WEBVTT - Howard Marks LIVE (Replay) with Barry Ritholtz (Podcast) 0:00:02.240 --> 0:00:06.800 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:09.400 --> 0:00:14.520 This week we have an extra special show. On Monday, 0:00:14.600 --> 0:00:18.160 we did Masters in Business Live and my guest was 0:00:18.280 --> 0:00:23.680 the incomparable Howard Marks of oak Tree Capital. They run 0:00:23.720 --> 0:00:27.920 about a hundred and twenty billion dollars and have put 0:00:28.000 --> 0:00:32.920 up numbers that have been quite astonishing for their entire 0:00:33.400 --> 0:00:38.879 twenty four year history. This is the second Masters in 0:00:38.960 --> 0:00:42.120 Business Live we've done. The first one was Ray Dalio. 0:00:42.640 --> 0:00:45.760 We're going to continue doing these every few months and 0:00:45.800 --> 0:00:49.560 we have an interesting list of guests coming up. If 0:00:49.640 --> 0:00:53.440 you were anywhere near the New York City headquarters on 0:00:53.479 --> 0:00:57.040 the day we do one of these, I strongly advise 0:00:57.120 --> 0:01:00.520 you to get tickets. Not only is it live so 0:01:00.560 --> 0:01:05.280 anything can happen, but it's really a fascinating conversation and 0:01:05.319 --> 0:01:10.880 in both cases, um our guests stick around, chat with 0:01:12.080 --> 0:01:17.280 the audience, um take questions, signed books. It's very informal 0:01:17.920 --> 0:01:22.320 and how often you get to really hang around and 0:01:22.319 --> 0:01:26.640 and have that sort of interaction with legends in finance 0:01:27.520 --> 0:01:30.560 like that. Plus, Bloomberg is a great place to come 0:01:30.560 --> 0:01:34.360 to an event. They always serve drinks and appetizers. They 0:01:34.400 --> 0:01:37.280 really roll out the red carpet. It was. It was 0:01:37.319 --> 0:01:41.800 a lovely and delightful evening. Everybody who attended had a 0:01:41.840 --> 0:01:46.240 great time. Rather than me continue to babble with no 0:01:46.400 --> 0:01:51.920 further ado, my masters in business live with oak Tree 0:01:52.000 --> 0:01:59.720 Capitals Howard Marks, and once again I get to start 0:01:59.760 --> 0:02:04.400 out by announcing, um that I am cheating. By bringing 0:02:04.440 --> 0:02:08.880 someone like Howard here makes my job really easy. Uh. 0:02:08.919 --> 0:02:11.359 If you're not familiar with his background, I'm going to 0:02:11.440 --> 0:02:15.560 give you just a really short uh CV of Howard Marks. 0:02:15.639 --> 0:02:18.880 He's the co chairman and co founder of oak Tree Capital, 0:02:19.240 --> 0:02:22.240 which now manages over a hundred and twenty billion dollars 0:02:22.400 --> 0:02:26.280 in assets. Howard formed oak Tree to run high yield bonds, 0:02:26.360 --> 0:02:30.960 distress debt, in private equity, and other strategies back They 0:02:31.040 --> 0:02:35.320 run seventeen separate distress debt funds unless It's Risen two more, 0:02:35.919 --> 0:02:42.200 which have averaged annual gains of after fees for the 0:02:42.200 --> 0:02:47.000 past about seven hundred basis points above its peers in 0:02:47.000 --> 0:02:50.160 the fixed income space, and handily beating a lot of 0:02:50.160 --> 0:02:53.200 equity funds over the same time period. He is the 0:02:53.280 --> 0:02:56.880 author of the Most Important Thing, Uncommon Sense for the 0:02:56.919 --> 0:03:00.000 Thoughtful Investor, his new book, which everyone here will get 0:03:00.080 --> 0:03:03.960 copy of is Mastering the market cycle, getting the odds 0:03:04.080 --> 0:03:07.720 on your side. Howard Marks, Welcome to Bloomberg Life. Mary, 0:03:07.720 --> 0:03:10.960 it's great to be here. So I'll get to the 0:03:11.040 --> 0:03:13.480 books um in a few minutes. But I want to 0:03:13.520 --> 0:03:16.799 start with an interesting question that I think people may 0:03:16.800 --> 0:03:20.840 not be aware of your background. You began as an 0:03:20.840 --> 0:03:24.280 equity analyst. How does one of the world's most famous 0:03:24.639 --> 0:03:27.640 bond managers being in his career as an equity analyst. Well, 0:03:27.680 --> 0:03:31.280 