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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.

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Speaker 1: This week on the podcast, I have an extra special guest.

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Speaker 1: What can I say? Howard Marks is the co founder

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Speaker 1: and co chairman of oak Tree Capital Management. If you

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Speaker 1: are at all interested in everything from bond investing to

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Speaker 1: market cycles, to what matters most and that includes the

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Speaker 1: most important thing, to the importance of human psychology and emotions,

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Speaker 1: to mastering the market cycle, you will find this to

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Speaker 1: be an absolutely fascinating conversation. Rather than have me go

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Speaker 1: on at length, instead, I'm just going to step away

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Speaker 1: and say, with no further ado, my conversation with Howard Marks,

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Speaker 1: I have an extra special guest. His name is Howard Marks,

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Speaker 1: and he is co chairman and co founder of oak

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Speaker 1: Tree Capital, which manages over a hundred and twenty two

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Speaker 1: billion dollars. Howard comes to us by way of the

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Speaker 1: Wharton School at Pennsylvania, where he did his undergraduate got

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Speaker 1: his MBA at the University of Chicago Boost School. He

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Speaker 1: formed oak Tree and after spending about a decade at

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Speaker 1: Trust Company of the West. According to the most recent

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Speaker 1: Bloomberg data, I looked at oak Trees seventeen distressed debt

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Speaker 1: funds have averaged annual gains of nine after fees since inception,

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Speaker 1: about seven hundred basis points better than its peers, according

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Speaker 1: to Boston based consulting firm Cambridge Associates. His first book

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Speaker 1: was called The Most Important Thing, and he has authored

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Speaker 1: a new book called Mastering the Cycle, Getting the Odds

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Speaker 1: on Your Side, returning for his third Masters in Business,

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Speaker 1: Howard Marks, Welcome to Bloomberg. Thank you, Mary. It's great

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Speaker 1: to be here. So I was excited to see your

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Speaker 1: new book because I figured it would be an excuse

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Speaker 1: to get you back in here. Let's talk a little

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Speaker 1: bit about what motivated you to write another book. Um,

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Speaker 1: who's the intended audience? What? What was the thinking behind this?

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Speaker 1: When I wrote the first book, I thought it would

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Speaker 1: sell about three thousand, and I thought it would be

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Speaker 1: die hard professional investors. It has sold about three quarters

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Speaker 1: of a million so far, and uh, and I believe

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Speaker 1: it's uh professionals, uh do it yourself investors, and uh,

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Speaker 1: maybe even some people who just want to hear about

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Speaker 1: a new topic. So the first book came about because

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Speaker 1: some guy named Warren Buffett said, Hey, Howard, why don't

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Speaker 1: you write a book. Why don't you take all these

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Speaker 1: chairman memos and turn them into a book. If you

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Speaker 1: write it, I'll give you a blurb for the front cover.

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Speaker 1: That's pretty good. Motivation was the motivation in this book. Well,

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Speaker 1: as you know, the first book was called The Most

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Speaker 1: Important Thing, and it talked about twenty different things, each

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Speaker 1: of which was labeled the most Important Thing. Because in

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Speaker 1: investing there really are many, many things that are essential,

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Speaker 1: and all of which have to be dealt with simultaneously.

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Speaker 1: But I do believe Barry that UH, recognizing on dealing

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Speaker 1: with risk and understanding where we stand in the cycle

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Speaker 1: are really the two keys to success. UH. And if

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Speaker 1: you're going to be an active investor and active manager,

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Speaker 1: I think those are the two areas in which, UH

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Speaker 1: you can best make a contribution. So let's talk a

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Speaker 1: little bit about cycles. There's a quote of yours that

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Speaker 1: I really like. Rule number one is most things will

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Speaker 1: prove to be cyclical. And rule number two some of

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Speaker 1: the greatest opportunities for gains and losses come when other

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Speaker 1: people forget rule number one. Tell us about that. Well,

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Speaker 1: you know, back in in the early seventies, somebody gave

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Speaker 1: me a great gift they shared with me the three

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Speaker 1: stages of a bull market. The first stage, when only

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Speaker 1: a few incredibly insightful people believe there could be improvement,

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Speaker 1: the second stage, when most people accept that improvement is

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Speaker 1: taking place, and the third stage, when everybody thinks things

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Speaker 1: will get better forever. And you know, it's obvious that

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Speaker 1: if you buy in the first stage, because so few

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Speaker 1: people are optimistic, you can get a real bargain. And

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Speaker 1: if you buy in the last stage, when everybody and

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Speaker 1: his brother is on board, uh, you know you're likely

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Speaker 1: to overpay. It's it's almost as simple as that. So

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Speaker 1: you know, what I try to do in the book

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Speaker 1: is go through understanding where we are in the cycle, why,

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Speaker 1: and what we should do about it. So let's talk

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Speaker 1: a little bit about this cycle. Clearly, oh nine, very

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Speaker 1: few people thought, all right, this is an opportunity where

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Speaker 1: we're at the bottom of this cycle, and those folks

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Speaker 1: have been pretty well rewarded. If we look at I

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Speaker 1: don't know is that a fair assessment for phase two

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Speaker 1: where people felt, hey, things are getting better. Are we

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Speaker 1: at that final stage yet? Have we gotten there? Because

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Speaker 1: so many people have been so negative this whole run up,

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Speaker 1: it makes it a little tricky to figure out where

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Speaker 1: that last stage where everybody thinks, hey, this can't ever stop,

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Speaker 1: it's going to keep going. Sure, Well, you know that's

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Speaker 1: the key question, that's the hard question. Um My approach

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Speaker 1: on these kinds of things is, uh, we never know

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Speaker 1: where we're going. We're sure as hell out or no

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Speaker 1: where we are. What do we know? Barry about this market?

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Speaker 1: As you say, we're not in O eight oh nine

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Speaker 1: when everybody thought we were heading for a meltdown. We're

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Speaker 1: not in twelve or thirteen when things were beginning to

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Speaker 1: lift off. Uh. By some measures, this is the longest

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Speaker 1: bullmarket in history. The S and P has quadrupled from

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Speaker 1: the lows. And uh So I think the first thing

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Speaker 1: I would say is the easy money has been made.

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Speaker 1: We're not in that first stage anymore, where where most

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Speaker 1: people are nonbelievers. That's that's the easy thing to say.

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Speaker 1: Um I think that, And and and lately you get

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Speaker 1: more and more people, you know, the higher things go,

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Speaker 1: the more people say, well I guess it could it

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Speaker 1: could keep on. Uh. It's usually prefaced by those four

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Speaker 1: dangerous world words. It's different this time. You know, the

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Speaker 1: historic rules do not apply. The pe ratio, history doesn't matter,

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Speaker 1: um and and so forth. Uh. But you know, Uh,

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Speaker 1: when you're in the tenth year of her economic recovery,

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Speaker 1: and there's never been one of more than ten years,

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Speaker 1: the only thing you know is that the odds are

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Speaker 1: not really on your side anymore. Nobody can say it's

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Speaker 1: gonna end tomorrow, It's going to end a year from now.

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Speaker 1: In investing, we sometimes know what's going to happen, but

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Speaker 1: we never know when. But you know, Uh, if you,

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Speaker 1: if you, if you accept that the easy money has

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Speaker 1: been made, and that the pe ratios, for example, are

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Speaker 1: higher than the post war norm, and that interest rates

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Speaker 1: are rising, etcetera, then I think you have to conclude

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Speaker 1: that the odds are not strongly in your favor. You

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Speaker 1: have to take some risk off. Makes sense. Back you

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Speaker 1: said you were thinking we were falling into an everything

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Speaker 1: bond bubble? Um, What are your thoughts about that today?

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Speaker 1: Is our bonds still in a bubble? Uh? And how

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Speaker 1: does this resolve itself? You know, at that time, Barry,

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Speaker 1: I think interest rates were the lowest that they've ever

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Speaker 1: been period. And you know, it seemed that with the

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Speaker 1: strength in economy and with the Fed no longer wanting

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Speaker 1: to be so stimulative that interest rates would be rising.

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Speaker 1: Rising interest rates folding bond prices. That's the math. So

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Speaker 1: you know, we've seen eight interest rate increases from the

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Speaker 1: Fed already. Most forecasters think we'll see half a dozen

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Speaker 1: more over the next couple of years. Uh. Clearly, interest

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Speaker 1: rates are no longer the lowest in history. Although still low,

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Speaker 1: they'll probably continue to rise, you know. So you know,

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Speaker 1: a straight high grade bond is nothing but an interest

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Speaker 1: rate machine. And as interest rates go higher, the prices

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Speaker 1: of existing bonds with old fashioned low interest rates go down.

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Speaker 1: I don't think you want to own straight long term

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Speaker 1: bonds in a period of rising interest rates, and the

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Speaker 1: consensus is that rates will rise. So if you don't

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Speaker 1: want to own straight up bonds and we're in a

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Speaker 1: rising rate environment and a lot of people have um

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Speaker 1: fairly substantial exposure to equities, how do you offset that risk?

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Speaker 1: If you want some form of a balanced portfolio, where

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Speaker 1: where is the value on the fixed income side, if anywhere? Well,

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Speaker 1: you know, I think that across the board, what I

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Speaker 1: say about rates has really affected all bonds. Uh. You know,

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Speaker 1: the the impact of of rates on bonds is universal,

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Speaker 1: and uh, you know, at the present time, there are

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Speaker 1: no exceptions. The one thing you want to think about

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Speaker 1: is this, Barry. One of the main reasons that we

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Speaker 1: will probably have rising interest rates is that we will

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Speaker 1: probably have continued prosperity and maybe even a pick up

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Speaker 1: in inflation. Those two things, prosperity and inflation add to

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Speaker 1: the profitability of corporations, and so UH, strengthening corporate profits

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Speaker 1: will translate into a positive influence for corporate bonds. So

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Speaker 1: you'll have the negative influence of rising rates, but the

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Speaker 1: positive influence of improving profitability. And that suggests that corporate

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Speaker 1: bonds are somewhat sheltered UH from the deleterious effects of

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Speaker 1: rates alone. But you know, I believe that most asset

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Speaker 1: classes are fully two U fully value too at the

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Speaker 1: beginning of rich. And this is a time for caution,

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Speaker 1: you know. The book is about trying to figure out

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Speaker 1: what time it is for what and which form of

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Speaker 1: behavior is appropriate. If we're low in the cycle, we

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Speaker 1: should be aggressive. If we're high in the cycle, we

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Speaker 1: should be defensive. I think, on balance, through most asset classes,

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Speaker 1: we are high in the cycle, and I think that

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Speaker 1: calls for defense. So if we were putting this in

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Speaker 1: terms of a baseball game, What what inning are we

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Speaker 1: in in? In that longer cycle? I get that question

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Speaker 1: a lot. They started asking it back in oh eight

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Speaker 1: when they said when will the what inning are we in?

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Speaker 1: In the crisis? Meaning when will the financial crisis enid? Sure,

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Speaker 1: I remember eighth inning fisher of the Fed governor from

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Speaker 1: Texas who basically said, we were in the eighth inning.

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Speaker 1: Turn out we were in the second inning. But still

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Speaker 1: exactly and today when they say what inning are we in,

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Speaker 1: they really mean when will the bull market end? How

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Speaker 1: far are we in the cycle? Exactly? Now? I think

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Speaker 1: we're in the eighth inning, But about a year ago

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Speaker 1: I figured out there's a problem with saying that, which

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Speaker 1: is this is in baseball, right, and we know in

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Speaker 1: baseball that a game is nine innings except except ties,

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Speaker 1: But in investing, we have no idea how many innings

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Speaker 1: there will be in the game. So I think we're

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Speaker 1: in the eighth inning, but this game could go nine

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Speaker 1: or eleven or thirteen. And I think that the outlook

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Speaker 1: is not so poor and the prices are not so high,

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Speaker 1: that this is the time for defense. Our own motto

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Speaker 1: at oak Tree has been moved forward, but with caution

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Speaker 1: and Uh, we're essentially fully invested. That's what moved forward means.

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Speaker 1: But I also think it's time for caution because I

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Speaker 1: do think we are elevated in the cycle. So so

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Speaker 1: how does an investor manage that risk? Is it just

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Speaker 1: staying away from the most expensive, most speculative paper being

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Speaker 1: fixed income or stocks On the equity side, how do

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Speaker 1: you stay fully invested but cautious. Well, I think that's

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Speaker 1: the right idea. Everything you want to do in the

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Speaker 1: investment business, you can do it aggressively or you can

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Speaker 1: do it defensively. As you say, you can be in

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Speaker 1: quality stocks as a post to speculative stocks. You can

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Speaker 1: be in large companies rather than small. You can be

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Speaker 1: in the lower price, not the higher price. Now, usually

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Speaker 1: the higher price has the prettier story. That's why it's

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Speaker 1: higher price. But but but you pay smartly for that.

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Speaker 1: The fangs, the texts, these are the ones that have

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Speaker 1: been selling very high, high in price, great story. But

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Speaker 1: if you want to be defensive, you drop down to

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Speaker 1: a little less glamorous story at a lower price. In bonds,

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Speaker 1: you can go for quality. You can certainly go for

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Speaker 1: UH shorter duration short shorter maturities UM and uh. I

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Speaker 1: would not advocate getting out of the market. It's not

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Speaker 1: so egregious that cash is preferable. I do think that

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Speaker 1: the things you want to do in your portfolio are

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Speaker 1: better done in a cautious way than in an aggressive way.

