I'm 80 and I wasted 25 years of my life. Don't make my mistake. - Howard Marks

1. 0:00 – 8:26

   AI Hurtles Ahead

   1. HMHoward Marks0:00

      If you wait until you have nothing to be afraid about, probably the opportunity has passed.

   2. SPShaan Puri0:07

      [upbeat music] Howard, it's good to see you again. We had a lot of fun last time, and we were like, "Look, uh, I don't know if other people are gonna like that, but we loved that." And then over a million people listened to the last one. And so this morning, I was reading, you wrote this blog post about how you changed your mind about, uh, AI. [chuckles] You, you had written, uh, I don't know, a couple months back about the possibility of an AI bubble, and then as a good thinker tends to do, you got new facts, you sort of reassessed the situation, you wrote a new post about AI. Do you wanna summarize the story of how you, you changed your mind on AI?

   3. HMHoward Marks0:47

      Uh, well, the story's very simple. I have this son named Andrew. He's a VC. He's dealing with A-AI every day. His companies use AI, some of them create AI, et cetera. Uh, I had written the first memo around December ninth, as I recall, and then in early February, he said, "Dad, so much has happened. You have to update the memo." And so I, I rewrote the memo entirely.

   4. SPSam Parr1:11

      You-- I was read-- I was rereading one of your old books, and, uh, you repat-- repeat this phrase a bunch, which is, like, "It's important to be rational, and you can't get seduced into thinking something is a good idea because that's when smart people can make bad decisions, when you get emotional about something." But then when I was reading part two, I was reading it, and I was like, "Howard, you sound a little seduced. You sound a little seduced. You sound like you're into this." Are you at all approaching this in an emotional way, you think?

   5. HMHoward Marks1:39

      It, it, it depends on your definition of emotional. I upgraded my opinion of AI and its potential because its, um, ability to talk about its own strengths and weaknesses, to use humor, to put information in the context of me, to use what it knows about me, and you know, this is really, uh, uh, exceptional stuff. There's a quality to AI, uh, or more than one quality, which, uh, are unprecedented, in my opinion. The first, the obvious one, is autonomy. All the other technological innovations, from the railroad to computers to the internet, et cetera, were all tools or, uh, things to speed up, uh, and increase productivity. Th-there's never been anything with the quality of autonomy. The idea that it-- you can give it a job and not tell it how to do it, and it'll figure it out, is really unique. And the, it-- what comes with that, of course, is this nagging concern that it may take over. So that's, that's really important. The other thing, and this is not, uh, kind of, uh, quantifiable, is there's never been anything, in my opinion, so unpredictable. I don't think anybody knows the shape of the future. So I, I have never had that sense before. I never sa-- I never thought that, that the internet, for example, was, uh, beyond comprehension or beyond prediction.

   6. SPShaan Puri3:33

      Do you think that AI will be able to do what you do? And I know you talk about this in the, the memo, and I gotta be honest, when I read it, I, uh, you know, I almost felt like, you know, you read stories about Warren Buffett reading the Moody's manual page by page, eight hundred companies, and trying to digest that information. Well, AI can do that in, in a heartbeat, right? Like, you know, a lot of the things that, that go into making investment decisions, it can do very well, very fast. And then also, it's advancing so fast. So, you know, whatever we thought it could do three years ago is laughable compared to what it can do today, and as you pointed out, even three months ago. So I guess in your heart of hearts, do you think, you know, in the f-- in the future, the next Howard Marks is not a, not a human, but, but maybe a human with AI or just AI?

   7. HMHoward Marks4:23

      Everything I say on this subject I preface with, "I'm no expert," but I think I told the story in the memo about the fact that indexation, uh, put a lot of people out of the equity business because, uh, you know, it, it disclosed that they couldn't do, uh, what they claimed to do. And most, uh, active equity investors underperformed the averages. And, uh, AI will unfrock or defrock another group of people whose talents are not as great as, as they purport. I used to say about computers, you know, when I went to school and learned about computers, uh, all they could do was read, remember, add, subtract, and compare. They could do it with a lot of data. They could do it really fast. They could do it without making, uh, arithmetic mistakes. They could do it r-- without r-- making emotional mistakes. So while the list was limited, it was still better than most people. Now, what's the list for AI? Is the list for AI u-unlimited or limited? That's, that's a big part of the question right there.

   8. SPShaan Puri5:36

      Mm-hmm.