I think that, I think that certainly at that point 0:03:31.320 --> 0:03:34.600 in time, Uh, the starting off as an equity analyst 0:03:34.639 --> 0:03:38.480 was there was the normal course. Uh No, bonds at 0:03:38.480 --> 0:03:41.800 that time were considered a backwater that nobody was interested in. 0:03:42.240 --> 0:03:46.600 They had two old uh European refugees in the research 0:03:46.640 --> 0:03:49.960 department of City Bank, and I remember, uh they would 0:03:49.960 --> 0:03:54.040 publish a bi weekly bond summary, and I remember at 0:03:54.080 --> 0:03:56.440 one point one came around with the black box in 0:03:56.480 --> 0:03:59.480 the upper right hand cornersay, is the last issue because 0:03:59.520 --> 0:04:02.080 everybody lost interest in stocks were doing so well. You 0:04:02.160 --> 0:04:04.520 know how it works. Stocks were doing so well, bonds 0:04:04.520 --> 0:04:07.400 were doing so poorly that people lose interest. Now, Uh, 0:04:08.280 --> 0:04:10.360 what the contrarian says is I want to get out 0:04:10.360 --> 0:04:12.080 of the thing that's been doing well and into the 0:04:12.080 --> 0:04:16.400 things that that's doing poorly. But contrarianism hadn't become invented 0:04:16.480 --> 0:04:19.520 yet at that point in time. But anyway, so I 0:04:19.520 --> 0:04:22.080 started off in the equity research as you say. I 0:04:22.120 --> 0:04:25.720 had a summer job in sixty eight, came back full 0:04:25.720 --> 0:04:30.840 time after grad school in sixty nine, became UH senior analysts, 0:04:30.839 --> 0:04:33.720 the United head director of Research from seventy to seventy 0:04:33.720 --> 0:04:36.200 eight UH. And then I got my lucky break in 0:04:36.240 --> 0:04:40.520 seventy eight when I switched to UH what was called 0:04:40.560 --> 0:04:44.560 the bond Department. But I wasn't ever managing straight fixed income. 0:04:44.600 --> 0:04:47.560 I was started with convertible bonds. And then in the 0:04:47.600 --> 0:04:50.120 summer of seventy eight, I got the phone call that 0:04:50.200 --> 0:04:52.680 changed my life. The head of the bond department called 0:04:52.720 --> 0:04:54.839 me and he said, there's some guy in California named 0:04:54.839 --> 0:04:58.799 Milken or something and he deals in something called hi bonds. 0:04:58.839 --> 0:05:01.240 Can you figure out what that mean? Because the client 0:05:01.279 --> 0:05:03.760 had come in and asked for Ohio bond portoyo, and 0:05:03.800 --> 0:05:07.000 I was smart enough to say yes. So that's the 0:05:07.080 --> 0:05:12.920 transition from equities to regular bonds to high yield bonds. 0:05:12.920 --> 0:05:14.839 How do you end up over at Trust Company of 0:05:14.839 --> 0:05:19.240 the West in UH. In the first business trip of 0:05:19.279 --> 0:05:22.120 my life in January nineteen seventy, I went to California 0:05:22.560 --> 0:05:25.960 and UH I was stuttering studying a group that doesn't 0:05:26.000 --> 0:05:31.040 exist anymore called the Conglomerates. And after the doing, the 0:05:31.640 --> 0:05:34.640 company visits my boss and I. His in laws lived 0:05:34.680 --> 0:05:38.359 in uh Laguna Beach, so he went down there and 0:05:38.360 --> 0:05:40.800 spent the weekend. I fell in love with California, and 0:05:40.880 --> 0:05:43.719 I spent the seventies trying to figure out a way 0:05:43.760 --> 0:05:46.440 to get to California, which I did in nineteen eighty. 0:05:46.839 --> 0:05:48.600 UH City, I got City back to move me in 0:05:48.640 --> 0:05:52.360 nineteen eighty and then in eighty five, Trust Company the West, 0:05:52.400 --> 0:05:55.280 which was in l a company, approached me because they 0:05:55.320 --> 0:05:59.320 wanted to expand into my asset classes. And that's how 0:05:59.320 --> 0:06:02.520 I moved there in eighty five. So it's worth mentioning 0:06:02.520 --> 0:06:05.200 in passing that when you were working at Trust Company 0:06:05.200 --> 0:06:08.680 of the West, you were supervising a young whiz kid 0:06:08.760 --> 0:06:12.839 named Jeff Gunlock or working with tell us what it 0:06:12.880 --> 0:06:16.159 was like writing