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Speaker 1: So you talked about corporates, you talked about high grade

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Speaker 1: low grade. Before we came into the studio, we were

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Speaker 1: discussing tips. If we see even modest inflation, is that

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Speaker 1: a bad place to hide or is that a half

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Speaker 1: decent place to think about. There are two risks in bonds.

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Speaker 1: One is the risk of a negative price fluctuation, interest

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Speaker 1: rates up, prices down. The other is the risk of

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Speaker 1: not getting paid. What is a bond. It's a promise

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Speaker 1: of a string of payments, interest, and then principle at

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Speaker 1: the end. So you know, most people should not buy

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Speaker 1: bonds where the risk of being unpaid is substantial. So

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Speaker 1: let's assume that we are our managers can exclude the

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Speaker 1: ones that default. Now we're down to the the ones

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Speaker 1: that pay but could experience a negative fluctuation. We don't

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Speaker 1: know rates, what rates are gonna do, We don't know

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Speaker 1: what how they'll fluctuate. But if you buy bonds that

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Speaker 1: are gonna pay. You buy a bond today. Let's say

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Speaker 1: it's a high yield bond and you can buy it

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Speaker 1: at a six percent yield. If rates go up, there

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Speaker 1: could be a negative price fluctuation, but if the company

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Speaker 1: is credit worthy, it will still pay at the end

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Speaker 1: and you'll get your six percent. And I think that,

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Speaker 1: you know, if somebody, if somebody can live with a fluctuation,

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Speaker 1: and if six percent is good for them, I think

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Speaker 1: they should be buying six percent bonds. The biggest mistake

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Speaker 1: you can make, in my opinion, is to buy six

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Speaker 1: percent bonds in the hope of getting nine because that's

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Speaker 1: probably not in the cards, to say the least. So

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Speaker 1: let's talk a little bit about mastering the market cycle.

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Speaker 1: What is it that most people seem to get wrong

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Speaker 1: with longer term cycles? What is it that makes the

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Speaker 1: market go up and down? When you see a market

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Speaker 1: that's rising, it's usually the news is good. The economy

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Speaker 1: is doing well, the corporations are reporting good or ings,

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Speaker 1: the the investors are happy, the media are putting out

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Speaker 1: positive stories, and prices are rising. Everybody feels good. But

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Speaker 1: if you take those things together, very what they mean

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Speaker 1: is that prices are probably high the enthusiasm to buy

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Speaker 1: thus is the highest when the prices are the highest,

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Speaker 1: which is not when we should be buying the most.

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Speaker 1: So and the reverse is true in the opposite direction,

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Speaker 1: you know, in the in the in the very bad times,

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Speaker 1: people get depressed. The news is for everybody wants to

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Speaker 1: get out, regardless of how the low the prices. So

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Speaker 1: you know, when I was a kid, my mother said, Howie,

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Speaker 1: buy low, sell high. Most people's emotions lead them to

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Speaker 1: buy high, sell low. We want to counter that. So

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Speaker 1: the element that causes the problems in investing is psychology.

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Speaker 1: If we knew that positive news would result in good

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Speaker 1: price performance, life would be very easy. But it would

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Speaker 1: be only true if if we could buy in at

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Speaker 1: a fair price or an attractive price. If the news

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Speaker 1: will be good, but we overpay for the security to

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Speaker 1: get in, then we may be looking at losses despite

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Speaker 1: the good news. So it's all a matter of emotion.

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Speaker 1: And uh, you know, the reason I wrote this book

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Speaker 1: is so that people could understand what it is that

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Speaker 1: contributes to market cycles. Could understand perhaps the mistakes others

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Speaker 1: may perhaps the mistakes they've been making. His darkly and

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Speaker 1: stop it. Get the you know, the subtitle is the

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Speaker 1: key getting the odds on your side. So let's talk

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Speaker 1: a little bit about that in terms of one of

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Speaker 1: your favorite subjects, which is value. And one of the

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Speaker 1: quotes that I really like of yours is the essential

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Speaker 1: character of value is not what you buy, but what

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Speaker 1: you pay. That clearly has a cyclical element to it.

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Speaker 1: If we're talking about the overall market. What what motivated

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Speaker 1: you to phrase that quite in that that way? Very easy?

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Speaker 1: I started in business fifty years ago. Uh and uh,

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Speaker 1: you know, I started a city bank, and all the

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Speaker 1: New York banks adhered to what was called the nifty

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Speaker 1: fifty investing. They brought the stocks of the fifty best

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Speaker 1: and fastest growing companies in America to which nothing bad

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Speaker 1: could ever happen. And in most cases they were right.

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Speaker 1: There were great companies. They went on to great success,

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Speaker 1: but they were valued so high in nineteen eight that

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Speaker 1: if you if you bought them and held them for

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Speaker 1: five years, you lost almost all your money. Because there

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Speaker 1: is no asset which is so good that it can't

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Speaker 1: be overpriced and us dangerous and and uh and the inverse.

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Speaker 1: You know, there are very few assets which are so

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Speaker 1: bad that you can't make money at them if you

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Speaker 1: I am right. So in night ten years, when I

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Speaker 1: had ten years under my belt, I was asked a

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Speaker 1: city bank to start up the fund for high yield bonds.

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Speaker 1: So in the first few years we bought the best

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Speaker 1: companies in America and lost a lot of money. Starting

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Speaker 1: in seventy eight, I bought the debt of some of

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Speaker 1: the worst companies in America and made a lot of

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Speaker 1: money steadily and safely. And that's when I concluded, it's

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Speaker 1: not what you buy, it's what you pay. I've I've

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Speaker 1: always hated the phrase that came out of the financial

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Speaker 1: crisis toxic assets, because it wasn't the assets that were toxic,

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Speaker 1: it was the prices you could buy the worst bond

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Speaker 1: portfolio if you paid a low enough price. Hey, a

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Speaker 1: lot of people bought bout blocks of paper and double

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Speaker 1: and triple their investment because the price they had paid

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Speaker 1: was so low. Exactly, you know, Barry, at the beginning

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Speaker 1: of the hour, uh, you quoted returns for our distressed

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Speaker 1: dead funds. Well, in our distressed debt funds, we're buying

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Speaker 1: securities of companies that are bankrupt or that everybody thinks

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Speaker 1: will become bankrupt. But you've had very consistent returns over time.

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Speaker 1: We've had very good returns buying stuff that was very

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Speaker 1: dubious in its financial merits, but so cheap that the

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Speaker 1: odds were on our side. And and that's all about price,

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Speaker 1: not quality assets exactly. Let's talk a little about one

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Speaker 1: of your more recent chairman's memos and we'll we'll get

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Speaker 1: into the chairman memos in a In a bit, you

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Speaker 1: said something that kind of caught my eye and was

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Speaker 1: was sort of fascinating. You asked about computers. We were

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Speaker 1: discussing computers, and you asked the following questions, Can they

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Speaker 1: sit down with the CEO and figure out whether he's

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Speaker 1: the next Steve Jobs or not? Can they listen to

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Speaker 1: a bunch of venture capital pitches and know what's the

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Speaker 1: next Amazon? So I thought that was really an intriguing question,

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Speaker 1: but it made me stop and ask myself, well, people

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Speaker 1: do that either? Also, I don't know how good humans

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Speaker 1: are at that process. Well, that's exactly the right question, Barry.

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Speaker 1: Certainly not everybody can. Sure certainly the average person can't.

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Speaker 1: There's a few percent at the top, the people with

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Speaker 1: the most foresight who can figure those things out. They

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Speaker 1: can be great investors. They should be paid a lot

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Speaker 1: for their services. But the average person can't do those things.

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Speaker 1: And the computer may be able to do a better

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Speaker 1: job than the average person because it can digest a

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Speaker 1: lot of data. It doesn't make mistakes, you know. One

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Speaker 1: of the themes of the book is that emotions are

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Speaker 1: the investors enemy. Computers are not very emotional. So in

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Speaker 1: many regards, I believe computers can probably do a better

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Speaker 1: job than some very large percentage of investors, but just

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Speaker 1: not as good as the best. And those folks who

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Speaker 1: are the people who can peer into the future and

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Speaker 1: spot the next Steve Jobs on the next Amazon, there

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Speaker 1: really outliers. We're talking about a teeny tiny percentage of investors, exactly.

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Speaker 1: It's not it's not even the best of the average investors.

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Speaker 1: You're talking about, you know, two and three standard deviations

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Speaker 1: away from that normal Bell Bell curve. I don't want

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Speaker 1: people listening to think, well, I could be one of

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Speaker 1: the better. The average person is never going to be

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Speaker 1: a starting player on an NBA team, and most people

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Speaker 1: are not going to be those outlier who can spot

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Speaker 1: the future ten years before it happens. So if you

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Speaker 1: think about it, what your listeners should spend their time

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Speaker 1: doing is, in my opinion, is figure out how they

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Speaker 1: should position themselves in the market. And and that really

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Speaker 1: comes back to the cycle. You know, in this business,

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Speaker 1: there are only really two things we do. We want

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Speaker 1: to select the better securities and avoid the worst ones.

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Speaker 1: And we want to have more risk exposure when the

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Speaker 1: time is appropriate and less when it's not that ladder

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Speaker 1: thing that cycle positioning, and uh, you know that's the

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Speaker 1: reason for the book. That's my main job at oak

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Speaker 1: Tree is to figure out how we should be positioned

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Speaker 1: in those regards. Uh. Most people can't figure out the

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Speaker 1: next Amazon. You're right, they should they should uh bypassive

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Speaker 1: products or hand off their capital to a professional manager

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Speaker 1: who can add value. But I do think that that you,

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Speaker 1: the listener, should be figuring out where are we in

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Speaker 1: the cycle, what does that imply for my behavior, and

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Speaker 1: how do I want to be positioned visa v risk

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Speaker 1: at this time. So let's talk a little bit about

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Speaker 1: the institutional investor versus the individual. We know most mom

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Speaker 1: and pop investors at home can't do the things that

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Speaker 1: these outliers are capable of doing. Your office works with

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Speaker 1: a lot of institutions. What sort of challenges do institutional

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Speaker 1: investors face that perhaps mom and pop don't or are

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Speaker 1: they just human and suffer the same emotional consequences as anybody.

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Speaker 1: Institutions don't make investments. People make investments for institutions, And

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Speaker 1: you're right, those people have emotions too. Those people are

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Speaker 1: bombarded with the same news that the mom and pop

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Speaker 1: investor is. News is good, news is bad, Taxes up,

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Speaker 1: taxes down, this company beat, this company fell short. Uh,

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Speaker 1: end of the world, you know, trees growing to the sky,

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Speaker 1: whatever it is. Everybody gets those same inputs. Everybody has emotions.

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Speaker 1: So it's not true. Now the the institutional investor may

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Speaker 1: be better educated in finance, may have more experience, etcetera.

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Speaker 1: But uh, it's just not that easy. In general, the

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Speaker 1: professional has the advantage of doing these things full time.

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Speaker 1: But guess what, the mom and pop investor has the

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Speaker 1: advantage that they can't get fired. The the institutional investor

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Speaker 1: has to worry about getting fired. And that makes it

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Speaker 1: hard to do the right thing at the extremes. You know,

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Speaker 1: let's go back, Barry to the fourth quarter of oh eight.

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Speaker 1: Lehman Brothers has gone bankrupt. That stock market is get

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Speaker 1: skating down bond prices are collapsing, and you had to buy.

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Speaker 1: But maybe you say, you know what if I buy

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Speaker 1: today and uh and the market goes down further, maybe

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Speaker 1: I'll lose my job, so I can't do it, and

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Speaker 1: and uh, personal concerns make it very hard even for

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Speaker 1: the profession. You know, career risk is certainly presents all

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Speaker 1: the time, exactly. So around that time, UM, I'm doing

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Speaker 1: this off the top of my head. Somewhere in October,

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00:26:12,400 --> 00:26:17,080
Speaker 1: we saw the markets that fall about before they recovered

409
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Speaker 1: in oh eight, you had already raised money from clients

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Speaker 1: for new distress bond funds. Tell us what you were

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Speaker 1: doing during the fourth quarter of oh eight when really

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Speaker 1: I was about as early in the cycle as as

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Speaker 1: anyone could have um thrown a dart and got lucky with. Well,

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Speaker 1: it really goes back to what I've been saying, which

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Speaker 1: is to do the right thing visa VI the cycle,

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Speaker 1: you have to kind of understand what's going on around you.

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Speaker 1: You know, five oh six, we vastly reduce our risk

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Speaker 1: because we felt that that implausible, undisciplined deals we're getting done,

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Speaker 1: and that shows that the market is undisciplined. So we

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Speaker 1: cut our risk first day of eight of oh seven.

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Speaker 1: Excuse me, we thought there was something coming. We went

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Speaker 1: to our investors. We said we'd like to raise a

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Speaker 1: fund for distress debt. We went out for the biggest

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Speaker 1: amount of money we'd ever raised. We got much more

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Speaker 1: than that because I guess we told the story well,

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Speaker 1: our clients, you were looking for three billion dollars, raised

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Speaker 1: something like seven or eight billions. He ended up at fourteen.

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Speaker 1: So we took We took the first three and a half.

