Howard Marks on the Value-Growth Divide, Investing in Uncertainty, and Living Well

Key ideas

The core early lesson: ‘It’s not what you buy, it’s what you pay.’ Learned by losing money in the Nifty 50 (best companies at absurd multiples) then making money in junk bonds (worst companies at adequate compensation). But this dictum, taken too far, becomes cigar-butt investing — rotating through discounts without ever holding a compounder.
Capital-V Value investing became so “theologised” — a rigid doctrine separating “value” from “growth” — that it blinded practitioners to compounders like Amazon. Marks’s son Andrew’s challenge: you should be willing to hold a great company for decades, not just until the discount closes; the discount keeps shrinking as markets get smarter.
In an efficient market where everyone has the same screens and data, widely available quantitative information on the present cannot generate alpha. Superior performance comes from non-quantitative insight or a better understanding of the future — what Marks calls “feel.”
Emotion is the great enemy of investing: most investors buy as prices rise and sell as they fall, the inverse of rational behaviour. The unemotional investor who can recognise when the market is pricing in excess optimism or excess pessimism has an enduring structural edge.
China as “economic adolescent” — tempestuous with ups and downs, but its best decades ahead. ‘Uninvestable’ as a descriptor signals potential cheapness more than genuine unattractiveness; Marks has been long-term positive on Chinese equities, NPLs, and credit.

Summary

Biographical arc: from Nifty 50 to junk bonds

Howard Marks joined Citibank’s investment research department in summer 1968, during the Nifty 50 era — a period when ~50 large-cap US growth stocks traded at PE ratios of 70–90 on the premise that “no price is too high” for the best companies. Those four words — no price too high — are, in Marks’s retrospective view, the hallmark of every bubble. By 1977, the Nifty 50 had collapsed 90%; many once-celebrated companies (Polaroid, Kodak, Simplicity Pattern) had ceased to matter.

A new CIO invited Marks to leave equity research — 75 subordinates, $5 million budget, five committee seats — for a two-person convertible-bond operation. The counterintuitive move was the making of his career: competing in a small, overlooked backwater where proprietary knowledge still mattered, rather than in the most efficient market on Earth. Then came the call from Michael Milken: “there’s some guy dealing in something called high-yield bonds.” Marks converted from losing money in the best companies to making money steadily in the bonds of some of the worst. The two experiences produced his foundational axiom: it is not what you buy, it is what you pay.

The Something of Value evolution

In March 2020, Marks’s son Andrew and his family moved in during the pandemic lockdown. Three months of daily conversation produced the January 2021 memo Something of Value — Marks calls it one of his most resonant pieces, in part because it showed a billionaire investor humble enough to say his son had taught him something.

Andrew’s core challenge: Buffett’s real method since the 1960s is not the cigar-butt rotation but buying great companies at fair prices and holding for decades. The “buy 50 cents on the dollar and rotate” model ignores the long-run potential of great businesses. The capital-V Value school had become so precisely defined — measured by P/E, P/book, P/revenue screens — that it had nothing to say about a company’s quality, only its current price relative to current metrics. A great company held for 15–20 years of 15–20% annual growth is almost impossible to cap with an intrinsic-value number, but you might want to hold it anyway.

Marks does not abandon price discipline; he softens the edges of the value/growth divide. The corrective is “open-mindedness”: when a school of investing becomes so dogmatic that it produces knee-jerk dismissals of what merely looks expensive today, it has become a limitation rather than a protection.

Market efficiency and the edge of “feel”

The efficient market, Marks argues, has become dramatically more efficient since the 1960s. When Buffett was paging through Moody’s manual in Omaha, very few people understood the logic of deep-discount investing; the arbitrage was enormous. Today everyone has a data feed, a screen, and the same training. Widely available quantitative information on the present — P/E ratios, cash flow, asset values — is unlikely to be the source of superior profits; the SEC’s explicit mission is to equalise public information.

What remains is what Andrew Marks formulated as follows: either a better understanding of non-quantitative information available today, or a better understanding of what the future holds. Both reduce to what Marks calls “feel” — conclusions that are not analytically derivable but are logically defensible and temperamentally executable. Buffett’s “who doesn’t know that?” test: if a piece of information seems dispositive, ask whether everyone already has it. If so, it cannot be the source of alpha.

Emotion as the structural enemy

Marks names emotion the greatest enemy of superior investing. The standard human response to rising prices — increasing optimism, increasing buying — and to falling prices — increasing pessimism, increasing selling — is the precise inverse of rational behaviour. The great investors Marks knows are structurally unemotional; they scale out as prices become unreasonable and step in when pessimism makes things cheap.

Two worked examples: (1) October 2008, after Lehman — when a distressed-loan investor at one of his meetings could not name a scenario negative enough to satisfy her. Marks ran back to write The Limits of Negativism and put his own money into the fund. (2) March 2022 context, where Marks distinguishes between today’s prices (rational given low interest rates, not “irrational high” bubble prices) and the prospective environment (rates rising, assets worth somewhat less). His advice: around your normal risk posture, tilt slightly defensive — but do not hide under the mattress.

Inflation, Bitcoin, and China (March 2022)

Inflation: Marks does not expect a return to 1970s-level inflation. Three differences: today’s supply chain shocks are temporary (a Toyota needs 30,000 parts; one missing part stops production, but it resolves); 2020–21 demand was artificially inflated by COVID relief and will normalise; inflation mechanics are well understood (raise rates — perhaps inducing recession — to kill it), unlike the 1970s when win buttons and price controls failed. Private sector de-unionisation also removed cost-of-living wage-escalation spirals.

Bitcoin: Marks acknowledges his 2017 knee-jerk dismissal was an error — a habit from successfully blowing the whistle on portfolio insurance (1987), e-commerce startups with no business plans (1999), and other “new new things.” Andrew’s correction: you have to know more than most people to make a superior investment decision. Marks did not know anything about crypto that anyone else did not know. The result was a mea culpa memo on intellectual humility: the other person could be right.

China: Marks frames China as an “economic adolescent” — tempestuous and unpredictable, but with its best decades ahead. He draws the contrasts: Europe and Japan are “economic senior citizens” with little vitality; the US is a “mature economic adult” whose best decades are probably behind it; China is still growing into its potential. When the market labels China “uninvestable,” Marks’s ears perk up: uninvestable by definition means the price cannot be borne aloft by adoration, which means it may be cheap. He is long-term positive on Chinese equities and has held NPL and credit positions for years.

Ethics and living on the high road

Howard Marks and Bruce Karsh co-founded Oaktree in 1995. The founding business principles — integrity, candour, fair treatment — recently gained a fourth: responsibility (to the planet and to society broadly). Marks is explicit that this is about how he wants to live, not a formula for generating alpha. On the Milton Friedman “corporations should only make money” doctrine: that view reached its apogee under Clinton and G. W. Bush and is no longer widely held. Corporations have responsibilities to stakeholders beyond shareholders.

The closing life-principle: Christopher Morley — “There is only one success: to be able to live your life your way.” Marks uses this with student audiences to push back against optimising for peer-group approval or money beyond the point of diminishing utility. At the eighth of Erikson’s eight developmental stages — the retrospective life review — you cannot go back and rewrite your reputation.

Speakers

Howard Marks — co-founder and co-chairman of Oaktree Capital Management; author of The Most Important Thing and Mastering the Market Cycle; known for investment memos read across the industry
William Green — author of Richer, Wiser, Happier; host of the Richer, Wiser, Happier podcast