herd on him. He seems to be 0:06:16.200 --> 0:06:19.560 a person that doesn't lend himself to UH being told 0:06:19.560 --> 0:06:22.719 what to do well. I never kidded myself into thinking 0:06:22.760 --> 0:06:27.320 that that I was actually supervising him. Uh, but you know, 0:06:27.680 --> 0:06:33.760 uh I was. I was asked to, well, you used 0:06:33.760 --> 0:06:35.880 the term right herd, which is as good as any 0:06:36.160 --> 0:06:42.839 and uh, you know he uh kind of respected me 0:06:42.880 --> 0:06:46.800 intellectually and so and so we got along. And uh 0:06:47.600 --> 0:06:51.000 and I think with Jeff that's the key, um, you know. 0:06:52.160 --> 0:06:55.760 And uh, he was very innovative in his approach. He 0:06:55.760 --> 0:07:00.600 he was managing mortgage backed securities from the late eighties, uh, um, 0:07:00.800 --> 0:07:05.960 which was innovative. And you know he would he would 0:07:05.960 --> 0:07:08.240 figure out strategies and then share them with me in 0:07:08.240 --> 0:07:11.920 the hope that I would understand. So so fast forward 0:07:12.280 --> 0:07:15.760 and I would assume you you probably did understand pretty well. Um. 0:07:15.840 --> 0:07:18.240 Fast forward a couple of years you launched oak Tree. 0:07:18.240 --> 0:07:23.400 And then a decade or so after that, Jeff decides 0:07:23.480 --> 0:07:25.840 the part ways with Trust Company of the West, and 0:07:25.880 --> 0:07:28.920 he comes to you for some career advice. How did 0:07:28.960 --> 0:07:31.440 that work? Well, of course, he didn't decide to part ways. 0:07:31.920 --> 0:07:34.600 I mean they decided to part ways with him. Um, 0:07:35.080 --> 0:07:38.960 and he got canned is the technical term. And and 0:07:38.960 --> 0:07:41.480 and I think it was December oh nine, if I'm 0:07:41.520 --> 0:07:45.600 not mistaken, and uh, you know he hey, he had 0:07:45.640 --> 0:07:49.560 a great following among his clients and among his his staff, 0:07:50.120 --> 0:07:54.760 and as soon as he got let go, I think 0:07:54.760 --> 0:07:57.640 the rest of him all quit and his whole team, 0:07:57.960 --> 0:08:02.400 I think his whole team. And then, through a brokerage 0:08:02.440 --> 0:08:07.840 firm or they nowadays they say, investment bank approached us 0:08:07.880 --> 0:08:10.880 and said would you, uh, would you help us get 0:08:10.920 --> 0:08:15.520 started in exchange for fift of our company? And so 0:08:15.680 --> 0:08:19.000 we were again smart enough to say yes. And it 0:08:19.080 --> 0:08:22.960 wasn't a matter of finances. It was a matter of infrastructure, 0:08:23.800 --> 0:08:29.320 back office, tax, legal registration, all those things. And there's 0:08:29.360 --> 0:08:32.319 a you know, when we started oak Tree, people would say, 0:08:32.320 --> 0:08:34.680 what's been the biggest surprise. I said, the biggest surprise 0:08:34.760 --> 0:08:37.200 is how much non investment stuff there is in an 0:08:37.280 --> 0:08:41.120 investment management job. So we helped him with that. He's 0:08:41.160 --> 0:08:46.520 in our building in California and we just meet and 0:08:46.600 --> 0:08:49.560 chat periodically. But as I say, we started with fifteen 0:08:49.600 --> 0:08:53.200 percent of the company. Then we realized that under accounting rules, 0:08:53.679 --> 0:08:56.559 in order to bring in our share of their profits, 0:08:56.880 --> 0:09:01.760 we would have to uh, so we bought another seven 0:09:01.800 --> 0:09:05.320 percent and we got de looted down to twenty which 0:09:05.320 --> 0:09:07.520 is where we are now. We have delution protection. Were 0:09:08.960 --> 0:09:12.520 extremely happy to be owner of Double Line, and I 0:09:12.559 --> 0:09:15.680 want to say Double Line is the fastest growing asset 0:09:15.720 --> 0:09:20.800 management firm to reach all. I wouldn't swear to it, 0:09:20.840 --> 0:09:23.200 but I believe that's right. So let's talk a little 0:09:23.280 --> 0:09:29.680 about the Chairman's Memos, which you're somewhat um infamous for. Um. 0:09:29.720 --> 0:09:32.960 I'm gonna quote Warren Buffett when I see memos from 