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Speaker 1: We put that in a fund. We said, okay, that's

430
00:27:27,240 --> 00:27:30,359
Speaker 1: her active management today, we're gonna start investing that. But

431
00:27:30,440 --> 00:27:32,960
Speaker 1: we took the other eleven and we said we're gonna

432
00:27:33,000 --> 00:27:36,199
Speaker 1: put that on the shelf in a standby fund. We

433
00:27:36,280 --> 00:27:38,400
Speaker 1: think there'll be a big opportunity. That's when we will

434
00:27:38,440 --> 00:27:42,400
Speaker 1: invest that money. So the first close was MARCHO seven. UH.

435
00:27:42,640 --> 00:27:46,879
Speaker 1: We didn't start investing it and then only slowly until

436
00:27:46,960 --> 00:27:50,720
Speaker 1: June eight, and we had a lot of cash, well

437
00:27:51,240 --> 00:27:55,199
Speaker 1: money we could call uh when Lehman went under, and

438
00:27:55,240 --> 00:27:58,439
Speaker 1: then we we concluded that that was the time to

439
00:27:58,440 --> 00:28:01,960
Speaker 1: spend it. And from September fifteen O eight, which was

440
00:28:02,000 --> 00:28:04,040
Speaker 1: the Leman bankruptcy, until the end of the year over

441
00:28:04,080 --> 00:28:07,200
Speaker 1: those fifteen weeks, we invested over half a billion a week.

442
00:28:08,119 --> 00:28:12,280
Speaker 1: That's amazing that, that's quite quite amazing. So during that period,

443
00:28:12,720 --> 00:28:15,359
Speaker 1: are you getting any sort of pushback from clients? Howard?

444
00:28:15,359 --> 00:28:17,800
Speaker 1: What are you doing? It's crazy out there. Can't you

445
00:28:17,800 --> 00:28:19,879
Speaker 1: just sit on your hands for a few months? And

446
00:28:19,920 --> 00:28:21,840
Speaker 1: how do you deal with that sort of stuff? Well,

447
00:28:21,920 --> 00:28:24,760
Speaker 1: I'm proud of my clients because I did not get

448
00:28:24,760 --> 00:28:29,680
Speaker 1: the pushback. I think they credit us with with doing

449
00:28:29,680 --> 00:28:34,840
Speaker 1: the right thing, and I think they were perhaps glad

450
00:28:34,880 --> 00:28:38,800
Speaker 1: to have us behaving in a countercyclical way. You know,

451
00:28:39,000 --> 00:28:41,920
Speaker 1: so many people were afraid in that fourth quarter that

452
00:28:43,600 --> 00:28:47,520
Speaker 1: may remember, and these were people who had brought into

453
00:28:47,560 --> 00:28:50,040
Speaker 1: our story that there was an opportunity coming, had given

454
00:28:50,120 --> 00:28:53,600
Speaker 1: us money for that occasion. They realized there would be

455
00:28:53,600 --> 00:28:55,360
Speaker 1: a mistake to try to talk us out of spending.

456
00:28:56,000 --> 00:29:00,000
Speaker 1: So so the point is, um, you know, the negative

457
00:29:00,000 --> 00:29:05,080
Speaker 1: civity around us was so great that again it's all

458
00:29:05,080 --> 00:29:07,640
Speaker 1: about recognizing what's going on in the environment where we

459
00:29:07,680 --> 00:29:11,480
Speaker 1: are in the cycle. Prices were down so much and

460
00:29:11,920 --> 00:29:17,160
Speaker 1: there was no limit to people's negativism, no limit. I've

461
00:29:17,200 --> 00:29:20,120
Speaker 1: never heard anybody quite phrase it that way. Well, I

462
00:29:20,200 --> 00:29:22,760
Speaker 1: tell a story in the book about a pension fund.

463
00:29:22,800 --> 00:29:24,800
Speaker 1: I went to see and I talked to the CEO,

464
00:29:25,040 --> 00:29:28,280
Speaker 1: and every time I made a conservative assumption about what

465
00:29:28,320 --> 00:29:31,640
Speaker 1: would happen to my bond portflio, the CEO said, well,

466
00:29:31,640 --> 00:29:33,960
Speaker 1: but but what if it's worse than that? I said, Okay,

467
00:29:34,000 --> 00:29:35,720
Speaker 1: well what if this happened? No, what if it's worse

468
00:29:35,720 --> 00:29:37,840
Speaker 1: than that? Okay that this could happen. No, what if

469
00:29:37,840 --> 00:29:41,400
Speaker 1: it's worse than that? And there was no assumption I

470
00:29:41,440 --> 00:29:45,960
Speaker 1: could make that would satisfy the c e O s fear,

471
00:29:46,160 --> 00:29:49,840
Speaker 1: and I ran back to my office literally ran probably

472
00:29:50,160 --> 00:29:53,160
Speaker 1: and I wrote a memo called the Limits to Negativism.

473
00:29:53,160 --> 00:29:56,080
Speaker 1: I recall that very specifically, and what I said was

474
00:29:56,680 --> 00:29:59,080
Speaker 1: a good investor, be it the mom and pop you

475
00:29:59,160 --> 00:30:02,280
Speaker 1: talk about, be institutional investors. A good investor has to

476
00:30:02,280 --> 00:30:06,400
Speaker 1: be skeptical. You know, everybody sees the same story. The

477
00:30:06,520 --> 00:30:08,520
Speaker 1: great investor has to be able to figure out the

478
00:30:08,560 --> 00:30:13,480
Speaker 1: truth as opposed to the story. Skepticism is an important

479
00:30:13,480 --> 00:30:16,640
Speaker 1: element in that we all know that that in times

480
00:30:16,640 --> 00:30:21,520
Speaker 1: of high optimism, the key is to say no, that's

481
00:30:21,520 --> 00:30:23,920
Speaker 1: too good to be true. People had said that they

482
00:30:23,920 --> 00:30:27,160
Speaker 1: wouldn't have invested with made off for example, too good

483
00:30:27,160 --> 00:30:30,040
Speaker 1: to be true. But what I realized when I wrote

484
00:30:30,040 --> 00:30:32,840
Speaker 1: that memo in at the low point for the credit

485
00:30:32,880 --> 00:30:37,280
Speaker 1: markets of mid October oh eight was that if we're

486
00:30:37,760 --> 00:30:41,560
Speaker 1: professionals and if we want to be great investors, we

487
00:30:41,640 --> 00:30:46,760
Speaker 1: have to be skeptical. And in times of excessive pessimism,

488
00:30:46,800 --> 00:30:49,040
Speaker 1: it's our job to say, no, that's too bad to

489
00:30:49,120 --> 00:30:54,400
Speaker 1: be true. And that's the kind of thinking, uh cyclical

490
00:30:54,680 --> 00:30:59,120
Speaker 1: inference that permitted us to invest aggressively when people were

491
00:30:59,160 --> 00:31:01,200
Speaker 1: talking about the end of the world. We have been

492
00:31:01,240 --> 00:31:05,120
Speaker 1: speaking with Howard Marks of oak Tree Capital. If you

493
00:31:05,280 --> 00:31:08,520
Speaker 1: enjoy this conversation, be sure and come back for the

494
00:31:08,560 --> 00:31:11,960
Speaker 1: podcast extras. Will we continue discussing all things cyclical as

495
00:31:11,960 --> 00:31:15,840
Speaker 1: well as distressed debt and other such things. We love

496
00:31:15,880 --> 00:31:19,600
Speaker 1: your comments, feedback and suggestions right to us at m

497
00:31:19,640 --> 00:31:22,680
Speaker 1: IB podcast at Bloomberg dot net. You can check out

498
00:31:22,680 --> 00:31:25,520
Speaker 1: my daily column on Bloomberg dot com. Follow me on

499
00:31:25,560 --> 00:31:29,240
Speaker 1: Twitter at rit Halts. I'm Barry rid Halts. You're listening

500
00:31:29,240 --> 00:31:47,120
Speaker 1: to Masters in Business on Bloomberg Radio. Welcome to the podcast, Howard.

501
00:31:47,160 --> 00:31:49,400
Speaker 1: Thank you so much for doing this. Um. I'm not

502
00:31:49,440 --> 00:31:52,760
Speaker 1: sure if this is our second or third time around,

503
00:31:52,800 --> 00:31:55,200
Speaker 1: but every time I sit and have a conversation with you,

504
00:31:55,800 --> 00:31:59,200
Speaker 1: my email lights up, and people are always so intrigued

505
00:31:59,240 --> 00:32:03,840
Speaker 1: and fascinated, um by your philosophy. I wanted to spend

506
00:32:03,880 --> 00:32:07,040
Speaker 1: a little time talking about the arc of your career

507
00:32:07,080 --> 00:32:09,960
Speaker 1: and some of the really interesting things that you've seen

508
00:32:10,120 --> 00:32:13,600
Speaker 1: and done and written and all that has to start

509
00:32:13,720 --> 00:32:16,479
Speaker 1: with memos to clients. But I've been calling them chairman's

510
00:32:16,560 --> 00:32:19,120
Speaker 1: memos for a long time. And the last time you

511
00:32:19,160 --> 00:32:22,880
Speaker 1: hear you told me something that I found absolutely fascinating.

512
00:32:23,600 --> 00:32:27,920
Speaker 1: When you began doing these, you were literally this wasn't

513
00:32:27,960 --> 00:32:31,200
Speaker 1: just an email or web thing. You were literally printing

514
00:32:31,240 --> 00:32:35,160
Speaker 1: them out and mailing them to various people. When did

515
00:32:35,160 --> 00:32:38,600
Speaker 1: the chairman's mamos two clients begin? They started a n

516
00:32:39,560 --> 00:32:44,360
Speaker 1: okay so kind of pre email, pre website. We carved

517
00:32:44,400 --> 00:32:48,560
Speaker 1: him in and stop and stones in the cave. But

518
00:32:48,800 --> 00:32:52,080
Speaker 1: you know, I I observed a couple of facts, the

519
00:32:52,200 --> 00:32:56,120
Speaker 1: juxtaposition of which I thought really told a great story.

520
00:32:56,000 --> 00:32:59,120
Speaker 1: I talked about the importance of consistency and investing in

521
00:32:59,240 --> 00:33:04,040
Speaker 1: risk control. And uh so I wrote it out and

522
00:33:04,160 --> 00:33:07,720
Speaker 1: I folded it up, and I put it in envelopes

523
00:33:07,760 --> 00:33:09,520
Speaker 1: and put stamps on and we sent it out to

524
00:33:09,640 --> 00:33:14,360
Speaker 1: our our clients, and I did one in nineteen nine,

525
00:33:14,600 --> 00:33:18,880
Speaker 1: and I did one in And you know, I don't remember, ever, uh,

526
00:33:19,640 --> 00:33:24,000
Speaker 1: making a conscious decision to to make this a regular thing.

527
00:33:24,480 --> 00:33:27,520
Speaker 1: I never remember saying that I thought it would result

528
00:33:27,520 --> 00:33:31,760
Speaker 1: in a advantage business wise. I just thought there were

529
00:33:31,920 --> 00:33:34,840
Speaker 1: interesting observations that I wanted to share with my clients.

530
00:33:35,280 --> 00:33:37,880
Speaker 1: And they, you know, they went out a few hundred

531
00:33:37,880 --> 00:33:41,080
Speaker 1: of them at a time. And what was the feedback

532
00:33:41,120 --> 00:33:45,800
Speaker 1: when you sent the first one out? For ten years, Barry,

533
00:33:46,560 --> 00:33:50,520
Speaker 1: I never had a response, crickets, just nothing. Not only

534
00:33:50,600 --> 00:33:54,560
Speaker 1: did nobody say they thought it was good, nobody said

535
00:33:54,600 --> 00:33:57,640
Speaker 1: I got it. That's amazing. And and and so the

536
00:33:57,680 --> 00:34:00,120
Speaker 1: interesting question is what kept me going? And I have

537
00:34:00,200 --> 00:34:02,880
Speaker 1: no idea. And the answer I think is that I

538
00:34:02,960 --> 00:34:06,680
Speaker 1: was writing for myself. You know. Number one, it's creative.

539
00:34:06,720 --> 00:34:09,279
Speaker 1: I enjoyed the writing process. Number Two, I thought that

540
00:34:09,320 --> 00:34:11,960
Speaker 1: two topics are interesting and that I wanted to put

541
00:34:12,000 --> 00:34:15,440
Speaker 1: them on paper. Number Three, writing makes you tighten up

542
00:34:15,480 --> 00:34:18,880
Speaker 1: your thinking. That's Daniel Boston's famous quote. I right to

543
00:34:18,920 --> 00:34:21,279
Speaker 1: figure out what I what I think. And besides, at

544
00:34:21,360 --> 00:34:24,160
Speaker 1: that hour, the bars are all closed, is what the

545
00:34:24,200 --> 00:34:27,520
Speaker 1: librarian of Congress once said, but I'm you know, we

546
00:34:27,640 --> 00:34:32,240
Speaker 1: live in an era where it's immediate feedback. You post

547
00:34:32,560 --> 00:34:36,600
Speaker 1: a tweet or something to Instagram, immediate likes, immediate up votes.

548
00:34:36,680 --> 00:34:41,200
Speaker 1: It's just you know that that feedback loop is designed

549
00:34:41,200 --> 00:34:44,320
Speaker 1: to give you that dopamine hit. It's amazing that you

550
00:34:44,400 --> 00:34:47,759
Speaker 1: spent a full decade sending these out and not a

551
00:34:47,880 --> 00:34:51,000
Speaker 1: peep from anybody. So what was the one that that

552
00:34:51,080 --> 00:34:53,160
Speaker 1: changed it? But you look like you're about to say so.

