For this highly-acclaimed investor, successful investing can be summed up in just four words — “simple, but not easy.”
by Alan Friedman
It was recently my privilege and pleasure to attend a private CIBC Wealth presentation for Investment Advisors given by Howard Marks, the much-admired author of more than 140 “memos” about his investment strategies and insights — knowledge and experience he has gained throughout his long and very successful career in the investment industry. Also, the author of three highly-acclaimed books on investing — my personal favourite being “The Most Important Thing” — he is the co-founder and co-chairman of Oaktree Capital Management, the largest investor in distressed securities worldwide.
He talked about his investment philosophy, how it has remained constant throughout his career regardless of what was going on in the market, why controlling risk still is and always will be the mark of a superior investor and how he defines success.
Legendary investor, Howard Marks
Being able to make money without taking undue risks … now that’s what distinguishes the truly accomplished and successful investors from everyone else
“Not only is making money easy,” Mr. Marks explains, “in good times the highest returns often go to the people who take the most risk. But,” he is quick to add, “I happen to believe that the hallmark of the superior investor is to make money with the risk under control.”
When you listen to him explain it, you can’t argue with his reasoning. His point is, “the logic for making a call can be very convincing and the probability of success can be very high” when the market’s performing well or when it’s not. But the rest of the time, when the market’s fluctuating, when it’s somewhere in- between, you “just can’t make those calls and expect to be right very often.” Which is where skill comes in.
‘Skillful investors,” Marks says “avoid the losers.” They do not go looking for trouble. They are satisfied with the incremental return they can pick up simply by sitting back and avoiding unnecessary risks. “They think about what can go wrong.”
And that very much includes understanding yourself and your appetite for risk.
In a 2019 ‘Wealth of Wisdom” podcast with Tom McCullough, Mr. Marks has this to say about investors and risk: “The most important thing is to understand the risks you are taking. And if you do that it presumably means you are prepared for them to materialize, the worst mistake is to take risks you are not aware of.”
He continues, “you have to have a good sense of your risk tolerance and what your normal risk position should be. And it depends on your resources, your income, the relationship between your income and your spending, your needs, your dependents, your aspirations, your intestinal fortitude, all those things.”
And these characteristics, along with an appreciation for consistency, are all hallmarks of what Marks considers skillful investors.
Like Howard Marks, skillful investors know that “what matters, in the end, is consistency” — a subject he feels so strongly about, he doesn’t mince words: “I don’t think it’s important to beat the market every year,” he states calmly and clearly. In fact, he goes further and says he believes that “in the good years it’s good enough to be average.” When he does believe it’s essential to be above average is in the bad years.”
Not a statement you’d expect to hear in our excel-at-all-costs world, especially from an investment industry legend. But so indicative of the importance he places on being a straight shooter, someone who calls it like it is.
His advice for advisors?
“Happy clients” are Howard Marks’s idea of success, not “home runs.” So build your career on truth. No one can predict the future. When you don’t know, just say, “I don’t know.”
Same applies to clients, for that matter. And I say this because in all my many years of being an Investment Advisor, I’ve learned a lot about people and one of the most interesting things is that most of us are uncomfortable talking about money — specifically our own money — how much we have, how much more we need, what we hope to do with it, what we worry about.
But it’s precisely this kind of vital information advisors and financial planners need to be effective, to help you meet your short and long term goals — and, in fact, to help you set the right goals to begin with. Which cannot be done in a vacuum. The better your advisor understands you, the better we can serve you and help ensure you become and remain a successful investor.
And frankly, it’s not just important for advisors. How can you really make the right choices and decisions, or truly know whether or not you’re on the right track, without the complete picture a plan provides?
Which brings us right back to what Howard Marks is saying — making money without taking unnecessary chances.
Make sure you don’t miss any of my posts. Follow the blog
and you’ll receive email notifications every time a new post is published. See you soon.
Alan Friedman is an Investment Advisor with CIBC Wood Gundy in Toronto. The views of Alan Friedman do not necessarily reflect those of CIBC World Markets Inc. CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of CIBC and a Member of the Canadian Investor Protection Fund and Investment Regulatory Organization of Canada. If you are currently a CIBC Wood Gundy client please contact your Investment Advisor. Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.