0:09:33.000 --> 0:09:35.360 Howard Marks in my mailbox that the first thing I 0:09:35.400 --> 0:09:39.520 opened and read, I always learned something. Tell us what 0:09:39.720 --> 0:09:43.360 led you to publishing the Chairman's Memos? When when did 0:09:43.360 --> 0:09:45.199 they start? And why did you feel the need to 0:09:45.240 --> 0:09:49.040 write them they started? So this is the thirtieth year, um, 0:09:49.760 --> 0:09:54.080 and thank you. And I don't remember uh thinking that 0:09:54.160 --> 0:09:56.280 if I wrote him I'd get more business or anything 0:09:56.320 --> 0:10:01.720 like that. But uh, there were events that happened in 0:10:01.880 --> 0:10:07.239 my environment, the juxtaposition of which was I thought extremely informative, 0:10:07.559 --> 0:10:09.320 and so I wanted to write it up and share 0:10:09.320 --> 0:10:12.880 it with my clients. Now it is all and and 0:10:13.320 --> 0:10:16.839 you're you're well known for them today. Buffett had has 0:10:16.960 --> 0:10:20.960 lauded them, and other people have tooked so um approvingly 0:10:21.080 --> 0:10:25.440 of them. But when you first started publishing these, what 0:10:25.520 --> 0:10:31.920 was the response, like big fat zero zero, literally barry there. 0:10:32.000 --> 0:10:34.400 It was ten years before I ever had a response. 0:10:35.200 --> 0:10:39.079 Not only did nobody say, oh that was good, nobody 0:10:39.080 --> 0:10:41.600 ever said I got it. So it was, you know, 0:10:41.640 --> 0:10:45.480 and this is this was this is the day of 0:10:45.559 --> 0:10:49.640 running the xerox machine, folding them up, putting them in envelopes, 0:10:49.640 --> 0:10:52.640 addressing them, putting stamps on, and then, as far as 0:10:52.679 --> 0:10:56.120 I knew, tossing him down to this sewer. Because I 0:10:56.200 --> 0:10:58.760 never had a response for ten years, and so so 0:10:58.920 --> 0:11:00.959 I kind of remember or what made me right the 0:11:01.000 --> 0:11:03.240 first one. I have no idea what kept me going. 0:11:03.800 --> 0:11:07.000 So you said, there's no response for a decade. That 0:11:07.120 --> 0:11:12.360 response though, I very specifically remember that one, because Barons 0:11:12.400 --> 0:11:15.679 did a giant cover on it bubble dot com in 0:11:15.840 --> 0:11:19.160 January two thousand and only were you right? But the 0:11:19.240 --> 0:11:21.920 timing couldn't have been any better. Tell us about that 0:11:22.000 --> 0:11:27.640 particular chairmans, Well, of course, uh, in our business, um, 0:11:27.640 --> 0:11:29.400 it doesn't do any good to be right if the 0:11:29.400 --> 0:11:31.480 timing is not good. You know, there's an old saying 0:11:31.480 --> 0:11:33.280 in our business that being too far ahead of your 0:11:33.280 --> 0:11:36.400 time is indistinguishable from being wrong. So if I would 0:11:36.400 --> 0:11:41.160 have published the same insight in I'd be forgotten because 0:11:41.200 --> 0:11:43.600 it would have taken three plus years to work. It 0:11:43.679 --> 0:11:45.840 happens that only took a few months to work. And 0:11:45.920 --> 0:11:49.040 basically the premise of the menu memo was that the 0:11:49.160 --> 0:11:53.720 TMT tech media telecom bubble that had been pushing stocks 0:11:53.800 --> 0:11:56.520 up for the last few years of the nineties and 0:11:56.600 --> 0:12:04.440 into two thousand UH was overdone. The subject of excessive 0:12:04.559 --> 0:12:12.080 optimism and excessive faith in the future, and entirely free 0:12:12.360 --> 0:12:17.280 of any kind of analytical or valuation rigor. You know, 0:12:17.640 --> 0:12:21.200 I mean, we're used to paying fifteen times earnings for 0:12:21.240 --> 0:12:25.199 an average company, and maybe thirty times earnings for what 0:12:25.240 --> 0:12:27.360 we think is a great company. But how do you 0:12:27.480 --> 0:12:31.439 value a company that has no earnings? Hold on? How 0:12:31.440 --> 0:12:34.560 do you value a company that has no sales? You know? 0:12:34.960 --> 0:12:37.840 I mean you were valuing an idea, and people were 0:12:38.000 --> 0:12:41.080 you see, and and in the investment business, there's a 0:12:41.120 --> 0:12:47.840 tendency to succumb to platitudes, generalizations, and so what was 0:12:47.880 --> 0:12:53.720 going on in nine was the Internet will change the world. 