553
00:34:53,239 --> 00:34:56,200
Speaker 1: On the first day of two thousand, I put out

554
00:34:56,200 --> 00:34:59,279
Speaker 1: a memo that I've been working on called bubble dot Com.

555
00:34:59,320 --> 00:35:02,160
Speaker 1: I recall that also that was a huge balance story.

556
00:35:02,560 --> 00:35:06,520
Speaker 1: That's right and it not. It had two advantages. Number one,

557
00:35:06,560 --> 00:35:09,760
Speaker 1: it was right, and number two, it was right fast,

558
00:35:10,480 --> 00:35:12,960
Speaker 1: because in our business, being too far ahead of your

559
00:35:12,960 --> 00:35:18,000
Speaker 1: time is indistinguishable from being wrong. Here, you know, I

560
00:35:18,000 --> 00:35:21,000
Speaker 1: I raised some questions about the text docs, and within

561
00:35:21,920 --> 00:35:25,440
Speaker 1: two months, a few months, it was January two thousand.

562
00:35:25,640 --> 00:35:27,600
Speaker 1: By the first or second week in March, it was

563
00:35:27,640 --> 00:35:31,439
Speaker 1: all over. But the crime they kind of turned over

564
00:35:31,480 --> 00:35:36,000
Speaker 1: and collapsed. And the way I put it is, after

565
00:35:36,080 --> 00:35:39,080
Speaker 1: ten years I became an overnight success. And and you know,

566
00:35:39,160 --> 00:35:42,360
Speaker 1: and and there was a lot of response to that memo.

567
00:35:42,680 --> 00:35:46,520
Speaker 1: Of course, by that time we did have email and internet,

568
00:35:46,960 --> 00:35:49,600
Speaker 1: things did go viral. You know. Then I had the

569
00:35:49,800 --> 00:35:52,960
Speaker 1: opposite experience of the first decade. Then I had the

570
00:35:53,000 --> 00:35:55,160
Speaker 1: experience of, you know, I'd put out a memo on

571
00:35:55,200 --> 00:35:58,840
Speaker 1: a Tuesday morning and Tuesday afternoon, Uh, one of my

572
00:35:58,880 --> 00:36:00,960
Speaker 1: friends would call. Obviously some guy in Russia just sent

573
00:36:01,040 --> 00:36:04,040
Speaker 1: me this. It's terrific, you know, so so Uh, you

574
00:36:04,080 --> 00:36:07,840
Speaker 1: know it's been it's been really great. Uh, they're they're

575
00:36:07,880 --> 00:36:10,239
Speaker 1: well over a hundred memos now, all available by the

576
00:36:10,280 --> 00:36:13,719
Speaker 1: way at www dot oak Tree Capitol dot com under

577
00:36:13,760 --> 00:36:17,239
Speaker 1: the heading Insights and uh the price is right there

578
00:36:17,280 --> 00:36:20,880
Speaker 1: free and uh and uh, you know I take I

579
00:36:20,960 --> 00:36:24,000
Speaker 1: take great pride and have great fun with it. Well,

580
00:36:24,040 --> 00:36:26,640
Speaker 1: I know, in my office, whenever a new memo comes out,

581
00:36:26,800 --> 00:36:32,399
Speaker 1: everybody starts talking about it. It becomes um, lunchtime conversation,

582
00:36:32,640 --> 00:36:34,759
Speaker 1: or or people will print it out reading on the

583
00:36:34,840 --> 00:36:37,040
Speaker 1: way home or what have you. Um. I hope you

584
00:36:37,080 --> 00:36:40,880
Speaker 1: continue to do these for the uh long term, because

585
00:36:41,640 --> 00:36:44,760
Speaker 1: I've personally found them to be very educational and very

586
00:36:45,280 --> 00:36:49,439
Speaker 1: thought provoking. Let's talk a little bit about one other

587
00:36:49,480 --> 00:36:52,640
Speaker 1: thing before I get to the other questions that I missed.

588
00:36:53,440 --> 00:36:59,120
Speaker 1: You describe the importance of cycles in the new book. Uh.

589
00:36:59,480 --> 00:37:01,760
Speaker 1: Knowing where you are in the cycle is so crucial

590
00:37:01,880 --> 00:37:05,800
Speaker 1: for your investment posture. How do you figure out where

591
00:37:05,840 --> 00:37:10,359
Speaker 1: you are in that cycle? I describe a process that

592
00:37:10,400 --> 00:37:15,720
Speaker 1: I call taking the temperature of the market. And there's

593
00:37:15,760 --> 00:37:18,719
Speaker 1: the quantitative, which is looking at you know, for for

594
00:37:18,800 --> 00:37:22,520
Speaker 1: every investment, there is a valuation parameter. For stocks, it's

595
00:37:22,600 --> 00:37:25,440
Speaker 1: pe ratio. For bonds, it's the yield and the yield

596
00:37:25,480 --> 00:37:29,040
Speaker 1: spread over other bonds. For real estate, it's what we

597
00:37:29,120 --> 00:37:36,360
Speaker 1: call the capitalization rate the income uh. For for companies,

598
00:37:36,400 --> 00:37:41,520
Speaker 1: it's the profitability. There are all these indices, and so

599
00:37:41,600 --> 00:37:44,680
Speaker 1: we can figure out quantitatively what's going on or ares

600
00:37:44,719 --> 00:37:47,520
Speaker 1: things expensive or cheap relative to the past. But the

601
00:37:47,560 --> 00:37:51,680
Speaker 1: other thing is qualitative, And and what I look at

602
00:37:51,960 --> 00:37:58,480
Speaker 1: is how are people behaviorally? Are they excited or depressed?

603
00:37:59,000 --> 00:38:02,799
Speaker 1: Are they greedy or fearful? Are they optimistic or pessimistic?

604
00:38:03,320 --> 00:38:08,040
Speaker 1: Um are they risk uh tolerant or risk averse? And

605
00:38:08,600 --> 00:38:11,400
Speaker 1: you know, UH, if I if I looked at a

606
00:38:11,440 --> 00:38:15,279
Speaker 1: stock or an investment, and if I could only ask

607
00:38:15,320 --> 00:38:18,840
Speaker 1: one question, Barry, it would be how much optimism is

608
00:38:18,840 --> 00:38:22,279
Speaker 1: in the price. We want to buy things where the

609
00:38:22,360 --> 00:38:27,200
Speaker 1: price falls short of the real value, that's called the bargain.

610
00:38:27,560 --> 00:38:30,400
Speaker 1: And we get that when people are not optimistic about

611
00:38:30,440 --> 00:38:34,120
Speaker 1: that stock or company. If the if, if everybody thinks

612
00:38:34,120 --> 00:38:36,759
Speaker 1: it's terrific, could never stumble like the nifty fifty or

613
00:38:36,800 --> 00:38:40,880
Speaker 1: fifty years ago. Uh, then the optimism is high. The

614
00:38:40,960 --> 00:38:44,680
Speaker 1: chances are that the price is high relative to the value.

615
00:38:45,000 --> 00:38:48,080
Speaker 1: So we want to take the temperature to understand where

616
00:38:48,080 --> 00:38:49,880
Speaker 1: we are in the cycle. And I always say that

617
00:38:49,920 --> 00:38:53,160
Speaker 1: if I go to a cocktail party and people gather around,

618
00:38:53,520 --> 00:38:57,960
Speaker 1: I know the markets too high. Some someone else described

619
00:38:57,960 --> 00:39:02,000
Speaker 1: that as conversational alpha. When people start start chit channing

620
00:39:02,000 --> 00:39:05,759
Speaker 1: at barbecues and cocktail parties. Hey, that's a that's a

621
00:39:05,800 --> 00:39:09,319
Speaker 1: sign that we're getting close to the top. Um, how

622
00:39:09,360 --> 00:39:13,680
Speaker 1: do you identify that when you're talking about individual stocks?

623
00:39:13,719 --> 00:39:16,560
Speaker 1: Are you thinking about this in terms of the whole market,

624
00:39:16,600 --> 00:39:20,400
Speaker 1: because there's always stocks that seem to become unhinged and

625
00:39:21,200 --> 00:39:25,320
Speaker 1: take off. Look at what happened with bitcoin from practically

626
00:39:25,360 --> 00:39:29,600
Speaker 1: nothing to nineteen thousand. What does that tell us about? Uh,

627
00:39:29,719 --> 00:39:33,600
Speaker 1: the sentiment that's out there. Well, you know, most of

628
00:39:33,600 --> 00:39:37,520
Speaker 1: my references are to the market. That's why the book

629
00:39:37,560 --> 00:39:44,320
Speaker 1: title references the market cycle. Uh. I imagine similar thinking

630
00:39:44,719 --> 00:39:48,160
Speaker 1: can be applied to individual investments, individual stocks, and as

631
00:39:48,200 --> 00:39:52,160
Speaker 1: you say, even individual currencies. Uh. But you know the

632
00:39:52,520 --> 00:39:55,440
Speaker 1: same thing is true when you consider making an investment,

633
00:39:56,040 --> 00:39:58,800
Speaker 1: whether you're operating at the market level or the individual

634
00:39:58,840 --> 00:40:04,560
Speaker 1: security level. Hard to figure out. Has this stock or

635
00:40:04,680 --> 00:40:08,759
Speaker 1: bond been the beneficiary of a buying frenzy, in which

636
00:40:08,760 --> 00:40:11,479
Speaker 1: case you probably want to avoid, or it has been

637
00:40:11,920 --> 00:40:15,479
Speaker 1: disrespected and downtrodden, in which case it may be worth

638
00:40:15,480 --> 00:40:17,839
Speaker 1: a good look. And one of the things they didn't

639
00:40:17,840 --> 00:40:22,200
Speaker 1: get to before was your time at Trust Company of

640
00:40:22,239 --> 00:40:24,840
Speaker 1: the West. You worked with a gentleman named Jeff Gunlock,

641
00:40:25,480 --> 00:40:30,080
Speaker 1: who very famously left and launched Double Line with UH

642
00:40:30,360 --> 00:40:33,919
Speaker 1: yours and oak Tree's help. I believe at one point

643
00:40:33,960 --> 00:40:36,799
Speaker 1: in time Outrey was a owner. Is that still the case?

644
00:40:36,880 --> 00:40:39,680
Speaker 1: We are still owner? And and that was one of

645
00:40:39,719 --> 00:40:43,880
Speaker 1: the fastest growing funds from zero to a hundred billion,

646
00:40:44,080 --> 00:40:47,120
Speaker 1: like almost like that. Yes, I think it probably took

647
00:40:47,360 --> 00:40:49,440
Speaker 1: it felt like a snap of the fingers. It might

648
00:40:49,480 --> 00:40:53,560
Speaker 1: have taken five years. But as you say, probably for

649
00:40:53,600 --> 00:40:56,960
Speaker 1: an investment management firm. The fastest zero to a hundred

650
00:40:56,960 --> 00:41:01,440
Speaker 1: in history. And you know Jeff as a contrarian. Jeff,

651
00:41:01,560 --> 00:41:04,680
Speaker 1: Jeff marches to his own drummer, does a very good

652
00:41:04,719 --> 00:41:07,840
Speaker 1: job of managing money. And it's been a great investment

653
00:41:07,880 --> 00:41:12,239
Speaker 1: for us. And that's owned by oak Tree. So you biotry,

654
00:41:12,320 --> 00:41:14,600
Speaker 1: you get um, you get Howard Marks, and you get

655
00:41:14,640 --> 00:41:18,880
Speaker 1: a little bit of a hedge with Jeff Gunlock as

656
00:41:18,680 --> 00:41:22,440
Speaker 1: UH slug exactly. Huh quite quite interesting. What what was

657
00:41:22,480 --> 00:41:25,080
Speaker 1: it like when you were working with Jeff at Trust

658
00:41:25,120 --> 00:41:28,799
Speaker 1: Company and of the West And how did you know

659
00:41:28,920 --> 00:41:31,839
Speaker 1: he was gonna end up being as successful as he

660
00:41:31,880 --> 00:41:37,880
Speaker 1: turned out to be? Or the my last year at TCW,

661
00:41:38,360 --> 00:41:43,520
Speaker 1: UH around February, interest rates rose the fastest they had

662
00:41:43,560 --> 00:41:50,040
Speaker 1: ever risen in history. And Uh, Jeff was probably seven

663
00:41:50,200 --> 00:41:53,680
Speaker 1: years of experience at that point in time. His portfolios

664
00:41:53,800 --> 00:41:57,600
Speaker 1: ran into some problems. UH, and Jeff and I began

665
00:41:57,719 --> 00:42:02,239
Speaker 1: to work together at that point. Formally, UH I was

666
00:42:02,280 --> 00:42:07,560
Speaker 1: asked to UH to let him report to me together.

667
00:42:08,160 --> 00:42:11,400
Speaker 1: We we we verified the values in the portfolios and

668
00:42:11,440 --> 00:42:13,719
Speaker 1: importantly we were able to convince the clients to stay

669
00:42:13,719 --> 00:42:16,799
Speaker 1: with it. You know, the cardinal sinuh in investing is

670
00:42:16,840 --> 00:42:20,040
Speaker 1: not buying something closed down. The cardinal sin is selling

671
00:42:20,040 --> 00:42:22,920
Speaker 1: out at the bottom and not participating in the recovery.

