Invest Like The Best
Episode 231 Embracing the Psychology of Investing
Invest Like The Best

Episode 231: Embracing the Psychology of Investing

Invest Like The Best

Episode 231

Embracing the Psychology of Investing

Howard Marks is the co-founder of Oaktree Capital Management. We cover how the last eighteen months have compared to market history, the importance of understanding psychology, and what he’s learned about writing well and the utility of doing so.

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[00:03:40] - [First question] - Ideas of his that he feels will stand the test of time

[00:04:39] - Defining the difference between risk and uncertainty and a frame of mind to have around uncertainty as an investor

[00:05:31] - Equity and debt investing as the businesses of what could go right or wrong

[00:07:01] - How bull markets can lead to analytical blindspots

[00:09:10] - Ways in which the last 18 months have stacked up against his market experience

[00:11:57] - Ways we can change our model of the world going forward to avoid a crisis

[00:15:04] - Why psychology is important to consider over data during market extremes

[00:17:46] - Reflections and lessons from discussing the concept of value with his son

[00:27:33] - Spirited disagreements he and his son continue to have about markets

[00:31:46] - What he’s learned about writing well and the utility of doing so

[00:40:39] - Lessons that are better experienced in investing than reading about them

[00:43:35] - Daring to be great and the willingness to be wrong, alone or different

[00:50:24] - Embracing mystery and the joys it can bring

[00:53:28] - The kindest thing anyone has ever done for him

Embracing the Psychology of Investing

Introduction

Patrick
My guest today is Howard Marks, co-founder of Oaktree Capital, a leading investment manager, and one of the world's largest distressed debt investors. In our conversation, we discuss takeaways from the market selloff and rapid recovery in 2020, the importance of assessing both quantitative and qualitative factors in markets, and the benefits Howard has realized from a career of writing. I hope you enjoy this great conversation with Howard Marks.

Risk & Uncertainty

Patrick
So Howard, I've toyed with where we might begin what will surely be a wide-ranging conversation. I'm going to start really broad, which is to ask you if you think forward 50 or 100 years, what big ideas of yours that you've returned to over your career are you most confident will stand the test of time?

Howard
I actually think that in terms of specific contributions the greatest one I've made is the modification of the capital market line through the imposition of some probability distributions to indicate that not only when risk increases does expected return increase but so does uncertainty. And you know, I indicate that by superimposing these bell-shaped curves turned on their sides. And I think that it's an extremely good way to understand the meaning of risk, frankly. But I'm not aware that anybody's picked it up and I'm not aware that anybody ever will. I think that's very important.

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