0:12:54.800 --> 0:12:59.280 And as a consequence, any stock which is Internet or 0:13:00.080 --> 0:13:06.600 UH e commerce related is the right price is infinity, 0:13:06.880 --> 0:13:10.559 There's and and as I say in the book. Can 0:13:10.600 --> 0:13:14.240 I say in the book slight slap slug, But as 0:13:14.280 --> 0:13:17.880 I say in the book, if you want to understand bubbles, 0:13:18.840 --> 0:13:25.160 to me, the defining characteristic of the bubble is the 0:13:25.200 --> 0:13:29.360 belief that quote, there's no price too high, if it's 0:13:29.480 --> 0:13:32.319 if it's an Internet stock, there's no price too high, 0:13:32.360 --> 0:13:36.360 if there was the nifty fifty back when I started, Xerox, Kodak, 0:13:36.480 --> 0:13:40.920 mark Lily, no price too high. And of course it's 0:13:40.960 --> 0:13:47.839 obvious that everything there is no there's nothing so good 0:13:47.920 --> 0:13:50.640 that it can't be overvalued. And if you buy something 0:13:50.720 --> 0:13:54.600 at a price which is excessive for its merits by 0:13:55.000 --> 0:14:00.000 it's gonna require magic to make it into a successful investment. 0:14:00.640 --> 0:14:03.280 So uh, that was the theme of the memo, you 0:14:03.320 --> 0:14:05.960 know I talked about I talked about businesses. And by 0:14:05.960 --> 0:14:09.240 the way, we still some see some today which which 0:14:09.280 --> 0:14:15.040 don't have a profit plan, you know, and uh, companies 0:14:15.080 --> 0:14:18.040 that you know that as I said in the memo, well, 0:14:18.640 --> 0:14:20.720 people used to say, the great thing about this company 0:14:20.800 --> 0:14:24.160 is that its costs are almost zero, and I wrote, well, 0:14:24.200 --> 0:14:27.720 that's great because it's revenues are absolutely zero, you know. 0:14:28.200 --> 0:14:31.040 And uh, I quoted my dad who was a big 0:14:31.120 --> 0:14:34.320 joke teller. And he said that the two guys were 0:14:34.320 --> 0:14:38.120 talking and one guy says, everything I sell, I sell 0:14:38.200 --> 0:14:40.600 at cost. He said, well, how do you make money? 0:14:40.600 --> 0:14:44.280 He's why I buy below cost. But but the but 0:14:44.440 --> 0:14:49.960 the internet business model at that time seemed equally uh irrational, 0:14:50.080 --> 0:14:52.800 and yet the stocks were selling at sky high prices. 0:14:52.880 --> 0:14:55.960 And of course, and as I said in a memo 0:14:56.040 --> 0:15:00.760 which which reviewed this progression later, you know, in my 0:15:00.880 --> 0:15:06.560 first thirty years in the business, after a bubble popped, 0:15:06.600 --> 0:15:08.960 we would see a table in the upper right hand 0:15:08.960 --> 0:15:11.400 corner of the journal, and they show all the stocks 0:15:11.440 --> 0:15:16.320 that were down. Remember, and then with this they showed 0:15:16.320 --> 0:15:21.600 all the socks who are down or more. And so 0:15:22.360 --> 0:15:25.360 the bubble popped. The memo look smart, I said in 0:15:25.440 --> 0:15:28.720 the in the introduction to my first book. After ten years, 0:15:28.760 --> 0:15:32.440 I became an overnight success. And that's the story. So 0:15:32.440 --> 0:15:36.000 so let's talk about that first book, which is the 0:15:36.040 --> 0:15:40.200 most important thing uncommon sense for the thoughtful investor. You're 0:15:40.240 --> 0:15:45.680 writing these memos on a regular basis, um what motivated 0:15:45.720 --> 0:15:48.320 you to say, I know, let's let's now spend three 0:15:48.720 --> 0:15:51.360 pages and a year writing a book that was simple. 