672
00:42:23,200 --> 00:42:26,919
Speaker 1: And we were able to enable Jeff's clients to participate

673
00:42:26,960 --> 00:42:29,960
Speaker 1: in a great recovery. Uh. It was obvious that he

674
00:42:30,040 --> 00:42:33,680
Speaker 1: was super smart. And uh so when when Jeff left

675
00:42:33,680 --> 00:42:37,640
Speaker 1: t C W in uh you oh nine, Uh you know,

676
00:42:37,719 --> 00:42:41,799
Speaker 1: we were very glad to to join forces. So what

677
00:42:41,880 --> 00:42:44,440
Speaker 1: else are you looking at these days that has you worried?

678
00:42:44,520 --> 00:42:49,800
Speaker 1: I know you said evaluate that valuations are pretty stocks

679
00:42:49,800 --> 00:42:52,680
Speaker 1: and bonds are both pretty fully valued on the verge

680
00:42:52,719 --> 00:42:57,360
Speaker 1: of richness. What else is the potential move forward with

681
00:42:57,440 --> 00:43:02,160
Speaker 1: caution type of a factor? Well, is unloved today? That's

682
00:43:02,160 --> 00:43:06,880
Speaker 1: a question. Hardly anything except maybe emerging markets for sure. Okay,

683
00:43:06,920 --> 00:43:12,440
Speaker 1: maybe China, Uh you know now, Turkey, Argentina, these are

684
00:43:12,440 --> 00:43:16,839
Speaker 1: pretty terrifying. Uh, but Russia for that matter. But they

685
00:43:16,840 --> 00:43:20,680
Speaker 1: are unloved, which means you maybe you should start looking there.

686
00:43:20,719 --> 00:43:25,319
Speaker 1: I'm not saying bye, but but investigate. Uh. But you

687
00:43:25,400 --> 00:43:29,360
Speaker 1: know the truth of the matter is that, as you say,

688
00:43:29,400 --> 00:43:33,640
Speaker 1: there's very little today on the bargain counter. And if

689
00:43:33,719 --> 00:43:38,239
Speaker 1: you're criterion for investing is that you want bargains for

690
00:43:38,280 --> 00:43:40,839
Speaker 1: the most part, they're not there. You're a decade too late.

691
00:43:40,920 --> 00:43:44,520
Speaker 1: Exactly now now, Warren Buffett talks about one of the

692
00:43:44,560 --> 00:43:47,759
Speaker 1: great things about investing is that you know, you can

693
00:43:47,800 --> 00:43:49,920
Speaker 1: stand at the plate with the bat on your shoulder,

694
00:43:50,560 --> 00:43:53,520
Speaker 1: and in investing you can't get called out on strikes,

695
00:43:54,120 --> 00:43:56,080
Speaker 1: so you can you can wait until you get a

696
00:43:56,080 --> 00:44:00,440
Speaker 1: fat pitch. And today it's very challenging because there are

697
00:44:00,440 --> 00:44:03,600
Speaker 1: a few fat pitches. At the same time, those of

698
00:44:03,680 --> 00:44:06,160
Speaker 1: us with money, be at my institutional clients, be at

699
00:44:06,160 --> 00:44:10,480
Speaker 1: the individual investor with money, the money has to go someplace.

700
00:44:11,120 --> 00:44:15,279
Speaker 1: You want to get a a credible return, You want

701
00:44:15,280 --> 00:44:19,279
Speaker 1: to control your risk. And you know, in theory, one

702
00:44:19,360 --> 00:44:22,760
Speaker 1: could figure out when the markets at are real high

703
00:44:22,880 --> 00:44:25,760
Speaker 1: and sell. You could figure out when the market's terribly

704
00:44:25,800 --> 00:44:29,120
Speaker 1: depressed and buy. And these things are exciting and they're

705
00:44:29,200 --> 00:44:32,200
Speaker 1: extremely rewarding. But much of the time the market is

706
00:44:32,239 --> 00:44:36,520
Speaker 1: somewhere in between. And what do you do in those

707
00:44:36,560 --> 00:44:42,480
Speaker 1: times not so obvious, but you know, uh, figuring it

708
00:44:42,520 --> 00:44:46,200
Speaker 1: out is key. Standing with the bat on your shoulders

709
00:44:46,200 --> 00:44:51,160
Speaker 1: maybe key. Reducing your risk in the ways we discussed before.

710
00:44:51,719 --> 00:44:54,719
Speaker 1: These are the keys, but again they all start with

711
00:44:54,760 --> 00:44:57,799
Speaker 1: figuring out where we stand. That's behind the concept move

712
00:44:57,920 --> 00:45:01,759
Speaker 1: forward but with caution. That's been our mantra for for

713
00:45:01,800 --> 00:45:04,839
Speaker 1: a couple of years now. And uh, you know, when

714
00:45:04,880 --> 00:45:09,000
Speaker 1: you when you apply caution, you don't get the full

715
00:45:09,040 --> 00:45:12,040
Speaker 1: return of the market when it soars, but you also

716
00:45:12,160 --> 00:45:14,919
Speaker 1: stay in the game. It makes sense. Let's talk about

717
00:45:14,920 --> 00:45:19,399
Speaker 1: another chairman's memo. I really liked the title what does

718
00:45:19,480 --> 00:45:22,360
Speaker 1: the Market Know? Tell us a little bit about the

719
00:45:22,440 --> 00:45:26,279
Speaker 1: thinking behind that in the market got off to its

720
00:45:26,280 --> 00:45:30,960
Speaker 1: worst start in history, and I wrote a memo called

721
00:45:30,960 --> 00:45:35,120
Speaker 1: on the Couch, and I talked about the fact that

722
00:45:35,239 --> 00:45:39,040
Speaker 1: sometimes the market is nutty and needs a trip to

723
00:45:39,080 --> 00:45:43,080
Speaker 1: the shrink. And you know, because sometimes the market obsesses

724
00:45:43,080 --> 00:45:46,320
Speaker 1: about the positives and ignores the negatives and that's dangerous.

725
00:45:46,600 --> 00:45:50,080
Speaker 1: And sometimes it ignores the positive and obsesses about the

726
00:45:50,120 --> 00:45:53,800
Speaker 1: negatives and that's the time to move. And that market

727
00:45:53,840 --> 00:45:55,919
Speaker 1: was collapsing and I didn't see any reason for it.

728
00:45:56,160 --> 00:46:01,640
Speaker 1: So I talked about the the the non fit between

729
00:46:01,719 --> 00:46:07,279
Speaker 1: reality and market behavior. I came into Bloomberg TV, as

730
00:46:07,320 --> 00:46:09,839
Speaker 1: I often do when I write the memos to talk

731
00:46:09,840 --> 00:46:14,000
Speaker 1: about it, and the anchors were saying to me, well, uh,

732
00:46:14,239 --> 00:46:17,880
Speaker 1: doesn't the fact that the market is going down is

733
00:46:17,960 --> 00:46:21,360
Speaker 1: not a cell signal. Again, I ran back to the

734
00:46:21,440 --> 00:46:25,000
Speaker 1: office to write a memo called what does the market? No,

735
00:46:26,280 --> 00:46:30,080
Speaker 1: there is no market. There's only a bunch of people,

736
00:46:31,200 --> 00:46:36,160
Speaker 1: and their decisions are not better than they're The collective

737
00:46:36,200 --> 00:46:38,720
Speaker 1: decision of the people in the market are not better

738
00:46:39,040 --> 00:46:42,800
Speaker 1: than the decisions of the individuals, and they are riven

739
00:46:42,880 --> 00:46:47,839
Speaker 1: with psychology and they are everything in our bodies is

740
00:46:47,920 --> 00:46:50,399
Speaker 1: directed at making us do the wrong thing. And one

741
00:46:50,440 --> 00:46:53,000
Speaker 1: of the one of my major themes is how to

742
00:46:53,080 --> 00:46:56,120
Speaker 1: figure that out and resist it. But you know, you

743
00:46:56,160 --> 00:46:57,960
Speaker 1: don't want to buy at the top when things are great.

744
00:46:58,000 --> 00:46:59,520
Speaker 1: You don't want to sell at the bottom when things

745
00:46:59,520 --> 00:47:05,480
Speaker 1: are terrible. And uh so, uh if the market is down,

746
00:47:06,400 --> 00:47:08,840
Speaker 1: you can't take that as a cell single. All it

747
00:47:08,920 --> 00:47:11,799
Speaker 1: tells you is that people have lost faith. But if

748
00:47:11,840 --> 00:47:16,000
Speaker 1: they've lost faith, maybe that's a buy opportunity. So you

749
00:47:16,000 --> 00:47:21,200
Speaker 1: you must not let the market give you your signals.

750
00:47:21,239 --> 00:47:27,080
Speaker 1: Your your investing has to come from place of of

751
00:47:27,200 --> 00:47:33,400
Speaker 1: an analysis and not emotion. So in other words, the

752
00:47:33,440 --> 00:47:35,839
Speaker 1: market just doesn't go straight up or straight down if

753
00:47:35,840 --> 00:47:38,840
Speaker 1: you have a bad January. So what it's one month?

754
00:47:38,920 --> 00:47:41,239
Speaker 1: Is that the thinking, Well, that's that's for sure. I

755
00:47:41,239 --> 00:47:45,720
Speaker 1: mean the thinking, Barry, is that the fact that things

756
00:47:45,719 --> 00:47:48,759
Speaker 1: have gone down is not a cell single. I mean,

757
00:47:49,680 --> 00:47:53,520
Speaker 1: look at the stores. When they put stuff on sale,

758
00:47:53,920 --> 00:47:58,000
Speaker 1: people buy more. In the investment business, when they put

759
00:47:58,040 --> 00:48:02,120
Speaker 1: stuff on sale, people sell when they should be buying.

760
00:48:03,000 --> 00:48:08,320
Speaker 1: And uh, you know, in order to be an effective investor,

761
00:48:09,080 --> 00:48:11,239
Speaker 1: one of the themes in the book says you have

762
00:48:11,400 --> 00:48:16,200
Speaker 1: to develop kind of a contrarian way of thinking. If

763
00:48:16,239 --> 00:48:19,720
Speaker 1: I said to you, you know, Barry, uh, you should

764
00:48:19,719 --> 00:48:22,239
Speaker 1: buy this because nobody else is willing to. Well, nine

765
00:48:22,560 --> 00:48:25,240
Speaker 1: people out of ten probably would say, well, if everybody

766
00:48:25,280 --> 00:48:27,680
Speaker 1: else is selling, then it's probably not a good thing

767
00:48:27,760 --> 00:48:32,680
Speaker 1: to buy something. But that one person out of tend says, well,

768
00:48:32,760 --> 00:48:35,600
Speaker 1: if nine people out attend a selling, uh, it must

769
00:48:35,640 --> 00:48:38,279
Speaker 1: be cheap. I'm going to be a buyer. That's a contrarian.

770
00:48:38,840 --> 00:48:42,319
Speaker 1: And uh, you know that's the opposite of letting the

771
00:48:42,360 --> 00:48:44,799
Speaker 1: market tell you what to do. And believe me, in

772
00:48:44,840 --> 00:48:47,960
Speaker 1: the long run, it pays off better, even though it's

773
00:48:48,000 --> 00:48:51,600
Speaker 1: more difficult and more emotionally uncomfortable and more challenging and

774
00:48:51,640 --> 00:48:56,200
Speaker 1: filling the blank all of that. And you know, uh,

775
00:48:56,280 --> 00:49:00,200
Speaker 1: I never in my books or any place else, I

776
00:49:00,280 --> 00:49:03,800
Speaker 1: never want to give people the impression that this is easy.

777
00:49:04,000 --> 00:49:08,200
Speaker 1: If it was easy, everyone would be wealthy. But uh,

778
00:49:08,920 --> 00:49:12,480
Speaker 1: but it can be done. That's the point. If you can,

779
00:49:12,640 --> 00:49:17,719
Speaker 1: if if you can learn the lessons, you can learn

780
00:49:17,800 --> 00:49:20,919
Speaker 1: to do this thinking. You can learn to assess what's

781
00:49:20,960 --> 00:49:23,080
Speaker 1: going on in the market, where is in a cycle?

782
00:49:23,160 --> 00:49:26,560
Speaker 1: What should I do? And uh, you know that was

783
00:49:26,600 --> 00:49:29,600
Speaker 1: my purpose in writing. That's what I hoped to do

784
00:49:29,719 --> 00:49:32,400
Speaker 1: with the book. So let me get to my last

785
00:49:32,400 --> 00:49:36,040
Speaker 1: couple of questions before I jump to my list of favorites.

786
00:49:36,600 --> 00:49:40,560
Speaker 1: We haven't discussed very much about the FED or the

787
00:49:40,640 --> 00:49:44,560
Speaker 1: possibility of an inverted yield curve. We watched that spread

788
00:49:44,719 --> 00:49:48,640
Speaker 1: narrow and tighten, but hasn't quite inverted yet. Let's talk

789
00:49:48,680 --> 00:49:51,960
Speaker 1: about the cycle with the Federal Reserve, which you reference

790
00:49:52,040 --> 00:49:55,840
Speaker 1: also in Mastering the market cycle. Where is the FED

791
00:49:55,920 --> 00:49:58,760
Speaker 1: relative to what's going on? Are they behind the curve

792
00:49:58,880 --> 00:50:01,640
Speaker 1: or they just are they ahead of the curve? What?