   9. HMHoward Marks5:36

      I don't-- And I don't know the answer. I, uh, maybe you do. Um, and then is there anything left that AI can't do? And, uh, one example is, I think we've helped our clients, uh, over the years by not investing with bad people. And sometimes you talk to people, and for undefinable reasons, you just say, "You know what? It doesn't feel right. As, as somebody said to me, "The hair on your ba- on your neck goes up." And if that's true, and if AI doesn't have hair on its neck, then maybe there's a role left for experienced investors with judgment. I b- I believe so. First of all, there will always be things for which there is no history to train on. And to the extent that, that, uh, uh, a certain big percentage of what AI does is, uh, knowing history and recognizing and extrapolating patterns, there will always be stuff for which there is no history. There are just some people who have a better understanding of the probability distribution that defines future events.

   10. SPSam Parr6:55

       I was reading this book on Steve Cohen, and there was this part where they were describing how he was kind of like the man at a very young age. They were like, "He can just feel the ticker. He just, like, is in tune and in flow with it." And I was like, "Ugh, that's beautiful, but, like, that's-- I can't replicate that." And I was always curious about that because I think in one of your books, I think you had said something like, "I can't make s- I can make someone better, but I don't think I can make them great." Can you talk to that, about, like, what it is that makes someone who is a good investor good, but also how the average person could get better? Like, i-i-- or do you believe that's not, that's not even possible, that you just, you have it or you don't?

   11. HMHoward Marks7:34

       Well, in, in my first book, The Most Important Thing, Columbia, which published the book, uh, we were talking about the book. They said, "Well, write us a sample chapter." So I sat down, and I wrote a chapter that I had never even thought about, and it turned out to be the first chapter in the book, and it says-

   12. SPSam Parr7:53

       [upbeat music] On this show, we have spent hours talking to some of the best investors alive. Well, lucky for you, the team at HubSpot, they have pulled out the principles that matter most and turned it into a very simple, easy-to-read wealth guide. It's thirty-five principles from the top investors. We're talking guys who have been on the pod, like Howard Marks, Mohnish Pabrai, Morgan Housel, Cathie Wood, and a ton others. So these are all their frameworks, their mental models, their rules. Basically, how to play the long game and how to avoid ruin. You can get it in the link below.

   13. HMHoward Marks8:25

       [upbeat music]

2. 8:26 – 10:21

   second level thinking

   1. HMHoward Marks8:26

      The most important thing is second level thinking. Second level thinking basically says if you don't see anything different from everybody else, you p- can't possibly be superior. So to be superior, you have to, at some point, see something different from other people. What's called a variant perception, that you have to either think that the, the, the, that the consensus of investors overstates the quality of the company, the growth rate of the company, the earning power of the company or, or maybe the multiple it deserves. And you have to have this variant perception, and you have to bet on your perception, and you have to be right. So that's fir-- that's second level thinking. I say in the book, and when people ask me, I say, "Can you teach me to be a second-level thinker?" And the answer is no. I, I said, I say in the book, "I don't know." Uh, but I think it's, I think it's more no than yes because I-- what I say is, "I can teach you the importance of being a second-level thinker," like I just have in this chapter, but I can't tell you how to have perceptions that are at odds with the consensus of investors and correct. You know, in basketball, there's a saying, "You can't coach height." And I think there's something called insight, and I think some people have it, and I don't know if AI can have it because when, you know, when you talk about, uh, artificial general intelligence and, and, uh, AGI is when a computer or AI can do everything that a human can do. Can it do that? Don't know. And that-- when I talk about the, uh, the, uh, the mysteries of AI, that's, that's a big one of them. Are there things it can't, won't be able to do even when it reaches full flower?

3. 10:21 – 14:47

   investing through the end of the world

   1. SPSam Parr10:21

      Can you think back to some of the biggest calls that you've had? How strong did that feel? Did you still have doubt, or was it one hundred percent conviction? Uh, I'm curious to hear what it feels like.