0:15:51.640 --> 0:15:57.960 I got a letter from Warren Warren Buffett saying saying, 0:15:58.480 --> 0:16:02.720 if you know I wrote a memo, I think I 0:16:02.800 --> 0:16:06.040 forget which one it was, um, which was right up 0:16:06.080 --> 0:16:09.880 his alley. And I wrote him afterwards and I said, 0:16:09.920 --> 0:16:12.840 did you see this one? He says, yes, it was fine. 0:16:13.160 --> 0:16:15.440 And he says, by the way, if you'll write a book, 0:16:15.480 --> 0:16:19.760 I'll give you a quote for the jacket suburb. Enough said, 0:16:20.480 --> 0:16:22.640 and and you know you don't pass that one. Boy. 0:16:23.240 --> 0:16:25.360 So I had always thought that I would write a 0:16:25.400 --> 0:16:30.200 book pulling the philosophy together, um when I retired, and 0:16:30.240 --> 0:16:34.720 instead it got accelerated. What was the experience of writing 0:16:34.760 --> 0:16:42.840 a book like? It was great? Um? You know? Um? 0:16:43.000 --> 0:16:46.080 For me, the challenge is not to think up what 0:16:46.200 --> 0:16:48.440 to say that the challenges to get it from here 0:16:48.440 --> 0:16:51.560 to there, you know. And yeah, yeah, the thoughts are 0:16:51.600 --> 0:16:54.600 coming so fast you're afraid they're going to evaporate, so 0:16:54.840 --> 0:16:56.920 you have to sit there. And yet, so so let's 0:16:56.920 --> 0:17:01.640 talk about some of those thoughts which I've pulled from books. Quote, 0:17:01.680 --> 0:17:04.480 we can make excellent investment decisions on the basis of 0:17:04.520 --> 0:17:08.800 present observations with no need to make guesses about the future. 0:17:09.280 --> 0:17:11.919 Doesn't that run kind of contrary to how lots and 0:17:11.960 --> 0:17:16.520 lots of people invest their capital. Yeah, I mean the 0:17:16.520 --> 0:17:20.320 the the irony is that what is what is investing 0:17:20.800 --> 0:17:26.480 investing is positioning your capital to profit from the future 0:17:26.640 --> 0:17:33.920 that unfolds. And yet in my book, we can't know 0:17:33.960 --> 0:17:38.600 what the future holds. So I an oak Tree through 0:17:38.600 --> 0:17:44.800 its investment philosophy. Uh, specifically as true macro forecasts. And 0:17:44.840 --> 0:17:52.520 I don't believe we ever know enough about the coming economy, markets, currencies, 0:17:52.640 --> 0:17:56.119 and interest rates to make us a successful and a 0:17:56.200 --> 0:17:59.640 superior investor. It's very hard to hold the view which 0:17:59.680 --> 0:18:02.160 is different and from the consensus, and it's very hard 0:18:02.240 --> 0:18:04.439 to have a non consensus view which turns out to 0:18:04.440 --> 0:18:08.000 be more correct than the consensus. And so so I 0:18:08.000 --> 0:18:12.159 don't believe in forecasts. Uh. Now everybody says, but the 0:18:12.240 --> 0:18:14.960 macro is so important. It's the macro that moves the 0:18:14.960 --> 0:18:18.480 markets these days, and it it truly does feel, let's say, 0:18:18.560 --> 0:18:21.240 for the last fifteen or twenty years that yes, the 0:18:21.720 --> 0:18:25.919 macro is much more important than company news, uh, in 0:18:26.000 --> 0:18:28.480 moving the market. So they say, well, how can you, 0:18:28.880 --> 0:18:36.000 how can you not do macro forecasting? And h I 0:18:36.080 --> 0:18:40.359 was sitting and having dinner with Warren you know who. Uh, 0:18:40.440 --> 0:18:43.719 that one a few years ago, and he said to me, 0:18:44.320 --> 0:18:47.840 for a piece of information to be desirable, it has 0:18:47.880 --> 0:18:52.080 to satisfy two criteria. It has to be important and 0:18:52.119 --> 0:18:55.800 the macro is extremely important, and it has to be noble. 0:18:57.280 --> 0:19:02.280 So you can have something which is very important, but 0:19:02.520 --> 0:19:05.639 if you spend your time trying to figure it out, 0:19:06.280 --> 0:19:09.480 it could be a waste of time if it's not knowable. 0:19:09.560 --> 0:19:13.000 And I believe that the macro future is not knowable. 0:19:13.600 --> 0:19:18.840 So uh. In in the first book the Most Important Thing, 0:19:18.840 --> 0:19:21.160 there are twenty one chapters, and each one starts off 0:19:21.480 --> 0:19:24.280 the title the most important thing is, and then it's 0:19:24.280 --> 0:19:27.359 a different thing because in investing there is no one 0:19:27.440 --> 0:19:29.600 thing which is the most important. There are in that 0:19:29.720 --> 0:19:32.120 According to the book, there are twenty one things, all 0:19:32.160 --> 0:19:36.560 of which are the most important thing um and one 0:19:36.600 --> 0:19:39.520 of those is knowing where we stand in the cycle. 