793
00:50:01,640 --> 00:50:03,520
Speaker 1: What do you think about the U s Central Bank

794
00:50:03,600 --> 00:50:08,719
Speaker 1: and what they've been doing. We've gone through a unique period,

795
00:50:09,520 --> 00:50:13,319
Speaker 1: the significance of which is hard to discern. In O

796
00:50:13,840 --> 00:50:18,280
Speaker 1: eight oh nine, we had the worst crisis since the

797
00:50:18,440 --> 00:50:23,640
Speaker 1: Great Crash of twenty nine and the following depression. As

798
00:50:23,640 --> 00:50:26,840
Speaker 1: a result, the FED engaged in the greatest program of

799
00:50:27,000 --> 00:50:31,920
Speaker 1: stimulus that it ever has. It took interest rates to

800
00:50:32,000 --> 00:50:34,759
Speaker 1: the lowest level they've ever been. By the way, you

801
00:50:34,800 --> 00:50:37,719
Speaker 1: mentioned that earlier, and I wanted to tell you. I

802
00:50:37,760 --> 00:50:43,200
Speaker 1: had Richard sillah In who runs the Museum of Financial History.

803
00:50:43,760 --> 00:50:47,200
Speaker 1: He said, literally, this is the lowest interest rates since

804
00:50:47,239 --> 00:50:51,640
Speaker 1: the Babylonians, since the Romans, since the Macedonians, the lowest

805
00:50:51,680 --> 00:50:54,560
Speaker 1: in human history. I wonder if the Macedonian bank state

806
00:50:54,600 --> 00:50:58,719
Speaker 1: and business. But so anyway, the point is, we had

807
00:50:58,719 --> 00:51:02,040
Speaker 1: a terrible financial crisis, we had an ultra strong period

808
00:51:02,040 --> 00:51:05,480
Speaker 1: of program of stimulus and quantitative easy we had and

809
00:51:05,719 --> 00:51:10,959
Speaker 1: usually low interest rates, and now we've had a long

810
00:51:11,040 --> 00:51:15,000
Speaker 1: economic recovery, a long bowl market. Now the Fed, as

811
00:51:15,000 --> 00:51:17,200
Speaker 1: we said before, is raising rates. It's done at eight

812
00:51:17,239 --> 00:51:20,240
Speaker 1: times already, they're up to two plus and they're probably

813
00:51:20,239 --> 00:51:22,520
Speaker 1: gonna go on another half a dozen times and get

814
00:51:22,560 --> 00:51:26,120
Speaker 1: them into the into the threes. I don't know if

815
00:51:26,160 --> 00:51:29,600
Speaker 1: they'll get the FED funds rate up to four. But

816
00:51:31,120 --> 00:51:34,640
Speaker 1: the point is that, uh, this has never been done

817
00:51:34,680 --> 00:51:39,800
Speaker 1: before on this scale and this duration, and we cannot

818
00:51:39,800 --> 00:51:43,200
Speaker 1: say for sure what the outcome will be. You know,

819
00:51:43,320 --> 00:51:45,359
Speaker 1: if you if something is going on that has never

820
00:51:45,400 --> 00:51:47,440
Speaker 1: been seen before, you certainly can't say that you know

821
00:51:47,480 --> 00:51:52,160
Speaker 1: how the movie's gonna end. And so uh you know, Uh,

822
00:51:52,320 --> 00:51:58,399
Speaker 1: can they overshoot? Can they raise rates so high that

823
00:51:58,719 --> 00:52:04,000
Speaker 1: that the that it results in a recession? Uh? What

824
00:52:04,160 --> 00:52:08,680
Speaker 1: is the result of the withdrawal so much liquidity from

825
00:52:08,680 --> 00:52:11,480
Speaker 1: our economy? Uh? Nobody can say they know for sure.

826
00:52:11,920 --> 00:52:16,000
Speaker 1: And I think that uncertainty over what the FED will

827
00:52:16,040 --> 00:52:19,880
Speaker 1: do and more importantly, what the consequences will be is

828
00:52:19,960 --> 00:52:22,360
Speaker 1: one of the great unknowns out there today, one of

829
00:52:22,400 --> 00:52:24,560
Speaker 1: the great unknowns. So so let's talk a little bit

830
00:52:24,560 --> 00:52:27,920
Speaker 1: about um for a while. We went about the yield

831
00:52:27,920 --> 00:52:31,680
Speaker 1: curve for while people were really obsessing about what the

832
00:52:31,719 --> 00:52:36,640
Speaker 1: tightening spread ment is the yield curve and always accurate

833
00:52:36,680 --> 00:52:41,600
Speaker 1: forecaster of recession or given that this time is a

834
00:52:41,640 --> 00:52:44,680
Speaker 1: case of first impression, I'm not saying this time is different.

835
00:52:44,719 --> 00:52:49,200
Speaker 1: But since we've never experienced this before, Uh, what are

836
00:52:49,239 --> 00:52:51,799
Speaker 1: we to make about the fears of the inverted yield curve?

837
00:52:53,520 --> 00:52:56,120
Speaker 1: I'm not sure that's my profound answer. That is a

838
00:52:56,200 --> 00:52:58,879
Speaker 1: profound answer. Look, because I can't tell you how many

839
00:52:58,880 --> 00:53:01,680
Speaker 1: people would give me a long winded answer full of

840
00:53:01,800 --> 00:53:05,680
Speaker 1: confidence in bravado and basically I like your answer better.

841
00:53:05,920 --> 00:53:07,919
Speaker 1: You know, Mark Twain said, is not what you don't

842
00:53:07,960 --> 00:53:10,120
Speaker 1: know that gets you into trouble. It's what you know

843
00:53:10,200 --> 00:53:12,880
Speaker 1: for certain that just ain't true. The best thing you

844
00:53:12,920 --> 00:53:15,920
Speaker 1: can do in investing and in many walks of life

845
00:53:16,360 --> 00:53:19,640
Speaker 1: is when you don't know, admitted you know. How many

846
00:53:19,680 --> 00:53:22,279
Speaker 1: people are there out there whoever say you know what?

847
00:53:22,560 --> 00:53:26,640
Speaker 1: I don't know? So everybody says that the that the

848
00:53:26,760 --> 00:53:32,399
Speaker 1: yield spread between long and short interest rates has a significance.

849
00:53:33,239 --> 00:53:37,479
Speaker 1: It has been observed that that that when the short

850
00:53:37,600 --> 00:53:41,520
Speaker 1: rate is higher than the long rate, UM, it has

851
00:53:41,520 --> 00:53:46,239
Speaker 1: always been followed by a recession, sometimes a few months later,

852
00:53:46,400 --> 00:53:51,000
Speaker 1: sometimes a year or two later, but eventually. So the

853
00:53:51,040 --> 00:53:55,520
Speaker 1: real question is is it coincidental or is it causal?

854
00:53:56,360 --> 00:54:00,840
Speaker 1: And if it's causal, what is the linkage? And it

855
00:54:00,920 --> 00:54:05,719
Speaker 1: does it work every time? UM? I don't know. I

856
00:54:05,760 --> 00:54:09,719
Speaker 1: don't manage. I don't care that much about rates. I

857
00:54:09,800 --> 00:54:13,280
Speaker 1: don't I'm not a so called fed watcher. I don't

858
00:54:13,560 --> 00:54:16,160
Speaker 1: you know. One of the uh one of the six

859
00:54:16,200 --> 00:54:18,920
Speaker 1: tenets of oak Tree's investment philosophy is that our investment

860
00:54:18,960 --> 00:54:23,319
Speaker 1: decisions are not governed by this kind of macro UH forecasting.

861
00:54:23,480 --> 00:54:27,920
Speaker 1: We don't believe in forecasting, Barry. You know, I'm always

862
00:54:28,200 --> 00:54:31,640
Speaker 1: want to say, we may not know where we're going,

863
00:54:31,880 --> 00:54:33,919
Speaker 1: but we sure as hell or don't know where we are.

864
00:54:34,520 --> 00:54:38,759
Speaker 1: And UH, that's that's what I know. So that that's

865
00:54:38,760 --> 00:54:42,760
Speaker 1: a pretty savvy observation. I wish more investors would would

866
00:54:42,760 --> 00:54:46,839
Speaker 1: recognize that the making forecasts and then sticking to them

867
00:54:46,920 --> 00:54:50,759
Speaker 1: despite the evidence that they're not coming to pass is

868
00:54:51,000 --> 00:54:54,759
Speaker 1: a problem that investors have. UM. I actually love to

869
00:54:54,800 --> 00:54:57,480
Speaker 1: tell television anchors they ask, where's it down gonna be

870
00:54:57,560 --> 00:54:59,920
Speaker 1: next year? Say I don't know, and just watch the

871
00:55:00,360 --> 00:55:03,960
Speaker 1: try and process it. Their their heads explode. So so,

872
00:55:04,080 --> 00:55:07,160
Speaker 1: given that we were not paying close attention to the FED,

873
00:55:07,280 --> 00:55:10,160
Speaker 1: we don't really care a whole lot um or try

874
00:55:10,160 --> 00:55:13,520
Speaker 1: and predict if and when a yield curve is going

875
00:55:13,560 --> 00:55:17,800
Speaker 1: to invert on the inflation side and on the yield side.

876
00:55:18,080 --> 00:55:21,160
Speaker 1: What's the most important factors to look at for that

877
00:55:21,320 --> 00:55:24,840
Speaker 1: longer term cycle? What do we know rates are lower

878
00:55:24,880 --> 00:55:28,319
Speaker 1: than usual? Current level of rates is not consistent with

879
00:55:28,360 --> 00:55:36,560
Speaker 1: economic prosperity. UH. Usually in prosperity, we have higher rates.

880
00:55:38,600 --> 00:55:43,239
Speaker 1: The current level of inflation is unusually low. Usually when

881
00:55:43,280 --> 00:55:48,000
Speaker 1: we have such a low unemployment rate and such economic growth,

882
00:55:48,160 --> 00:55:54,000
Speaker 1: we start to get higher inflation. We're not getting it. So, uh,

883
00:55:54,120 --> 00:55:56,080
Speaker 1: we don't know for sure. You know. One of the

884
00:55:56,080 --> 00:56:01,080
Speaker 1: things people have to understand is that umnomics is not

885
00:56:01,400 --> 00:56:05,600
Speaker 1: a science. There is no schematic diagram which says how

886
00:56:05,640 --> 00:56:08,520
Speaker 1: things work. There are no rules that work all the time.

887
00:56:08,880 --> 00:56:10,840
Speaker 1: You know, if you if you have an apple in

888
00:56:10,840 --> 00:56:12,799
Speaker 1: your hand, as Newton said, and you drop it, it's

889
00:56:12,800 --> 00:56:15,880
Speaker 1: gonna fall down. It never falls up. In the sciences,

890
00:56:15,960 --> 00:56:19,440
Speaker 1: things work the same every time. But and if you

891
00:56:19,520 --> 00:56:21,160
Speaker 1: come in this room and you turn on the lights,

892
00:56:21,160 --> 00:56:24,880
Speaker 1: which the lights go on every time. But in investing

893
00:56:24,960 --> 00:56:28,560
Speaker 1: that's not true. Sometimes it happens, and B happens. Sometimes

894
00:56:28,560 --> 00:56:31,480
Speaker 1: it happens and B doesn't happen. Sometimes it happens, and

895
00:56:31,680 --> 00:56:37,400
Speaker 1: see happens. Uh, you know. Uh. Richard Feyneman, the great physicist,

896
00:56:37,920 --> 00:56:43,520
Speaker 1: said that physics would be much harder if electrons had feelings.

897
00:56:43,560 --> 00:56:47,440
Speaker 1: The point is that investing and the markets are dominated

898
00:56:47,520 --> 00:56:52,279
Speaker 1: by humans. Humans have feelings, so they don't always do

899
00:56:52,320 --> 00:56:55,360
Speaker 1: what they're supposed to do. That's really the purpose of

900
00:56:55,360 --> 00:56:58,280
Speaker 1: the book. That's one of the main themes. And uh,

901
00:56:58,360 --> 00:57:03,560
Speaker 1: you know nobody can tell you answers on these questions

902
00:57:03,560 --> 00:57:08,920
Speaker 1: which are dependable enough to be investable. That that seems

903
00:57:08,960 --> 00:57:11,319
Speaker 1: pretty reasonable. I know, I only have you for a

904
00:57:11,320 --> 00:57:13,919
Speaker 1: finite amount of time. Let's get to some of my

905
00:57:14,080 --> 00:57:18,200
Speaker 1: favorite questions. Tell us one thing that people who know

906
00:57:18,320 --> 00:57:22,560
Speaker 1: you don't know about, Howard marks well, I think most

907
00:57:22,560 --> 00:57:27,800
Speaker 1: people would say that I'm quantitative and financial and analytical,

908
00:57:28,320 --> 00:57:30,800
Speaker 1: but I really think I have a creative side, and

909
00:57:30,840 --> 00:57:32,680
Speaker 1: I think that the memos are an expression of the

910
00:57:32,680 --> 00:57:37,040
Speaker 1: creative side. And in the memos in the book, in

911
00:57:37,040 --> 00:57:39,320
Speaker 1: in in my work with clients, I do a lot

912
00:57:39,320 --> 00:57:44,800
Speaker 1: of graphical presentations which I draw by hand, and uh,

913
00:57:44,840 --> 00:57:48,000
Speaker 1: I think that's an expression of my creative side. Interesting,

914
00:57:48,520 --> 00:57:53,520
Speaker 1: So what investors influenced your approach to thinking about value

915
00:57:53,600 --> 00:57:58,240
Speaker 1: and distressed assets and everything else that Oatry does well.