   2. HMHoward Marks10:32

      Great. I think in our last episode, we talked about the day Lehman went under. You know, September fifteenth maybe of '08. And we had thought that there was gonna be a mess, and we had raised, uh, in, in the distressed debt world, the biggest fund in history prior to '07 was our '02 fund, which was two and a half billion, and in '07, '8, we raised eleven billion for, uh, a distressed debt fund because we thought that, that there was a, a lot of distress coming. And we had it on the shelf. It wasn't-- It was for deployment w- uh, when, when the stuff hit the fan. And Lehman goes under, which I think qualifies as saying the stuff has hit the fan. But people are talking about the end of the world, and all the financial institutions are gonna melt down, and everything having to do with money is gonna atomize. So we were faced with the question: Do you invest the money? And there's no pattern recognition for the end of the world, and there's no, you know, uh, i-in the, in the, uh, pandemic, uh, a Harvard epidemiologist said, when we make decisions, we have data, analogies to past experience, and supposition. Well, at the time of the Lehman bankruptcy, we had no p- data and no prior experience. We only had supposition. So this is an interesting question. Can AI have engaged in this kind of thinking- And what we said is that if the world, if the financial world melts down and we invest, doesn't matter. But if we don't invest and the financial world doesn't melt down, then we didn't do our job, so we have to do it. And we invested on that basis. And Bruce, who, uh, who runs those funds, invested an average of $450 million a week for 15 weeks, seven billion in a quarter on that. Well, it wasn't only on that. We also, on quantitative measures, assuming the world doesn't melt down, we were getting great bargains. We were buying co-- the debt of companies where we would break even if companies that had been bought out by private equity guys two, three, four years earlier, if they ended up being worth a fifth or a fourth of what they had paid, we would still be okay. So that was pretty easy quantitatively. But we, we were absolutely not confident.

   3. SPShaan Puri13:17

      You weren't confident?

   4. HMHoward Marks13:18

      No.

   5. SPShaan Puri13:19

      I thought you were gonna say the op-

   6. HMHoward Marks13:20

      No

   7. SPShaan Puri13:20

      ... the opposite of that.

   8. HMHoward Marks13:21

      No.

   9. SPShaan Puri13:21

      [laughs]

   10. HMHoward Marks13:22

       No. But I mean, we-- we're the kind of people who always say, "I could be wrong," or, "It could work in a, in a way that's never been seen before." And so, uh, we al- we always-- I, I wrote a memo f- three or four years ago, uh, called Taking the Temperature, about the five major calls, uh, macro calls that I made, uh, in the last, uh, well, in the last 26 years. And they're all with some doubt. When the markets are crashing, why are they crashing? They're crashing because the news is terrible. I read the same newspapers. I watch the same shows on TV. I'm, I'm, I'm attached to the same news feeds. I see the terrible news. It looks terrible to me. I overcome it in some way and conclude, "No, I should invest." But I'm not immune to ev- what everybody else is reading. If you do these things without any, uh, trepidation, you know, th- maybe there's something wrong with you. But, you know, people who look at the world probabilistically and admit to, uh, ignorance and uncertainty can't act without trepidation.

4. 14:47 – 17:54

   raising $11B at a time of crisis

   1. SPShaan Puri14:49

      Hey, can you tell me about raising $11 billion? 'Cause you said that, like, very casually, like, "So we've raised an $11 billion fund," and that's like if I just said, "Hey, I just turned water into wine," I think for, for, for most people. Uh, so I, I'm just actually curious, how does that happen? Is that, is that you go to people and you say, "Hey, we think the world's..." You, you make a really persuasive case. Are you using a pitch deck? Is this just prior relationships? Are you selling upside? Are you selling safety against downside and fear? Like, what, what actually goes in to raising $11 billion like that?

   2. HMHoward Marks15:20

      So there's a list of things. Number one, certainly prior experience, uh, uh, relationships. People have-- You know, we started this business in 1988, and, uh, so we're talking about, uh, 20 years later. And in the 80, in the 20 years, we, uh, managed a lot of money and had very good results for a lot of people, and so you can work on that r-reservoir of goodwill. Uh, number two, uh, that this strategy is particularly well-suited for crisis, and we had managed money through a few crises, uh, '90, '91, and '01, '02, and done e-e-exceptionally well. So we were able to convince people that, number one, so many of your investments are set up for prosperity. This is a good way to hedge it by making an investment that will do particularly well if, if the stuff hits the fan. But we were also able to call attention to flaws i-in the environment. The things that gave rise to the global financial crisis, we could talk about and we could point out, and, you know, the fact that the market, uh, was not acting as a disciplinarian, which is its main job. Main job is to, is to, you know, people come in and say, "I want money for this, this, and this," and the market's job is to say, "No, that doesn't make any sense. That's a stupid idea. We're not gonna invest in that." That's the job, uh, and sometimes the market doesn't do that job. And when the market doesn't do that job, then dumb ideas get financed. And, and when they turn out to be dumb, people lose money. So I think we were able to convince people that some dumb things were happening. And then, of course, uh, there's great respect for, for Bruce Karsh, for the investing he's done o-over the years. I think those are the main reasons why we were able to do it. And by the way, you hit the nail on the head. We did it in advance of the crisis. The best time to invest is in a crisis. You can't raise money during the crisis because the news is so terrible. So, you know, m-my wife and I have a favorite movie we watch called, uh, Spy Game with Robert Redford, and, uh, he says in the-- Re-Redford says, "When did Noah build the ark? Before the flood."

