Investing advice from billionaire investor Howard Marks

On December 21, 2020, Logan Lin, current Business and Sports Editor for The Dublin Shield, had the pleasure to interview Mr. Howard Marks, the Co-Founder and Co-Chairman of Oaktree Capital. Oaktree capital is the largest investor in distressed debt securities. Mr. Marks is famous for his memos, which he posts on Oaktree Capital’s website regarding his investing views, and outlooks on the US economy. 

Warren Buffet said this about Howard’s memos, “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something, and that goes double for his book.” When it comes to investing, there is no one better than Howard. Today we will talk about some of the key takeaways from Logan Lin’s podcast conversation with Howard Marks on investing in today’s capital markets. For reference, a capital market is a financial market in which long-term debt or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. So the stock market is a capital market, as it issues stocks to the general public.

Howard Marks is what we call a value investor. Value investing was very popular back in the days, but it has slowly been fading away. Value investing is this idea where you buy a stock at a price lower than its intrinsic value. Intrinsic value, means the real value of company stock. Market Value is what the stock market says it is worth, so a $5 stock on the stock market, but based on the company’s number such as their revenue, and earnings you can determine the stock is actually worth 7 dollars. So you buy the stock at 5 dollars, waiting for the stock price to hit 7 dollars, making 2 dollars. So your prediction was correct.

Today we will talk about the key takeaways from the Howard Marks episode. During Covid-19, the economy suffered, and the stock market hit record lows. However, in recent months the stock market has risen to pre-covid levels, while the economy is still slowly recovering. Howard Marks believes this disconnect is caused by human psychology. He states, “Investors have already seen the worst of this recession, so they are more willing to take on risk, knowing in the future they will reap greater returns.” He calls, this looking over the valley. Meaning looking past the negatives, and looking at the positives. Why the economy is suffering still, well that is because there has not been herd immunity of the vaccine. In order for the economy to recover, the US population needs 80% herd immunity.

According to Mr. Marks, it is important to take notice that the Covid-19 recession is not an economic cycle. An economic cycle is in simple definition the fluctuation of the economy between periods of expansion (growth) and contraction (recession). Sometimes the economy is doing well, and then it doesn’t, but then it recovers and hits a peak, and then the economy goes through a recession. That’s an economic cycle. The reason Covid-19 isn’t an economic cycle is because investors and corporations did not make financially wrong decisions; instead, a disease came out of nowhere, and most of the economy was forced to shut down. That is due to people being afraid of getting the disease. 

Now we will dive into investing, and Howard’s advice for teens. As Mr. Marks states, “Teens like yourself should invest now so you all can learn from your mistakes, and better be able to not make the same ones when another recession hits.” He says, “learning from your mistakes, is the best way to succeed in the future.” Furthermore, Mr. Marks says there are only two types of ways to invest as of right now, during Covid-19. Aggressively meaning, taking on more risk, making sure you do not miss out on a good opportunity. An example would be a company that is valued cheap at $10, but then 5 months later, the stock goes up to $50 dollars, an opportunity missed. Defensively, is when you are trying to preserve your money, so you put money into safer investments. Most investors start off as a defensive-investor, and then could potentially move to aggressive investing based on the rate of success. His last advice was “ to invest in companies that are at a cyclical low”, so companies that were hurt by the pandemic, but will slowly recover and hit greater heights. This includes airplane, hotel, and retail store stocks. That can make you a lot of money when you invest at the right time.

In conclusion, invest now before the pandemic ends. To learn more about investing, finance, and business check out the FinanZe podcast on Spotify!