916
00:57:58,800 --> 00:58:02,960
Speaker 1: A great example is John Kenneth Calbraith. He wrote a

917
00:58:03,000 --> 00:58:09,120
Speaker 1: book called Short History of Financial Euphoria, which really was

918
00:58:09,280 --> 00:58:14,680
Speaker 1: probably my first introduction to discussion of cycles and also

919
00:58:14,880 --> 00:58:18,680
Speaker 1: to an understanding of the need for contrarianism. So that

920
00:58:18,760 --> 00:58:28,240
Speaker 1: was terrific Charlie Ellis, who's real great investment thinker board

921
00:58:28,280 --> 00:58:30,920
Speaker 1: as well told the story about the an amateur tennis

922
00:58:30,960 --> 00:58:33,360
Speaker 1: player if if the game is not within your control,

923
00:58:33,440 --> 00:58:35,640
Speaker 1: then the win. Then you win a tennis not by

924
00:58:35,680 --> 00:58:38,520
Speaker 1: hitting winners, but by avoiding losers. And I think I've

925
00:58:38,520 --> 00:58:41,840
Speaker 1: spent a lot of my career trying to avoid losers.

926
00:58:42,360 --> 00:58:47,680
Speaker 1: Um and uh, Peter Bernstein was a great stage and uh,

927
00:58:47,720 --> 00:58:51,720
Speaker 1: you know, he's written a great deal about risk, which

928
00:58:51,800 --> 00:58:54,240
Speaker 1: which I tried to incorporate into my own thinking. So

929
00:58:54,280 --> 00:58:57,280
Speaker 1: these are some examples. Bernstein's book, The Story of Risk

930
00:58:57,440 --> 00:59:01,440
Speaker 1: is really every page is so rich, it's it's astonishing.

931
00:59:02,120 --> 00:59:04,960
Speaker 1: Speaking of books, tell us about some of your favorite books.

932
00:59:05,000 --> 00:59:06,840
Speaker 1: What what are you reading? What do you like? What

933
00:59:06,920 --> 00:59:10,800
Speaker 1: are you fiction? Nonfiction? Finance? What have you I read

934
00:59:10,840 --> 00:59:16,800
Speaker 1: more on finance, and I tried to read a lot

935
00:59:16,840 --> 00:59:21,680
Speaker 1: on the behavioral side. So a terrific book which I

936
00:59:21,760 --> 00:59:24,160
Speaker 1: got a lot out of, which has very important ideas,

937
00:59:24,440 --> 00:59:29,280
Speaker 1: is fooled by randomness to love exactly. And you know,

938
00:59:31,320 --> 00:59:36,360
Speaker 1: people see the past and they think that the past

939
00:59:36,960 --> 00:59:42,760
Speaker 1: expresses a fundamental truth, but in actuality there were many

940
00:59:42,840 --> 00:59:48,000
Speaker 1: different histories which could have come to pass and only

941
00:59:48,000 --> 00:59:51,840
Speaker 1: one did. That's a great way to think about the world,

942
00:59:51,920 --> 00:59:56,520
Speaker 1: because that's really the right way to think about investment risk.

943
00:59:56,960 --> 00:59:59,360
Speaker 1: So you want to avoid hindsight bias, and you want

944
00:59:59,400 --> 01:00:03,040
Speaker 1: to avoid thinking that each outcome is the only outcome

945
01:00:03,120 --> 01:00:07,280
Speaker 1: of Elroy Dimpson, who retired from the London Business School,

946
01:00:07,720 --> 01:00:11,240
Speaker 1: said that UH risk means more things can happen than

947
01:00:11,280 --> 01:00:15,000
Speaker 1: will happen. Right, So you know, I think I think

948
01:00:15,040 --> 01:00:19,080
Speaker 1: we we do better thinking about the future if we

949
01:00:19,360 --> 01:00:24,120
Speaker 1: realized that a lot of different possibilities are out there.

950
01:00:24,560 --> 01:00:26,960
Speaker 1: And one of the ways to come to that conclusion

951
01:00:27,120 --> 01:00:29,920
Speaker 1: is by realizing that in the past there were a

952
01:00:29,920 --> 01:00:34,120
Speaker 1: lot of possibilities, only one of which transpired. And one

953
01:00:34,440 --> 01:00:37,000
Speaker 1: has to be careful not to draw a conclusion based

954
01:00:37,040 --> 01:00:39,320
Speaker 1: on what may have turned out to be a random

955
01:00:39,360 --> 01:00:43,680
Speaker 1: outcome and to to something for I always talked about

956
01:00:43,680 --> 01:00:48,720
Speaker 1: the difference between Alexander the Great and George the Unlucky, Right,

957
01:00:49,400 --> 01:00:51,080
Speaker 1: it was that it was the name at birth. Is

958
01:00:51,120 --> 01:00:55,240
Speaker 1: that what what doomed Georgia Unlucky could have been? Um?

959
01:00:55,280 --> 01:00:58,240
Speaker 1: So you mentioned Peter Bernstein and any other books that

960
01:00:58,280 --> 01:01:01,840
Speaker 1: you want to uh make refere So pretty much everything

961
01:01:01,880 --> 01:01:04,560
Speaker 1: he's ever written is well he wrote a book called

962
01:01:04,560 --> 01:01:09,920
Speaker 1: Against the Gods, which talked about the beginnings of UH

963
01:01:10,320 --> 01:01:14,760
Speaker 1: the science of probability, and if you think about it,

964
01:01:14,760 --> 01:01:19,480
Speaker 1: it's only by appreciating probabilities that we can deal rigorous

965
01:01:19,520 --> 01:01:25,720
Speaker 1: rely with risk. UH. The whole creation of the insurance industry,

966
01:01:25,880 --> 01:01:30,000
Speaker 1: for example, is based on UH an understanding of the

967
01:01:30,040 --> 01:01:33,640
Speaker 1: science of probability. I love that book. I thought that

968
01:01:33,720 --> 01:01:37,680
Speaker 1: was just absolutely fascinating. UM. So you mentioned Charlie Ellis

969
01:01:37,680 --> 01:01:40,320
Speaker 1: and tennis. I know you're a bit of a tennis fan.

970
01:01:40,360 --> 01:01:42,160
Speaker 1: What do you What do you do when you're not

971
01:01:42,200 --> 01:01:44,320
Speaker 1: in the office. What do you do for fun? Well,

972
01:01:44,360 --> 01:01:47,200
Speaker 1: I spend a lot of time with my kids now

973
01:01:47,240 --> 01:01:52,680
Speaker 1: my grandkids. UM. And you know, my wife and I

974
01:01:52,760 --> 01:01:55,520
Speaker 1: moved from California to New York at the beginning of

975
01:01:56,320 --> 01:01:58,720
Speaker 1: because our kids came here after college and put down

976
01:01:58,800 --> 01:02:01,800
Speaker 1: roots and we can who they're not going back to California.

977
01:02:01,880 --> 01:02:04,840
Speaker 1: So we've been here. We love it here, but it's

978
01:02:04,920 --> 01:02:10,560
Speaker 1: it's all it's all family centric, great friends, you know, UH,

979
01:02:10,760 --> 01:02:14,800
Speaker 1: California and London, and then again since we moved here,

980
01:02:14,840 --> 01:02:17,480
Speaker 1: we've made fabulous friends here in New York. It's it's

981
01:02:17,520 --> 01:02:20,680
Speaker 1: such an interesting city. UH. And then you know, to

982
01:02:20,760 --> 01:02:23,440
Speaker 1: pass the time. I love to play games. I love

983
01:02:23,480 --> 01:02:27,000
Speaker 1: to play gin. I love to play backgammon. Backgammon, by

984
01:02:27,000 --> 01:02:30,360
Speaker 1: the way, is a great exercise for anybody who wants

985
01:02:30,400 --> 01:02:34,480
Speaker 1: to be an investor, because it's all about probabilities and

986
01:02:34,560 --> 01:02:38,120
Speaker 1: getting the odds on your side. You you know, no

987
01:02:38,160 --> 01:02:40,240
Speaker 1: matter what the layout of the board is, there's a

988
01:02:40,240 --> 01:02:43,840
Speaker 1: move which will optimize your chance of having success. It

989
01:02:43,920 --> 01:02:47,360
Speaker 1: may be improbable. You may be able to pick something

990
01:02:47,400 --> 01:02:49,920
Speaker 1: else which has a higher probability, but it will not

991
01:02:50,000 --> 01:02:55,240
Speaker 1: be so optimal. That's life and that's investing. Quite quite interesting.

992
01:02:55,720 --> 01:02:58,000
Speaker 1: Tell us about a time you failed and what you

993
01:02:58,120 --> 01:03:02,560
Speaker 1: learned from the experience. Well, good one, Barry. Um. I

994
01:03:02,600 --> 01:03:05,760
Speaker 1: don't think it's necessarily failure. But one of the most

995
01:03:05,840 --> 01:03:09,280
Speaker 1: important things is that we each should understand ourselves and

996
01:03:09,320 --> 01:03:17,000
Speaker 1: assess ourselves. And I am a conservative person. Uh slow plotting,

997
01:03:18,000 --> 01:03:27,520
Speaker 1: UH mistake, cautious mistake averse. So for example, uh you know, uh,

998
01:03:27,560 --> 01:03:30,560
Speaker 1: I was the last of my group of my peers

999
01:03:30,560 --> 01:03:34,520
Speaker 1: to leave City Bank. They all left. I said, well,

1000
01:03:34,560 --> 01:03:36,800
Speaker 1: what's wrong with me? Why am I hanging around? But

1001
01:03:36,960 --> 01:03:39,360
Speaker 1: I think I I ended up with a very very

1002
01:03:39,480 --> 01:03:43,160
Speaker 1: sound foundation for my investing, and when I left it

1003
01:03:43,240 --> 01:03:45,400
Speaker 1: was it was for a good opportunity at t c W.

1004
01:03:45,520 --> 01:03:49,760
Speaker 1: It worked out well, so, uh, you know, it follows

1005
01:03:49,800 --> 01:03:52,960
Speaker 1: through into other areas of my life. I'm a cautious investor.

1006
01:03:53,040 --> 01:03:56,240
Speaker 1: If if, if if in nineteen seventy eight, City Bank

1007
01:03:56,320 --> 01:03:57,800
Speaker 1: would have said to me, we want you to start

1008
01:03:57,800 --> 01:04:00,160
Speaker 1: a venture capital fund, I think that would have been

1009
01:04:00,160 --> 01:04:02,360
Speaker 1: a disaster. I'm not a seer. I'm not a dreamer

1010
01:04:02,440 --> 01:04:04,640
Speaker 1: or a futurist. But instead they said we want you

1011
01:04:04,720 --> 01:04:06,800
Speaker 1: to start a heel bond fund. All I had to

1012
01:04:06,840 --> 01:04:09,120
Speaker 1: do was figure out which ones wouldn't be able to

1013
01:04:09,160 --> 01:04:11,840
Speaker 1: pay and exclude them from my portfolio, and that I

1014
01:04:11,880 --> 01:04:16,959
Speaker 1: could do my my my conservatism of caution paid off.

1015
01:04:17,680 --> 01:04:21,280
Speaker 1: So I have to push back on your claim that

1016
01:04:21,320 --> 01:04:25,920
Speaker 1: you are an inherently cautious person, because as I've prepped

1017
01:04:26,000 --> 01:04:30,160
Speaker 1: for this and gone over your whole career, I see

1018
01:04:30,520 --> 01:04:32,960
Speaker 1: measured risk, but I see a lot of embracing of

1019
01:04:33,040 --> 01:04:36,680
Speaker 1: risk taking. A lot of people would have been presented with, hey,

1020
01:04:36,720 --> 01:04:39,920
Speaker 1: there are these new fangled distress bonds. See what we

1021
01:04:39,920 --> 01:04:43,000
Speaker 1: can do set up a distress bond funds. When when

1022
01:04:43,120 --> 01:04:46,520
Speaker 1: Gunlock left Trust Company of the West, Hey, this guy

1023
01:04:46,640 --> 01:04:50,440
Speaker 1: seems to be a budding superstar. There's a lot of

1024
01:04:50,520 --> 01:04:52,560
Speaker 1: risk in in launching a new fund, but we want

1025
01:04:52,560 --> 01:04:56,200
Speaker 1: to get behind that. And obviously the oh seven oh eight, Hey,

1026
01:04:56,280 --> 01:05:00,640
Speaker 1: let's embrace distressed assets because the market is in free fall.

1027
01:05:01,280 --> 01:05:04,720
Speaker 1: I see you not as someone who's risk averse, but

1028
01:05:05,240 --> 01:05:10,520
Speaker 1: rather as someone who makes intelligent risk based decisions. So

1029
01:05:11,000 --> 01:05:12,680
Speaker 1: I want to push back a little. Okay, I think

1030
01:05:12,680 --> 01:05:15,000
Speaker 1: I think you got me on that. Uh, you know,

1031
01:05:15,200 --> 01:05:19,480
Speaker 1: I think I think that that the key is intelligent

1032
01:05:19,520 --> 01:05:22,680
Speaker 1: bearing of risk, not because it's fun, not because you're

1033
01:05:22,960 --> 01:05:24,880
Speaker 1: not not out of the spirit that a lot of

1034
01:05:24,880 --> 01:05:26,640
Speaker 1: people say. Well, you know in Vegas they say the

1035
01:05:26,680 --> 01:05:28,280
Speaker 1: more you bet, the more you win when you win.

