Howard Marks: 50 Years of Investing Wisdom in 50 Minutes (Priceless Lecture)

Howard Marks is a brilliant investor and multi-billionaire, whose popular memos, books, and dozens of interviews I have read and followed for years. In another short interview Howard Marks shares that many activists have not been successful, in his view, because they are typically more short-term focused and are not necessarily buying quality companies.

I like to take a long-term perspective on investing and that prompts the question: What are the characteristics of a successful long-term investment?

I spend a considerable amount of time thinking about that question. On a daily basis, I am reading, learning, listening, and working on continuous improvement. When I back tested what existed when I was the most successful, and what perhaps was missing, it was obvious to me that the 3 most important things in investing are quality businesses and management teams, attractive valuation, and growth that is consistent and at attractive rates. When there has only been one of these characteristics, historically I have not done as well as when there’s been the combination.  

In a JPMorgan study that I recently read regarding their bank investment positions, it was astonishing that their top 10% outperform the bank index by 10-fold or 1000%. The top 25% outperformed by 750%. What they found in their best performers, other than a combination of growth factors—revenue growth, earnings growth, and tangible book to value growth—was inside ownership and an alignment of interest with incentives for management. I find that this is true in other companies as well, not just banks. I also found companies that have a lower price to earnings ratios (PEG) outperformed. I also like to see very successful investors who also have significant investments; I think that always inherently puts more pressure on the board and management to perform.

I also think managers that are shareholder friendly and think like owners have a better alignment of interest than managers with their own agenda.

I think it is important to be open-minded, flexible, and opportunistic. I know that at different times different types of opportunities are better, and I clearly understand why. It’s not that I am opposed to activism—activism can unlock or create value for shareholders—but whether there is an activist or not, I want to start out with a quality company and have a long-term investment horizon.