I recently watched a video of Howard Marks doing a presentation at Google on his investing philosophy which I wanted to share. Howard Marks is a founder of Oaktree Capital who specialises in fixed income (bond) investing. He is a value investor and has written a book “The Most Important Thing” which has a quote from Warren Buffet. I recommend the book if you haven’t already read it.
In the video Howard makes an interesting analogy between tennis and investing. He says there are basically two types of tennis players, the skilled professional who are so skilled they win by making winning shots and the amateur player who win with the strategy of just hitting the ball back into the opponent’s court and making less unforced errors than the opponent (losers game).
He believes that investing is very much a losers game where winning comes from the avoidance of investing in the losers and making consistent above average annual returns over the long term. Howard gives an example of one of his pension fund who for 14 years had returns between the 27th to 47th percentile of all money managers and at the end of the 14 years ended up being at the 4th percentile. The reason for the outstanding long term result is that when money managers blow up, they blow up big time and never quite recover.
It’s quite a long video but has a few good lessons. Happy New Year.