1036
01:05:28,760 --> 01:05:31,320
Speaker 1: That's not a good spirit for risking. But intelligent risk

1037
01:05:31,320 --> 01:05:33,840
Speaker 1: bearing makes a lot of sense. And by the way,

1038
01:05:34,400 --> 01:05:38,760
Speaker 1: risk control, not risk avoidance. So in the early eighties,

1039
01:05:39,480 --> 01:05:44,080
Speaker 1: one of the first cable uh TV networks interviewed me

1040
01:05:44,120 --> 01:05:46,080
Speaker 1: about my work with the hi Eel bonds and they said,

1041
01:05:46,080 --> 01:05:48,240
Speaker 1: how can you invest in hiel bonds when you know

1042
01:05:48,320 --> 01:05:51,280
Speaker 1: some them are going to go bankrupt? And I said, well,

1043
01:05:51,320 --> 01:05:54,680
Speaker 1: how can life insurance companies ensure people when they know

1044
01:05:54,760 --> 01:05:57,360
Speaker 1: they're all going to die and and and the answer

1045
01:05:57,480 --> 01:06:00,760
Speaker 1: is it's intelligent risk bearing. So so a cop to that.

1046
01:06:00,960 --> 01:06:03,200
Speaker 1: But I do think that it that it is my

1047
01:06:04,120 --> 01:06:10,560
Speaker 1: caution that makes me insist on intelligence in risk bearing.

1048
01:06:11,600 --> 01:06:13,520
Speaker 1: And let's talk a little about the state of the

1049
01:06:13,560 --> 01:06:17,480
Speaker 1: industry today. What do you think is um in the

1050
01:06:17,520 --> 01:06:20,320
Speaker 1: midst of changing what what? What do you think is

1051
01:06:20,840 --> 01:06:24,800
Speaker 1: worth thinking about? As being a person who's been within

1052
01:06:24,840 --> 01:06:29,960
Speaker 1: the finance industry for fifty years, rewind this podcast thirty

1053
01:06:30,040 --> 01:06:33,680
Speaker 1: or forty five minutes, and we were talking about the

1054
01:06:33,720 --> 01:06:37,800
Speaker 1: fact that it's really only the exceptional few who can

1055
01:06:37,840 --> 01:06:42,960
Speaker 1: add value by making active decisions. And for many years

1056
01:06:44,480 --> 01:06:50,240
Speaker 1: that realization did not dawn. So all money was run

1057
01:06:50,360 --> 01:06:53,080
Speaker 1: what we now call actively. There were no index funds,

1058
01:06:53,120 --> 01:06:57,160
Speaker 1: there were no passive products. They all had high fees

1059
01:06:58,760 --> 01:07:03,439
Speaker 1: and not all of them earned those days right. And

1060
01:07:03,520 --> 01:07:07,040
Speaker 1: it was really that combination, I think you'll agree, that

1061
01:07:07,280 --> 01:07:10,560
Speaker 1: led to the dawning of the age of passive products.

1062
01:07:11,280 --> 01:07:14,240
Speaker 1: And now anybody who wants to invest has the option

1063
01:07:14,280 --> 01:07:16,760
Speaker 1: of doing it passively or in an index vehicle at

1064
01:07:16,800 --> 01:07:19,760
Speaker 1: a very low fee. And I know you're a believer

1065
01:07:19,840 --> 01:07:22,920
Speaker 1: in that. I certainly think a chunk of people's portfolio,

1066
01:07:23,000 --> 01:07:28,040
Speaker 1: not necessarily all of it, but some exactly. And so

1067
01:07:28,720 --> 01:07:33,560
Speaker 1: now we're in a new era where you're more likely

1068
01:07:33,600 --> 01:07:38,360
Speaker 1: to get what you pay for. So you know, uh,

1069
01:07:38,880 --> 01:07:42,240
Speaker 1: exceptional people can still make an exceptional contribution and be

1070
01:07:42,320 --> 01:07:46,040
Speaker 1: very well paid. But you know, this isn't like Woe

1071
01:07:46,120 --> 01:07:50,200
Speaker 1: Begone where everybody's above average, and and nowadays not everybody

1072
01:07:50,240 --> 01:07:52,560
Speaker 1: gets paid as if they are above average. So I

1073
01:07:52,600 --> 01:07:56,080
Speaker 1: think that's been a big change. Uh. Now they say

1074
01:07:56,120 --> 01:08:00,760
Speaker 1: that something like three eighths of all mutual and equity

1075
01:08:00,800 --> 01:08:05,600
Speaker 1: capital is now run passively, that's what they said, and

1076
01:08:06,880 --> 01:08:11,800
Speaker 1: certainly not and uh, what that means is that there

1077
01:08:11,840 --> 01:08:16,040
Speaker 1: are fewer people looking for bargains every day, because by definition,

1078
01:08:16,120 --> 01:08:19,160
Speaker 1: a passive vehicle doesn't look for bargains. They just emulate.

1079
01:08:20,880 --> 01:08:24,000
Speaker 1: And if if it goes, if that trend goes far enough,

1080
01:08:24,720 --> 01:08:30,160
Speaker 1: maybe some inefficiencies what we call them, some bargains will

1081
01:08:30,160 --> 01:08:34,840
Speaker 1: come back into the marketplace, maybe active management will begin

1082
01:08:34,880 --> 01:08:38,559
Speaker 1: to pay off better. Are you suggesting it's cyclical between

1083
01:08:38,600 --> 01:08:43,639
Speaker 1: passive and active? Well said, And um, let's talk about

1084
01:08:44,479 --> 01:08:47,320
Speaker 1: about millennials in recent college grads. If someone came to

1085
01:08:47,320 --> 01:08:50,720
Speaker 1: you and said they were debating, uh, thinking about having

1086
01:08:50,760 --> 01:08:54,280
Speaker 1: a career in finance, What sort of advice would you

1087
01:08:54,280 --> 01:08:56,760
Speaker 1: give them? I think the most important thing is to

1088
01:08:56,800 --> 01:08:59,200
Speaker 1: figure out what what you're good at and what's good

1089
01:08:59,240 --> 01:09:02,080
Speaker 1: for you. My favorite quote is from Christopher Morley, the

1090
01:09:02,080 --> 01:09:07,200
Speaker 1: English writer, who said there's only one success, and that's

1091
01:09:07,240 --> 01:09:08,960
Speaker 1: to be able to live your life your own way.

1092
01:09:09,960 --> 01:09:14,800
Speaker 1: Figure out your way, pursue it, take it on, stick

1093
01:09:14,880 --> 01:09:19,240
Speaker 1: to it, keep your head down, work hard, even if

1094
01:09:19,280 --> 01:09:21,280
Speaker 1: it's the right thing for you. Don't assume that every

1095
01:09:21,360 --> 01:09:25,560
Speaker 1: day is going to be fun. You know, the millennials

1096
01:09:25,640 --> 01:09:31,720
Speaker 1: are used to constant stimulus and frequent rewards, and if

1097
01:09:31,720 --> 01:09:34,080
Speaker 1: they don't get them, they move on. But I think

1098
01:09:34,080 --> 01:09:37,400
Speaker 1: that that being steadfast at something, sticking with it, getting

1099
01:09:37,400 --> 01:09:41,360
Speaker 1: good at it, and uh rising to the top is

1100
01:09:41,400 --> 01:09:46,479
Speaker 1: a good idea. Do what you love, uh, don't expect

1101
01:09:46,520 --> 01:09:51,479
Speaker 1: to love it every day. UM. And you know, my

1102
01:09:51,760 --> 01:09:58,439
Speaker 1: ultimate advice is we only get one life. Optimize that life,

1103
01:09:59,520 --> 01:10:04,000
Speaker 1: and we probably, other than sleeping, we spent well, maybe

1104
01:10:04,040 --> 01:10:06,840
Speaker 1: including sleeping, we spend more time on work than anything else.

1105
01:10:08,840 --> 01:10:10,479
Speaker 1: If you look at it that way, isn't it a

1106
01:10:10,520 --> 01:10:15,360
Speaker 1: mistake to just do what pays the most? If you

1107
01:10:15,439 --> 01:10:18,960
Speaker 1: have the luxury of being able to choose between careers

1108
01:10:19,320 --> 01:10:23,120
Speaker 1: and still support yourself and your family. Don't just take

1109
01:10:23,160 --> 01:10:26,679
Speaker 1: what pays the most. Take the thing that is good

1110
01:10:26,680 --> 01:10:30,040
Speaker 1: for you that you'll enjoy. Maybe that's good for society,

1111
01:10:30,080 --> 01:10:32,439
Speaker 1: that will give you a quality of life, but you know,

1112
01:10:32,520 --> 01:10:37,200
Speaker 1: not dominate your life. I think, uh, you know, investment

1113
01:10:37,240 --> 01:10:41,559
Speaker 1: has done it for me, but it it's certainly isn't

1114
01:10:41,560 --> 01:10:45,160
Speaker 1: the right thing for everybody. And our final question, tell

1115
01:10:45,240 --> 01:10:48,200
Speaker 1: us something you know today that you wish you knew

1116
01:10:48,439 --> 01:10:52,240
Speaker 1: fifty years ago. When you began fifty years ago, forty

1117
01:10:52,320 --> 01:10:57,840
Speaker 1: years ago, the world felt like a steady, steady place

1118
01:10:58,600 --> 01:11:05,680
Speaker 1: where the environment was stable and events played out in

1119
01:11:05,760 --> 01:11:11,000
Speaker 1: front of that backdrop. And now the world changes every day,

1120
01:11:11,760 --> 01:11:16,519
Speaker 1: and now we can't imagine how fast it changes. If

1121
01:11:16,560 --> 01:11:21,720
Speaker 1: I had known fifty years ago what the world would

1122
01:11:21,760 --> 01:11:25,040
Speaker 1: be doing today, maybe I would have gravitated towards technology

1123
01:11:25,120 --> 01:11:29,160
Speaker 1: investing instead. Or maybe not because it didn't fit with

1124
01:11:29,200 --> 01:11:35,400
Speaker 1: my personality. But clearly, uh you know, the people who

1125
01:11:35,439 --> 01:11:39,320
Speaker 1: are who have optimized their benefits from this change in

1126
01:11:39,360 --> 01:11:43,840
Speaker 1: the environment, Uh, you know, have have been extremely well situated.

1127
01:11:44,400 --> 01:11:46,840
Speaker 1: Um you know, could it have been me? I don't know,

1128
01:11:47,240 --> 01:11:51,120
Speaker 1: but clearly that's the most profound change in my lifetime.

1129
01:11:51,720 --> 01:11:55,840
Speaker 1: And uh, you know, the world changes so fast, by

1130
01:11:55,880 --> 01:11:58,320
Speaker 1: the way, you know, Barry, I was thinking about this

1131
01:11:58,439 --> 01:12:02,240
Speaker 1: the other day. Go back long enough, and the number

1132
01:12:02,240 --> 01:12:04,519
Speaker 1: one company was probably twice as big as the number

1133
01:12:04,520 --> 01:12:07,240
Speaker 1: two company and made three times as much money. And

1134
01:12:07,280 --> 01:12:09,479
Speaker 1: now the number one company maybe a hundred times as

1135
01:12:09,520 --> 01:12:11,920
Speaker 1: big as the number two company and made two hundred

1136
01:12:11,920 --> 01:12:15,880
Speaker 1: times and much money because of these technological advantages. The

1137
01:12:15,880 --> 01:12:20,200
Speaker 1: payoffs are enormous. And uh that that's a big change

1138
01:12:20,200 --> 01:12:24,839
Speaker 1: in my lifetime, quite quite fascinating. We have been speaking

1139
01:12:24,840 --> 01:12:28,599
Speaker 1: with Howard Marks, co chairman and co founder of oak

1140
01:12:28,640 --> 01:12:32,479
Speaker 1: Tree Capital Management. If you enjoyed this conversation, we'll be

1141
01:12:32,520 --> 01:12:34,040
Speaker 1: sure and looked up an Inch or down an inch

1142
01:12:34,080 --> 01:12:39,479
Speaker 1: on Apple iTunes, Bloomberg dot com, Stitcher, or overcast wherever

1143
01:12:39,680 --> 01:12:42,040
Speaker 1: final podcasts are sold, and you can see any of

1144
01:12:42,080 --> 01:12:45,519
Speaker 1: the other two hundred plus conversations we've recorded over the

1145
01:12:45,560 --> 01:12:48,960
Speaker 1: past four plus years. We love your comments, feedback and

1146
01:12:49,080 --> 01:12:53,760
Speaker 1: suggestions right to us at m IB podcast at Bloomberg

1147
01:12:53,800 --> 01:12:56,320
Speaker 1: dot net. I would be remiss if I did not

1148
01:12:56,479 --> 01:13:00,000
Speaker 1: thank our crack staff who helps put these podcasts together.

1149
01:13:00,160 --> 01:13:04,080
Speaker 1: Each week. Medina Parwana is my producer, Taylor Riggs is

1150
01:13:04,080 --> 01:13:08,960
Speaker 1: our booker. Attica val Bron is our project manager and coordinator.

1151
01:13:09,640 --> 01:13:13,719
Speaker 1: Michael Batnick is my head of research. I'm Barry Ritolts.

1152
01:13:14,080 --> 01:13:17,519
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio