Howard Marks: 79 Years of Investing Wisdom in 55 Minutes

**SPEAKER_1** (0:00)
All right, here's what I said. I said, describe Howard Marks in 280 characters. Here's what he 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 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 the guy you see across from you there, Sam, is Sam's an entrepreneur. Sam builds 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 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, if Sam is vanilla, I don't even know what I am. I'm some flavor off in the side.

**SPEAKER_2** (1:12)
How about Tutti Frutti?

**SPEAKER_1** (1:15)
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 DSP 500 is 10%. If I just hold this for 50 years, I'm going to double this many times. I'm good.

**SPEAKER_3** (1:31)
Very boring, very boring.

**SPEAKER_1** (1:32)
Yeah, he repeats that on loop, like he's one of my kid's toys. You push the button, it just keeps saying the same line. But I do get a little wary when anything seems too safe or too certain or I guess too taken for granted that this 10% number over the long term will be what it'll be.
I guess, what would your message be to Sam? Is Sam just, is he right, is he wrong? Would you give him a caution of 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?

**SPEAKER_2** (1:56)
Well, on the one hand, Sam, you're right. Because 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.

**SPEAKER_3** (2:32)
But there's going to be a but on your statement, it sounds like.

**SPEAKER_2** (2:37)
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. So I don't, I mean, look, in the long run, you're right about the S&P. And over the coming years, American companies on balance are going to produce prosperity.

**SPEAKER_3** (3:43)
What's that defined as, long term?

**SPEAKER_2** (3:47)
Well, I would say 20 or more 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 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 can't ignore reality. Now what's reality in this case for you? Reality is recognizing where things stand. And JP. Morgan 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 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 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 minus 2