   3. SPShaan Puri17:47

      [laughs]

   4. HMHoward Marks17:48

      You gotta build the ark before the flood. You have to have some sense that the, that there may be a flood.

5. 17:54 – 20:22

   investing with fear

   1. HMHoward Marks17:54

      But one other point. In the, i-in the prior 20 years, there had been these occasions when we thought there was gonna be a great investment opportunity, and it, we were generally right because we took the temperature of the market accurately, and we raised a large fund, and we invested in it, and we made a lot of money. But then Our next fund was smaller because we thought the opportunities weren't as good. Now, m-most people in the investment business, if they have a fund that does great, the next fund is bigger because they can sell on the back of those results. But we make it smaller because we think those results mean that things have appreciated and are not so attractive. And I think that having done that for twenty years, I think we gained a lot of credibility, and people tend-- I think people tend to say when Howard and Bruce say there's a great opportunity, they're not just trying to raise money, they really believe it, and they're, and they tend to be right. And sometimes you have to speak against your own interest and admit your limitations and admit your uncertainties. So in nineteen, uh, ninety-eight, we had the meltdown of Long-Term Capital Management. We had a Russian ruble crisis. We had a, a panic, uh, in Southeast Asia. And, uh, especially with Long-Term going under, one of the skilled portfolio managers, young portfolio managers at Oaktree, came to me. He says, "I think this is it. I think we're melting down. Uh, it's all over." And I said, "Well, t-tell me your concerns." And he laid out his concerns, and I said, "Okay, I, I understand it. Now go back to your desk and do your job."

   2. SPShaan Puri19:42

      [laughing]

   3. HMHoward Marks19:43

      You know? A battle hero is not somebody who's unafraid. It's somebody who's afraid, but does it anyway. If you're running into a, a hail of bullets and you're not afraid, there's something wrong with you. But you do it anyway because it's what you have to do. And I don't want to elevate, I'm not saying w-we're analogous to a, a, a combat hero, but you have to do it despite your trepidation. And if, by the way, if you wait until you have nothing to be afraid about, probably the opportunity has passed.

6. 20:22 – 25:01

   the key to a successful partnership

   1. SPShaan Puri20:22

      That's a great point. You mentioned Bruce, and I wanted to ask you about this because it seems like you guys have had a very long-term partnership now, what, thirty-plus years. I think people don't talk about that enough, the value of compounding in a relationship and how to be a good partner-

   2. HMHoward Marks20:37

      Yeah

   3. SPShaan Puri20:37

      ...for the long term. You know, uh, a bad partnership can ruin you.

   4. HMHoward Marks20:42

      Yeah.

   5. SPShaan Puri20:42

      But we don't really talk about what it takes to make a great partnership at the same time. If you were gonna teach me and Sam, if we said, "Hey, me and Sam wanna do this podcast for thirty years," or, you know, I have a business partner, Ben, I wanna be in business with him for thirty years, what do we gotta get right to do that?

