Experienced Voices

The Legendary Teacher 02: Returns & Risk

“Return alone – and specially return over short periods of time – says very little about the quality of the investment decision.” Howard Marks

Return, Return & Return! the obsession of investors with return is not unknown. When an investor is exposed to the simplified Security Market Line like below, People more often then not come with two interpretations: 1. Riskier assets give higher returns or 2. For higher returns, people need to take higher risks. Unfortunately none of them are the absolute truth. One person, who has been educating the aspiring investors about the right ways to think about the returns & risk is Howard Marks, Another Legendary Teacher.

Howard Stanley Marks is an investor, thinker, and writer. He is the co-founder and co-chairman of Oaktree Capital Management, which he founded in 1995 along with three of his colleagues. Recognized as the largest distressed securities investor and one of the largest credit investors worldwide, Oaktree specializes in alternative investment strategies. Over the years Mr Marks has largely been responsible for overlooking the firm’s key investment principles, communicating closely with clientele regarding products and strategies, and contributing his experiences and knowledge relating to investments.

Mr Marks has built up his career on the mantra- “You can’t predict. You can Prepare.” As of 2020, the 74-year-old investor known for his insightful assessment of market opportunities has a net worth of $2.2 Billion and in 2019, he was ranked 370th on the Forbes 400 rankings of the wealthiest Americans. He has been a pioneer in the field of investments, Oaktree Capital in its three decades+ history has beaten their respective indexes by a huge margin. The overall TWRR for their closed ended funds have been in high teens. [Check the Link]

Howard Marks was born and raised in Queens, New York. He holds a B.S.Ec. degree cum laude from the Wharton School of the University of Pennsylvania with a major in finance and an M.B.A. in accounting and marketing from the Booth School of Business of the university of Chicago, where he received the George Hay Brown Prize. He is also a CFA charter holder. His first job after university was in investment research for Citibank. He then went onto TCW, the US asset manager, before Oaktree. He is also a published author of books: “The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor” & “Mastering the Market Cycle”.

Howard Marks propagates that Investment success doesn’t come from “buying good things,” but rather from “buying things well”. One of his success traits would be making money off finding situations where he can buy low, especially distressed assets, then sell high. Timing your buying is more important than the quality of what you buy, he says. He has been contributing towards the development of next generation of thoughtful value investors by writing his investor memos. His memos are worldly acclaimed and are widely anticipated for their detailed investment strategies and insights into the current economic conditions. Currently, Mr Marks is assessing the unprecedented times through a pandemic as an investor, though he remains hopeful. In his recent memo, he says “I’m writing to take a closer look at the market’s rise and where it leaves us. The goal, as usual, isn’t to predict the future but rather to put the rally into perspective.” One can reach his memo’s published over last 30 years easily on the website of Oaktree capital. (Link to Memos)

Bottom Line: there’s no such thing as a good or bad idea regardless of price!” Howard encourages everyone to go ahead and take their set of risks in life as risks mean more things can happen than will happen. Though those risks should be a conscious decision and approach should be to get the odds in your favor.

Happy Investing & Keep Learning!

On the Teacher’s day Sep 5′ 2020, I decided to share the list of such legendary teachers to help you on your investment journey. Look out for this section for more legendary teachers on Investing & learn a thing or two from them. The article was prepared with the help from Nawaal Kareem.

Experienced Voices

The Legendary Teacher 01: Invest & Compound

“The greatest investment a young person can make is in their education, in their own mind. Because money comes & goes. But what you learn once stays with you forever”W. Buffett

Warren Buffett does not need any introduction to any person in investing community. His record of investment performance is quite public in form his letters to the shareholders. In the 55 years of historical record, Berkshire Hathaway grew at a compound rate of 20.3% vs 10.0% growth of S&P 500. Before you think that anyone can beat the index easily, let me remind you that may be they can beat index but not so consistently. To put in context, $1000 invested in Berkshire in 1965 would have turned into $27.4mm vs $190k in S&P 500 Index. Also, he has advised that anyone starting his investments is better of buying a low cost Index fund or a ETF. He proved it using his famous bet against hedge funds. In 2007, Warren bet a million dollars that an index fund would outperform a collection of hedge funds over the course of 10 years, which he won hands down.

Warren was born on 30th August 1930 in Omaha, Nebraska. He had developed an interest in business and investing in his youth, he bought his first stock at the age of 11. The book that inspired him to become a businessman and an investor was “One Thousand Ways to make $1000.” The first of his business ventures included selling chewing gums, Coca Cola bottles, and weekly magazines from door to door. He talks about his early life and tells those who see him as a role model that, “Without passion, you don’t have energy, without energy, you have nothing.”

He attended the Wharton School of the University of Pennsylvania under his father’s pressure. He then took a transfer to the University of Nebraska from where he graduated at the age of 19 with a Bachelor of Science in Business Administration. Though the major turning point in his education was studying under Ben Graham @Columbia Business school. He worked as a security analyst at the Graham-Newman Corporation. Then he became a general partner of the Buffet Partnership Ltd. and stayed there from 1956 to 1969. He has been serving as the chairman of Berkshire Hathaway since 1970.

Warren Buffet became famous for his strong and heavy adherence to value investing. He is a strong believer of investing in business that one understands. He had his periods of criticism, when he stayed out of Tech stocks in the run-up during Y2K but his portfolio outperformed the market during the dot com bubble burst. For every 10yr investment period since 1965 to 2019, he outperformed the returns of S&P500 except for 4 occasions all in last decade. This could be mainly attributed to increased prominence of tech stocks in the market and his apprehension towards the current monetary policy of Fed.

Even though Ben Graham is the Dean of wall street & value investing philosophy, his star student Warren Buffet, who brought Ben’s teaching to masses through his success. I am yet to find a serious value investor, who has not read Warren’s letter. In 2008, Warren became the richest person in the world as per Forbes. I was in middle of my own Post graduation, when I first got to know about him. Currently he is the 4th wealthiest person as per the Forbes Billionaires 2020 and has a total real-time net worth of $82.4bn as on Sep 5, 2020. So far, he has given away ~$41bn in charity. He has pledged to donate 99% of his wealth. In 2011, the highest civilian award of the United States was awarded to him, The Presidential Medal of Freedom.

He has been quite open about his investing philosophy and approach in all these years. He is patient, when it comes to his investments, to wait for the right opportunity to strike. His first television interview is still something worth listening to understand the pillars of his success. It was taken in 1985 and after listening to him, you will realize how timeless these principals are. If you are in your quest to be a successful investor, you can always start from his letter’s. for last 15years letter are available on the website of Berkshire Hathaway just keep changing the years. For more reading you can refer to few books; The Essays of Warren Buffet, Back to School or Warren Buffet on Business.

let me leave you with two of his quotes to provoke you to start saving & start your investing journey. “If you buy things you do not need, soon you will sell have to sell things you need.” & “If you do not find a way to make money when you sleep, you will work until you die”. Lot of my learning in the investing journey could be attributed to him and other prominent investors like him.

This Teacher’s day, I decided to share the list of such legendary teachers to help you on your investment journey. Look out for this section for more legendary teachers on Investing & learn a thing or two from them. The article was prepared with the help from Naren Anchalia.