0:19:40.359 --> 0:19:42.400 And when it was time to write a second book, 0:19:43.040 --> 0:19:45.800 I pulled that out and that's what I devoted the 0:19:45.880 --> 0:19:49.520 book too. So so since you brought that up, let's 0:19:49.520 --> 0:19:53.240 talk about the second book, Mastering the market cycle. Getting 0:19:53.280 --> 0:19:57.240 the odds on your side. Of all those twenty one 0:19:57.400 --> 0:20:01.119 chapters in the first book, why cycles? Why did you 0:20:01.600 --> 0:20:06.119 pick that um is shooting the other twenty when you 0:20:06.160 --> 0:20:10.840 really you can write a twenty one volume encyclopedia, each 0:20:10.920 --> 0:20:14.560 chapter being a book. Well, Barry, I believe of the 0:20:14.600 --> 0:20:17.600 things of all the twenty one most important things, I 0:20:17.640 --> 0:20:19.560 think that there are two that are more important than 0:20:19.600 --> 0:20:23.000 the others, and they are risk and where we stand 0:20:23.000 --> 0:20:28.760 in the cycle. I believe that risk management, risk control 0:20:29.600 --> 0:20:33.600 is the mark of an exceptional investor. It's not hard 0:20:33.640 --> 0:20:36.120 to make money in the market. It's especially not hard 0:20:36.119 --> 0:20:38.159 when the market goes up. And the market goes up 0:20:38.200 --> 0:20:41.080 most of the time, and most of the time everybody 0:20:41.080 --> 0:20:44.679 in the market makes money. But if you don't know 0:20:44.720 --> 0:20:47.359 what you're doing, if if you're throwing darts, if you're 0:20:47.440 --> 0:20:53.240 just surfing, uh, you know what we call beata slipping. Uh, 0:20:53.680 --> 0:20:58.639 that's not an accomplishment. To me. An exceptional investor is 0:20:58.680 --> 0:21:01.720 someone who makes a lot of money when things go well, 0:21:02.880 --> 0:21:05.520 but does it with the risk under control so that 0:21:05.640 --> 0:21:08.800 he or she won't lose a lot of money when 0:21:08.800 --> 0:21:12.840 the market does poorly. So I think that I devote 0:21:12.880 --> 0:21:16.960 actually three chapters in the first book to risk, understanding risk, 0:21:17.200 --> 0:21:20.840 recognizing risk, controlling risk, and I think that is the 0:21:20.880 --> 0:21:26.040 mark of the superior investor. That's number one, Number two 0:21:26.320 --> 0:21:29.800 the cycle. There's a connection here because I believe that 0:21:29.880 --> 0:21:33.919 where the market is in its cycle determines how risky 0:21:33.920 --> 0:21:38.080 it is. When when everything has been going swimmingly, and 0:21:38.119 --> 0:21:41.960 as a consequence, the market is elevated in its cycle 0:21:42.400 --> 0:21:45.720 relative to something we might think of as the midpoint 0:21:45.840 --> 0:21:49.520 or the intrinsic value, then I think it's risky. And 0:21:49.560 --> 0:21:54.119 when it's depressed in its cycle and low relative to 0:21:54.160 --> 0:21:58.320 intrinsic value or the midpoint or the norm, then I 0:21:58.359 --> 0:22:02.240 think the risk is very low. So understanding, even though 0:22:02.280 --> 0:22:09.879 we can't benefit from predictions of the future, I believe 0:22:09.960 --> 0:22:13.240 that where the market is in its cycle can tell 0:22:13.359 --> 0:22:18.080 us a lot about what the odds are. And that 0:22:18.080 --> 0:22:21.439 that you mentioned the subtitle of the book, Getting the 0:22:21.480 --> 0:22:26.720 Odds on your Side, And I actually prefer the subtitle 0:22:26.800 --> 0:22:31.159 to the title because it conveys, I hope, a sense 0:22:31.440 --> 0:22:35.400 for my belief that we cannot know what the future holds. 