   6. HMHoward Marks20:56

      Well, it's a great question, Shaan. It's very important. Uh, Bruce and I have been partners for thirty-nine years this month, and it's one of the greatest things in our lives. Uh, after, I think we would both say that after family and, and maybe some good friendships, uh, it, it's really the best thing we've had. We've worked together closely for all that period. We've obviously produced a lot of success, had a lot of fun, uh, have, have never had a fight. We have intellectua-intellectual disagreements, but we've never had a fight, probably because, uh, neither of us is really a financial maximizer, and a lot of fights, uh, are probably about money. The bedrock of our relationship is mutual respect, and I think it would be very hard to have a successful long-term relationship with a partner if you didn't have respect for each other. And that ties into something I wrote in '０２, I think. But in '０２, I wrote a memo called The Most Important Thing, and there was a section in there which talked about having a successful partnership. And I said, "The key to a successful partnership is shared values and complementary skills." If you don't share values, I don't think you can have a successful partnership. Let's say one person is super aggressive and the other is a chicken. One person is super ethical and the other one likes to cut corners. I don't think you can have a successful relationship, partnership, and I've seen many, many, you know. I mean, a, a friend of mine, uh, when I was a kid, AT&T went public. Can you imagine the days before AT&T was, was pub-- But anyway, they went public. The, it was the biggest deal in history, and, and they had a full-page tombstone ad in the newspaper, and it listed all the investment firms that were the investment bankers, and there were probably forty. And a friend of mine, Ed Ramsdell, used to carry that ad around, and every time one went out of business, he would mark it off. And eventually, I think they almost all disappeared except for Goldman Sachs. But why do they dis-- why do they go under? You have some cowboys and some chickens. And, you know, in, in, in the, when the, in bad times, the chickens say, "The cowboys are getting us killed." And in good times, the cowboys say, "The chickens are holding us back." And they disparage each other. So you have to share values, in my opinion. The other thing is you have to have complementary skills. So the beauty of a partnership is when your partner can do things you can't. That means that you are both additive to each other, synergistic. If I can do everything you can do, or if I think that, what do I need you for? It's not gonna last very long because eventually I'm gonna say, "You're overpaid. I don't need you." And the beauty of my relationship with Bruce is that we both recognize that there are things that the other is good at that we're not, and that the other wants to, is willing to do that we don't want to do. For example, from the very beginning, Bruce approached me in, in eighty-seven With the idea of a distressed debt fund. You know, I went into the high yield bond business in seventy-eight, and he, he had a, a background in law and got into, uh, some distressed investments, which went well, and he said-- came to me, he said, "We should do a distressed debt fund." And, and it's, it was quite a novel idea. But from the beginning, uh, you know, I go on the road and talk to people, and Bruce stays back and manages the money. I go on podcasts with people like you, and Bruce doesn't. But the third element is you gotta be appreciative, and you have to thank your lucky stars that you have a partner who will do the stuff you

7. 25:01 – 27:37

   being a good father

   1. HMHoward Marks25:01

      don't wanna do.

   2. SPShaan Puri25:02

      Can you do the same towards parenting? Because both on this episode and last one, you've referenced your son a bunch. Do you have any insights into how you've been able to raise a kid that you not just love, but you enjoy being around?

   3. HMHoward Marks25:14

      Well, you know, uh, I think it was Forbes, thirty or forty years ago, had an article about so and so who was the only shrink with an office on Wall Street. And they asked this guy about his patients' problems, and he said that his patients' problems, and they were all men, of course, because it was Wall Street a long time ago, his patients' problems were inversely proportional to the support they got from their fathers. We had people over for dinner last night, uh, and one of the guys w-we-- and we were talking about so and so, who was a character of some kind, and one of the guys said, "Well, you know what? His father treated him like hell." I just never wanted to be that father. And it's amazing how many men, and especially so successful men, have to assert their superiority over their sons, maybe daughters, too, but I think it's more with sons. And I guess it's Freudian or, or something else. But it's-- what a terrible thing that you have to-- if you have this kid and you have to prove you're smarter. And so, you know, I mean, I always let Andrew be smarter than me in, in some things. Uh, and of course, I always gave him full support in the things he wanted to do. If your kids wanna do something and, A, it's not gonna be injurious, uh, and, uh, yeah, I th- uh, maybe there's no B, let them do it. Like when, when, uh, when my daughter was getting out of l-lower school and had to choose an upper school, uh, she applied to the two good schools in LA, got in, and we let her choose. My wife and I had a sense for which one we wanted her to go to, but we concluded that, like I always say, we could be wrong. Our choice could be the wrong choice. And anyway, of the two choices, while one might be better than the other, neither was a bad choice. So if that's true, let the kid make the choice, and they get experience with making choices, and maybe they get e-eh, experience with making incorrect choices, which is very important.

8. 27:37 – 34:17

   only 1 success: to live your life your way

   1. SPShaan Puri27:37

      On the subject of choice, I have a-- I'm, I'm interested to know, you know, when you were younger, you-- let's say you're twenty-one years old and you're trying to figure out what you wanna do with your life. Probably one of the more important questions you should figure out at some point is what do I wanna actually do every day for eight hours a day, that half my waking hours. And I doubt that, you know, a lot of nineteen-year-olds wake up and say, "I wanna work with distressed debt and bonds." You know, it's-- that's not a un-- that's not a knowable answer at that stage. What do you think is the right approach to figuring out your thing?

