hard to assign a high probability to it. It's hard to know what to do if the world is going to melt down. If you do those things and the world doesn't melt down, it's probably a disaster. And most of the world time, the world doesn't melt down. That was the, that was the sum of our analysis because there was nothing to analyze. There had never been a global financial crisis before. The meltdown of the financial sector had not been anticipated since the Great Depression. And there were no past patterns to extrapolate. So you have to resort to logic. That was the logic. 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.

How did that turn out? So that's what you put in. What was the sort of result of that investing during that time?

Well, it was great except for— I mean, we got good buys and we made good money, but the Fed mobilized very astutely, cutting interest rates to zero for the first time in history at the beginning of '09. And introducing QE. And those two things saved the economy. So we didn't get the meltdown that everybody was afraid of. And there were relatively few bankruptcies, especially outside the financial sector, that resulted from the global financial crisis. So we had, we've had some barn burner funds in crises. This was very good, but not a barn burner.

You've done something that I love, which is, well, you've quoted a ton of different people. You've quoted Mark Twain a bunch of times. You have all these quotes, which like clearly shows that you retain information that you read. And I imagine you read a lot. Can I ask you about your reading habits? How do you pick what books you read?

I've never read any books about how to be an investor. Like, you know, multiply this by that and add this and subtract that and, The books I've found most interesting have always been the ones about investor behavior. And I mentioned "Devil Take the Hindmost," '99. One of the greatest books I ever read was before that, John Kenneth Galbraith's book called "A Short History of Financial Euphoria." That was really pivotal for me. And since I'm a slow reader, I like the fact that it was only about 100 pages. And then, you know, back in '74, 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. In fact, I wrote a memo in the summer of '24 or '23 called Fewer Winners, Fewer Losers, or More Winners. And that's the basic choice of investing style.

There's a great, I think, like sort of math paradox that you've pointed out, which is that, you know, a fund, I don't know if it was your fund, but any fund, it could be, you know, never above, never in the top 10%, but sort of never in the bottom 50%. And there's this strategy of, Just consistently being above average will place you in the top 5%, right? It'll place you in the top percent. Can you unpack that idea a little bit? I just sort of butchered it.

In 1990, I wrote a memo called "The Root to Performance," and I had dinner in Minneapolis with my client Dave VanBenskoten, who ran the General Mills pension fund. And Dave explained to me that he had run the fund for 14 years, And in 14 years, the equities, General Mills' equity portfolio was never above the 27th percentile or below the 47th percentile. 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 fourth. So if you, 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. At the same time, another investment management firm had a terrible year because they were deep value investors and they were heavy in the banks and the banks suffered terribly. So they were at the bottom. So And the president comes out and of course, things, people in the investment business are great rationalizers and communicators. And he says, "The answer is simple. If you want to be in the top 5% of money managers, you have to be willing to be in the bottom." Well, that makes great sense, except that my clients don't care if I'm ever in the top 5 and they absolutely don't want to see me in the bottom 5. So my reaction is the first guy's approach is the right one for me. So that's why at Oaktree we go for fewer losers, not more winners.

Yeah, I love that because it's one of the, um, unsexy ideas. Like, I think any idea you can't, you know, make a movie about or won't make you sound really cool are generally undervalued ideas when they, when they actually logically math out the way, the way that one does. And so I, I sort of— that was one that stuck out to me is like, nobody's gonna Nobody's going to give you a motivational video about being consistently above average and just never shooting yourself in the foot, right? It's all about heroic greatness and huge risks you can take and, you know, being willing to do it. And so, you know, that's all you hear.

But, but, you know, uh, the Financial Times of London, every Saturday they, they have an article called Lunch with the FT, and they take somebody to lunch and they write an article about the person, the restaurant, and the food. And they did that with me in late '22. And I took the reporter to my favorite Italian restaurant near the office in New York where I go 100% of the time if I have a lunch. And I said to her, "Eating in this restaurant is like investing at Oaktree. Always good, sometimes great, never terrible." Now that, to me, that sounds like a modest boast. But if you can do that for 40 or 50 years, I think it'll compound to great results if you never shoot yourself in the foot. And I think it's, I don't know if the SEC is listening, but I think it's descriptive of what we've accomplished.

There's like this class of investor that's like, kind of become like folk hero, you know, like Warren Buffett's an obvious one where the, like a folk hero sort of, they're high integrity, they make greatness seem achievable and relatable, which is like a whole skill in itself. And you've become one of these like folk heroes, you know, and a lot of them they have in common where they like write a lot, they write well, they've got wonderful sayings, they make challenging things easy to understand. Did you purposely try to become like this public figure?

Well, first of all, you can't ask somebody who did whether they did, 'cause they'll say no. Nobody will admit that. Nobody will say my, my public persona is a facade.

Me and Sam were joking before this. We were saying it's cool how, it's interesting how I think when you started as an investor, there was like no celebrity investors. There's no like famous person who was doing what you were doing. And then now you have whether it's Buffett or Munger, there's like the investment guys are now like the philosophers. Yeah, the tech CEO nerds are now like the power players of the world, right? Podcaster comedians are now like the new trusted media. It's like this very strange shift on all fronts where, you know, influence has sort of shifted. But I find that like investment crossover life philosopher to be just like one of the really wholesome ones that I personally really like, you know?

Right. Well, you know, I hesitate to put myself in the same category, but I think Warren has always tried to just educate people and share his knowledge. And people say, well, why do you give away your secrets? Aren't you afraid that other people will emulate you and catch up with you? But I don't think so because, you know, we can tell them all day long what you should do, but it's hard to do. Like we said at the beginning of the podcast, a friend of mine, Richard Oldfield in London, wrote a book once entitled "Simple But Not Easy." I think the things we have to do are simple. They're just not easy to do. I think Buffett makes investing seem simple because he boils it down to the essential ingredients. By the way, you said there were no favorite investors. But I think Buffett started around '53, if I'm not mistaken. He just wasn't famous.

Yeah.

But, and there were a few people who were famous in the investment business, but I don't think anybody was famous in the wider world.

Well, what's interesting for like the normal guys like me and Sean is like we learn from you about how to live life. Yeah. And you just, and that's kind of cool. And it just like investing is just your way of like testing if you are, way of living is true, right?

Well, investing is a lot like life. But, but, and, and by the way, uh, I'm working on a book along those lines, Sam.

What's it called?

Uh, I don't know yet, uh, but, but, uh, uh, if you wait a few years, I think it'll be out.

Well, we appreciate you coming. Uh, I do want to leave you with one— it's a question for, for you. So we've asked you a bunch of questions, but I actually think it'd be interesting What question do you think people who listen to this should ask themselves? What's a, what's a useful question that you think people could ask themselves as a, as a final, final note here?

Well, I would think in terms of the mistakes that investors made, and I would ask yourself whether you make them. So what are the big mistakes investors make? I can think of 3. 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 that are in motion 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? So I think you just have to have a checklist. You know, in my first book, "The Most Important Thing," I had a thing in there called "The Poor Man's Guide to Market Assessment." And it says on the left, a bunch of things and on the right there's a bunch of things. And it was half tongue in cheek or maybe more than half. But I mean, it says, you know, is the market rising or falling? Are the TV shows about investing popular or unpopular? If an investor goes to a cocktail party, is he mobbed or shunned? Do deals get done easily or hard? Are deals oversubscribed or left begging? You know, that kind of thing. And you can tell, you can figure out from that checklist whether the market is overheated and too popular or frigid and too shunned. And this can tell you a lot of what to do if you're methodical and clinical.

Well, Sean and I have read your stuff forever. We've listened to so many of your podcasts. It's been an honor. We really appreciate you doing this. I think the best part of our job is we have an excuse to hang out with amazing people who are way out of our leagues. And this is, this is one of those occasions. So thank you so much.

Well, thank you, Sam. Thank you, Sean. I've enjoyed your questions and let's do it again sometime.

All right. You're the best. We appreciate you.

Bye-bye.