0:22:36.280 --> 0:22:41.160 The future is nothing but a probability distribution. But if 0:22:41.200 --> 0:22:48.200 we think and study right, we can have an idea 0:22:49.040 --> 0:22:54.160 about the shape of the probability distribution and what returns 0:22:54.280 --> 0:22:58.080 are most likely. It's interesting you say that you prefer 0:22:58.359 --> 0:23:02.240 the subtitle those the title itself sort of is at 0:23:02.280 --> 0:23:06.960 odds with some things you've said before about you really 0:23:07.000 --> 0:23:10.600 have a mantra. Not only can people not predict the future, 0:23:10.760 --> 0:23:15.080 they can't time the market especially well either. How do 0:23:15.160 --> 0:23:19.080 you reconcile mastering a market cycle that seems a little 0:23:19.080 --> 0:23:23.600 contradictory to being able to time it. Well, let me 0:23:23.640 --> 0:23:30.080 say up front, I believe very firmly that we sometimes 0:23:31.720 --> 0:23:34.760 have a sense for what's going to happen, we never 0:23:34.800 --> 0:23:38.600 know when. So when you say timing, the word time 0:23:39.720 --> 0:23:44.440 is something I just discard. Uh. You know, since I'm 0:23:44.440 --> 0:23:46.960 a writer. Everybody at oak Tree has the habit of writing. 0:23:47.040 --> 0:23:50.080 Everybody at oak Tree writes a letter every quarter to 0:23:50.240 --> 0:23:55.719 his clients. And um, there's a guy there who I 0:23:55.760 --> 0:23:57.879 was reading, and I review all the letters before they 0:23:57.880 --> 0:24:02.160 go out, and one of them, the portfolio manager, said, 0:24:02.760 --> 0:24:05.280 if you name a date, don't name a price. And 0:24:05.320 --> 0:24:08.000 if you name a price, don't name a date. And 0:24:08.080 --> 0:24:11.879 if you think about it, if you never name both 0:24:11.920 --> 0:24:14.200 the date and a price, you can never be wrong. 0:24:15.200 --> 0:24:19.399 Uh and and but but I do think that you 0:24:19.400 --> 0:24:21.600 can have an idea about what the future holds you 0:24:21.600 --> 0:24:23.960 can have an idea whether this is a good time 0:24:24.000 --> 0:24:27.040 to invest or not, but you you never know when 0:24:27.160 --> 0:24:33.040 the things you're hoping for will unfold, and if you 0:24:33.200 --> 0:24:38.000 if you think about it, I believe that everything an 0:24:38.040 --> 0:24:43.080 investor does, what you do, what I do, falls under 0:24:43.440 --> 0:24:48.960 one of two headings, assets selection and what I call 0:24:49.080 --> 0:24:52.280 cycle positioning. In order to avoid using the word timing, 0:24:53.280 --> 0:24:56.879 what do they mean? Assets election means trying to hold 0:24:56.960 --> 0:24:59.240 more of the things that will do better and less 0:24:59.240 --> 0:25:02.639 of the things that will do worse, pretty easy, and 0:25:02.720 --> 0:25:07.920 psycle positioning means trying to have more of your capital 0:25:08.080 --> 0:25:13.520 invested and more aggressively when the odds are favorable, and 0:25:13.600 --> 0:25:17.320 less of your capital invested more defensively when the odds 0:25:17.359 --> 0:25:20.840 are against you. I think you can we can know 0:25:20.960 --> 0:25:24.320 something about the odds that doesn't mean we're going to 0:25:24.359 --> 0:25:28.520 be right or we're gonna be right right away, especially uh, 0:25:29.040 --> 0:25:35.480 and that can enable us to effectively do cycle positioning 0:25:36.320 --> 0:25:41.520 h through an understanding of where we stand in the cycle. 0:25:41.840 --> 0:25:44.159 So you mentioned two things earlier that I have to 0:25:44.160 --> 0:25:48.240 circle back to. One was the concept of intrinsic value, 0:25:48.720 --> 0:25:52.239 where assets might be above or below that, and the 0:25:52.320 --> 0:25:57.719 second is the implication about psychology, which really, Um, we 0:25:57.760 --> 0:26:00.160 went by too quickly, so I have to come back 0:26:00.200 --> 0:26:06.000 to that. Um. Intrinsic value clearly refers to paying less 0:26:06.080 --> 0:26:08.719 for an asset than you think it's ultimately worth. I 0:26:08.760 --> 0:26:13.000 think you've written extensively about the advantages of being a 0:26:13.119 --> 0:26:17.160 value investor. But let's let's explore the psychology of that. 0:26:17.640 --> 0:26:21.000 Because it seems much easier to buy when things are 0:26:21.040 --> 0:26:25.200