   2. HMHoward Marks28:12

      First, I want to say up front, Shaan, that the thing you describe, I did a, a terrible job of. I was unconscious. M- the decisions I made in my first twenty years, as they say in, in, in religion, I did not apply intention. I just, I let other people make the decision. I made decisions haphazardly. I didn't think about it a lot. Um, uh, I'm embarrassed, uh, at, at how terrible my decision-making process was. In fact, it's, it's a misnomer to apply that term. But having said that, I, I think it's desirable to make, uh, your choices with intention, well-reasoned, et cetera. And what I tell kids is my favorite quote is from a writer named Christopher Morley, who said, "There is only one success: to live your life your own way." I think it's a beautiful quote. You know, I go to Wharton and Harvard and, and all these places and Columbia and, and I say, "And, you know, the fact that you're in this room probably means that you can live your life your own way. You probably have what it takes to live your life your own way intellectually and, uh, work ethic and so forth. But you have to figure out what it is. That's the hard part. Who are you?" And what I say to them is, "Try to find something that will play to your strengths, avoid your weaknesses, and make you happy." What that means is, well, that sounds obvious. Well, who would-- who the hell wouldn't, wouldn't follow that instruction? Well, the answer is, what it means is you can't let your friends decide what you should do. You can't do things because your friends are doing them. You can't let society decide what you should do. You can't let your parents decide what you should do. You have to think it out for yourself. Having said that, it's very difficult because it's hard to know yourself, and we know that in twenty years you'll be a different person How can you make a decision today on what will make that person happy? Very difficult, but you gotta try. That's my advice, which, which I didn't take when I was a kid, and I was derelict, but I got lucky.

   3. SPSam Parr30:37

      Well, you eventually did become, as you described, what, uh, living well-intentioned.

   4. HMHoward Marks30:42

      Yes.

   5. SPSam Parr30:42

      Something must have changed. What... Do you remember? Did you do any exercises to become that way?

   6. HMHoward Marks30:47

      Not that I recall. Um, I think part of it, you know, uh, and I said, I said for the next tw- twenty-five years, I didn't do it. That took me up till, uh, roughly ninety-five, which is when I left with Bruce to start Oaktree. That was really-

   7. SPSam Parr31:04

      That's so interesting. Wait, so you think that up until the age of fifty or forty-nine, you were floating or living according to other people?

   8. HMHoward Marks31:13

      Well, not, not just that, but just not making good decisions, conscious decisions. You know, wh- why did I go to Citibank Investment Research Department when I got out of the University of Chicago in 1969? Because I had a s- a good y- summer there the year before. Uh, why did I move from the equity research department to the bond department? Because my work in equity research was unsuccessful, and I was told to get out. Why did I move to California in 1980? Sunshine, palm trees. I just can't claim, uh, that I was making good decisions. I got sent to the bond department at Citibank in 1978, and three months later, the head of the bond department calls me up, since I was-- I didn't have that much to do. I was fairly idle. And he says, "There's a guy named Milken or something in California, and he deals in something called high-yield bonds. Do you think you can figure out what that means?" That was just luck. That, you know, if you, if you read Malcolm Gladwell in Outliers, it was just luck. Right time, right place, and i- if that call, if that call came at lunchtime, and I had been out at lunch, maybe somebody else would get the call, and, and they'd be me.

   9. SPShaan Puri32:36

      Your, uh, your humility is very striking to me. We have a lot of people on this podcast that I, I think, you know, claim to be humble or try to be humble. Uh, you, you, you really are a, a extremely humble person. I mean, one note I wrote down is, uh, from now on, at the top of all my investor memos, I'm just gonna start it with, "I could be wrong, but," um, because I, uh, well, I think whenever I make an investment, I'm so boastful about the, my, my excitement and my exuberance and why this is right and why this is the right move to do, and I think, you know, you've, you've kind of infected me with a little bit of your, your humility there.

   10. HMHoward Marks33:07

       Well, you, you make the investment because you believe in it, but it's important to see the other side and know what you're doing. By the way, Churchill said he's a h- he's a humble man, and he has a lot to be humble about.

   11. SPShaan Puri33:20

       [laughs]

   12. HMHoward Marks33:21

       But Mark Twain says, "It ain't what you don't know that gets you into trouble. It's what you know for certain that just ain't true." And I always tell people i- in line with what you just said, Shaan, no sentence that starts with, "I could be wrong, but," or, "I don't know, but," ever got anybody into trouble. The sentences that get people into trouble are, "I'm 100% convinced that," and if you, if you really feel that you're 100% right, and you bet like you're 100% right, and it turns out it was only 80/20, and the 20 comes up, that's how you get into big trouble. So I think the thing that, I think the thing that Mark Twain said was incredibly important.

   13. SPSam Parr34:08

       Yeah, l- last memo Shaan sent me about some deal he had was, uh, "Bet everything you have. This is it."

   14. SPShaan Puri34:14

       [laughs] Mortgage the house.

9. 34:17 – 37:18

   Having lunch with Warren Buffett

   1. SPShaan Puri34:17

      Um, hey, can I ask you about Buffett? You know, Buffett famously has said, you know, he reads your memos. Uh, I assume you guys have interacted. Uh, uh, do you guys hang out? What's, uh, what's he like? You know, give me some, some Warren Buffett stories from, uh, from your, uh, your life, your experience.

   2. HMHoward Marks34:30

      Well, Bruce actually was, uh, uh, always a Buffett watcher, and if you go back to the '80s, no, I don't think anybody had heard of Buffett, maybe not the '90s. I don't remember exactly. In the, in the late '90s, people said, "Well, Buffett's lost it because he's not in tech." And then, of course, tech blew up, and then they said, "Oh, maybe Buffett knows what he's doing." But anyway, when Enron melted down, Enron did most of its, um, misbehavior, uh, through, uh, off-balance-sheet, uh, entities. And there was a lot of opportunity there, and so we became the largest holder of the debt of one of them. It was called Osprey, and Warren was the second-largest holder. And I don't remember how it came to pass, but he gave his, us his proxy, and he let us run that position for him, and Bruce did a masterful job of restructuring that company, and we came out with a big w- big win. So, uh, this was around, uh, '02. So around '03 or '04, Warren writes Bruce a letter, and he says, uh, you know, "Nice job on, on Osprey, and if you ever find yourself in Omaha, let me know. We'll have lunch." So Bruce and I write him a letter, or Bruce writes him a letter that says, "It happens that Howard and I will be in an Omaha to, this week. Can we take you to lunch?" And, and so w- that's how we met. And the relationship had a lovely start, and it went on like that. We never actually did any business together after that because, you know, he was always looking for something big that he could acquire, and, and we don't, we don't really deal in big acquirable things. But it was a very nice personal relationship, and, uh, I don't... Uh, I've never said this to anybody else before, but in '09 I wrote a memo in which I mentioned him, and I sent it to him, and I said, "I want to make sure, did you see this memo? Because it mentions you." And he says, "I do see the memos," and blah, blah, blah. "And, uh, I have seen this." He says, "And by the way, you should write a book, and if you do, I'll give you a, a, a blurb for the book." And that's why I wrote the first book, uh, most important thing. I always thought I'd write a book when I retired, but instead, you know, when, when you get that kind of note from a guy like Warren Buffett, you, you can't let it sit. So that was, that was the start of that. But, you know, uh, I, I've been fortunate to visit him a few times, and, uh, and it's, it's a big plus.

10. 37:18 – 39:37

    What people don't know about Buffett

    1. SPSam Parr37:18

       Is there any part about the Warren mystique, the Buffett, uh, personality that you think, like, popular lore gets wrong or is inaccurate?

    2. HMHoward Marks37:28

       No, I think it's mostly what you see is what you get. The one thing I'll say that I don't think people know about, they don't get wrong, they don't know about, is the depth of his love for Charlie. And Warren sent out a, a note, I think it was at Thanksgiving last year, and he said, "You know, I'm not gonna be at the Berkshire meeting and I'm not going to be writing this or that," whatever it was. And he talked about his relationship with Charlie, and anybody who wants to should get a, get a hold of that letter and see it because it's, it's... You know, we talked earlier about the importance of a, a partnership and how great a contributor to your life it can be and, uh, and that's what, that's what, uh, he had with Charlie. I think he, I think he, as I recall, he talked about Charlie being the big brother and, and, and himself being the little brother. And, uh, I think we can say that about my relationship with Bruce. And for one reason or another, he's always been very kind to me, uh, about my role, you know, and, uh, generous about my role. And he, look, he's, he's, he's certainly as smart as I am and as talented as I am, maybe in different ways. But there was always this, this feeling of respect and affection and love and, and, uh, and as the more time passes, the more we're conscious of, of that, he and I. And that's what Warren and Charlie had, and it was a beautiful thing to watch. And also, the, uh, Warren used to love telling funny stories about Charlie, uh, of which there were a lot, and their relationship was always suffused, uh, with humor.

    3. SPSam Parr39:22

       Did they make a lot of the decisions together? B- I, I mean, I've read a little bit about them, and their relationship was a l- a little challenging for me to understand because I don't think they've ever lived in the same place.

