Howard Marks: The Art of Intelligent Risk

Lessons from Oaktree’s Co-Founder

When Howard Marks speaks, investors listen. The legendary co-founder of Oaktree Capital Management has long been regarded as one of the most thoughtful and disciplined minds in the investment world, not because he’s always right, but because he understands when he might be wrong.

In a recent episode of In Good Company, Marks sat down with Norway’s Norges Bank Investment Management to discuss his investment philosophy, the importance of cycles, and why mastering risk is the key to long-term success. What follows is an in-depth reflection on the interview and the timeless principles Marks has refined over five decades.

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The Core Philosophy: Six Pillars of Oaktree

Howard Marks’s investment philosophy can be distilled into six core principles:

1. Risk control — “It’s easy to make money in good years,” Marks said, “but the real challenge is making money without losing too much in bad years.”

2. Consistency — Clients value reliability over brilliance. Oaktree aims for “superior but not extreme” returns, avoiding big drawdowns.

3. Market efficiency — Focus only on markets that are less efficient. “We don’t try to be heroes in the S&P 500,” Marks noted.

4. Specialization — Great investors know more than anyone else about a few things, not everything.

5. No reliance on macro forecasts — Predicting the economy or interest rates isn’t a sustainable edge.

6. Avoid market timing — Oaktree never bets on short-term fluctuations.

These rules might seem conservative in a world obsessed with bold predictions and fast trades, but they are precisely why Oaktree has thrived for decades. As Marks put it, “I knew these principles 50 years ago. I just believe in them more firmly today.”

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A Mind Trained in Symmetry and Logic

Marks’s path to finance wasn’t typical. He began his career studying accounting, a discipline he loved for its symmetry. “Accounting appealed to my left brain,” he recalled. “Debits and credits had to balance. It was logical, consistent, and beautiful in its structure.”

That attraction to order later evolved into a fascination with finance. At the Wharton School, Marks discovered that financial markets, while messier than accounting, still operated under patterns, cyclical, psychological, and behavioral, that could be studied and understood. “Finance was more interesting because it dealt with people,” he said. “And people are never symmetrical.”

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Understanding Cycles: The Core of Market Wisdom

If there’s one theme that runs through all of Marks’s writing from his Oaktree memos to his books, it’s cycles. Markets, economies, and even political moods all move in cycles. Nothing continues in a straight line.

“The biggest mistake investors make,” he warned, “is to believe that something will go on forever.” In reality, mean reversion is far more dependable than endless momentum.

When markets are euphoric, Marks grows cautious; when despair dominates, he leans in. His legendary memo The Most Important Thing captures this thinking perfectly: you can’t predict cycles, but you can recognize where you are within one.

“When everyone feels certain,” Marks said, “that’s when you should be most nervous. Uncertainty is healthy, it means the market isn’t in denial.”

This philosophy led him to make only five major contrarian calls in fifty years all during moments of extreme sentiment, not during ordinary fluctuations. “We can only predict when things are very high or very low,” he noted. “Otherwise, we stay humble.”