Recently, I was listening to Oaktree Capital’s Co-Founder Howard Marks, it was clear I needed to pull up my notes and write down these 6 Investing Principles that give Oaktree’s Team an Investing Edge in the Market.

Like most value investors we all know the steps of using Benjamin Graham’s strategy from the Book Intelligent Investor when valuing a Stock or Investment that is trading at a steep discount. Well like Graham, Mr. Howard Marks puts his twist and strategy to work while adhering to a few universal basics that Graham has taught us all as Value Investors. It is said that when Mr. Marks writes an Annual Letter, or his famous Yearly Memo and releases it, Warren Buffett stops what he is doing and reads it. 

During an interview recently, Mr. Marks shared “I wrote my yearly memo for nearly twelve years and knew that not many people would read it, but one day after the fifteenth year or so, it basically became an overnight success”. That gives me hope that my little Investment Blog might one day be as interesting as Mr. Howard Mark’s Annual Memos.  

These Principles Guide Our Investment Process

• Risk Control: Managing risk should be an Investment Management’s Greatest Investment Objective. Without managing risk through extensive diligence and heavy research and planning, our investment thesis may be unproven. 

• Consistency: When thinking about making Bad Investments to knocking one out of the park like a baseball player, an Investor must be consistent with the performance of their investments. On a scale of 1-10, it’s great to be hitting home runs with Investments that always win, but when things go bad, and they often do with unforeseen risks with Investments, it’s better to be averaging a success rate range in the upper middle of 3-6 max, and not allowing the bad beats of Bad Investments to bring down your Median Average of Consistency. This is very important.  

• Be selective and look inside the less efficient markets for opportunities: Most markets are highly efficient, but there are places within markets where efficiency is lacking. Those are the spaces where you will be able to apply the Value Investor Graham Basics and WIN! Finding Investments that are “cheap” and look over-leveraged, may be exactly what you have been looking for to apply the skills we have learned over the years. Marks says you will find deals in Emerging Markets where information is not as transparent and available.   

• Focus on a high degree of Specialization: Mr. Marks says, “Our people at Oaktree do a few things well. We are not Generalists”. 

• Investment decisions are not driven by Macro Forecasts: Don’t allow the wind blowing over the markets to catch your sails and take you off course to faraway lands. We are Fundamental Analysts; we use the Bottom-Up Strategy. 

• We are not Market Timers: Mr. Marks emphasizes, “If it’s cheap today, we buy it! We don’t need to wait six months and see if it will be cheaper. That makes no sense”. I tend to agree with Mr. Marks. When you’re looking for investments, your thesis is proven correct or it’s not. Apply the Rules and Skills we have been taught. 

Did you catch my last Article on Commercial Real Estate HERE.

Additional notes from Mr. Marks that are relevant to Investment Management and Investing for Success:

• “You can’t predict, but you can prepare”. 
• “Having a large number of Good Investments is our Mantra”. 
• “Find good companies with correctable Bad Balance Sheets”. 
• “Distressed Debt holds opportunities”. 
• “Find good companies that have fallen on hard times”. 
• “Look for companies with good management, with Too Much Debt”. 
• “How do we fix this?” 
• “Our Credit committee during the bankruptcy process can fix and raise the value. We receive profits from our efforts”. 
• “We reject onerous Debts”. 
• “We are not turnaround artists”. 
• “All we focus on is Senior Secured Debt Obligations”.

In the end, our team avoids Losers and Bad Companies! 

In Conclusion

In conclusion to this week’s post on Investing Philosophy, if you adhere to and adopt the unique and proven principles in this post for your own purposes, you will likely be happy with the results. I do hope you learned something from Mr. Howard Mark’s Investing Principles. 

Feel free to share today’s article. With that, I thank you for stopping by and reading. And I hope you will come back and visit my Investment Blog soon.

Godspeed.

JS