    4. HMHoward Marks39:32

       Yeah.

    5. SPSam Parr39:32

       Did they talk daily?

    6. HMHoward Marks39:34

       I don't know exactly how they made their decisions, but

11. 39:37 – 41:35

    cigar butt investing

    1. HMHoward Marks39:37

       I think W- I think Warren used Charlie as a sounding board, a logic checker. You know, "I think this. Do you think this makes sense?" That kind of thing. Of course, Charlie's great credit is that Warren Buffett used to engage in what we call cigar butt investing. I don't know if you know about this, but cigar butt investing means you're walking down the street and you look in the gutter and you see a used cigar, and you pick it up and you conclude that it has three puffs left. So you pick it up. It's a disgusting thought. You pick it up and you smoke it, and you get three puffs for free. That's cigar butt investing. But, and, and, you know, y- Ch- Warren would buy, uh, you know, really cats and dogs because they were cheap, and Charlie's great contribution was talking Warren out of cats and dogs, out of cigar butts. And his revolution was that he convinced Warren not any company at a great price, great companies at a good price. Most people credit that as Charlie's greatest contribution. So, but, uh, you know, synergistic, mutual respect, love, complementary skills. It, it-- Interestingly, they probably had the highest combined IQ of any partnership in history, but they were different kinds of IQ. Charlie was more of a classicist and hu- humanist and a man of letters, and Warren, of course, was a, a, an incredible, uh, uh, computing machine.

    2. SPSam Parr41:19

       A man of, a m- a man of letters.

    3. HMHoward Marks41:21

       [laughs]

    4. SPSam Parr41:22

       Howard, we need to bring that back. That sounds, that sounds beautiful.

    5. HMHoward Marks41:24

       It was beautiful.

    6. SPSam Parr41:25

       I want to be a man of letters. [laughs]

    7. HMHoward Marks41:26

       Charlie, you know, when we would get together, he wouldn't talk about investments or money or companies mostly. He would talk about ideas.

12. 41:35 – 44:37

    recommended reading

    1. SPShaan Puri41:35

       Well, let's, let's wrap it with one, one last quick one, which is, uh, give us some homework. Give us a book that shaped the way you think or you thought brought some good ideas to the forefront. What's a book we should read as recommended by Howard Marks?

    2. HMHoward Marks41:49

       So one is, uh, A Short History of Financial Euphoria by John Kenneth Galbraith. This was very, uh, influential in my thinking, and it teaches you about, uh, the mental weakness that gives lo- give rise to booms and busts. And of course, you know, uh, taking a, uh, objective view of cycles is a big part of what I do. So that was very influential, and I was lucky to get to meet Galbraith. And then the other book would be Fooled by Randomness, uh, by Nassim Nicholas Taleb, and it talks about... See, see, I'm a great believer that a lot in, in life is random. And, uh, so this is one of the reasons, maybe it's my rationale for not being such a, a decisive thinker. Taleb basically says, in the short run, um, anything can happen because of randomness, and this determines our attitude toward risk, our attitude toward portfolio construction, our attitude toward published records. You know, you see a published record, the guy had a great return that year. Is he a great investor? Did he get lucky that year? Et cetera. So, and I, so I think that, I think that Fooled by Randomness is really, uh, and I've written some memos if anybody wants to, you know, the, what we used to call the classic comic version, uh, they can read the memos rather than reading the whole book. Um, but I, I think it's very valuable, and I would recommend it strongly.

    3. SPSam Parr43:27

       Well, we appreciate you, man. This is fun.

    4. HMHoward Marks43:30

       I hope so.

    5. SPShaan Puri43:32

       We gotta do one with your son, actually. That would be a lot of fun.

    6. HMHoward Marks43:35

       Uh, well, we did one in January of '21 called Something of Value, because, uh, he moved in with us during the pandemic, and I thought that the, the opportunity to, for three generation of Marks' to live together was a great, was of great value, and we spent most of the time arguing about value investing. Uh, and, and, uh, and I think that, uh, I think with the possible exception of the latest AI memo, I think that one got the most positive reception. But, but, uh, we'll, we'll, we'll keep working together, and, uh, uh, you guys don't, don't need a, uh, an excuse for, uh, for another session. Thanks.

    7. SPSam Parr44:15

       Well, thank you for playing therapist for us.

    8. HMHoward Marks44:16

       Okay.

    9. SPShaan Puri44:17

       Thank you so much, Howard.

    10. SPSam Parr44:18

        That's it. That's the pod. [outro music]

Episode duration: 44:37