By Leah Spiro
| The Most Important Thing: Uncommon Sense for the Thoughtful Investor By Howard Marks Columbia Business School Publishing $29.95 |
Howard Marks is one investor worth listening to. Chairman and co-founder of Oaktree Capital Management, the $80 billion Los Angeles–based money manager, Marks is a fixed-income value investor whose reputation was made by getting into so-called orphan assets early—convertible securities and junk bonds in 1978 and distressed debt in 1987. He also writes Oaktree’s widely read investment letters, which are archived on the Oaktree website back to 1990.
“The Most Important Thing” is a highly readable 180-page overview of Marks’s investing philosophy, which he says is responsible for Oaktree’s success. “These are the things I believe in, the guideposts that keep me on track,” Marks writes. “I consider it my creed . . . it has served me like a religion.”
Marks’s religion has 20 commandments, even though the book’s title promises the investing holy grail: just one important thing. Apparently, someone forgot the s. The 20 most important things include standard investing basics, such as finding bargains, understanding risk, and independent thinking.
Marks also goes into more idiosyncratic “important things,” which include awareness of the pendulum, combating negative influences, and patient opportunism. Marks imparts his wisdom garnered over 40 years of investing in finely polished essays, most shorter than 10 pages, which quote the best chunks of his investor letters. (Full disclosure: I was Marks’s editor for the essay he wrote for the 2008 edition of “Security Analysis,” an updated version of the Benjamin Graham and David Dodd investing classic.)
Marks is a fine writer and an extremely thoughtful investor who can articulate his investing values. He also exhibits great understanding of investor psychology and money manager psychology. His seven components of investor psychology, including greed, fear, ego, envy and the tendency to conform to the view of the herd, will never go out of date. He puts forward timely concepts like “failure of imagination” and the inability to understand in advance the full breadth of outcomes, and he analyzes the best investing-sports metaphors, his favorite being soccer, not football. He has a valuable discussion of risk and luck, the latter inspired by Nassim Nicholas Taleb.
Marks’s lessons from the 2008 financial crisis provide his best material. He supplies a checklist to take the temperature of future markets to determine if we’re near a danger zone. He discusses his epiphany from October 2008, when he realized skepticism requires you to sometimes say, “That’s too bad to be true.” And he includes lessons learned, such as “Too much capital availability makes money flow to the wrong places.”
Marks also sprinkles in Oaktree mottoes, such as “We don’t look for our investments; they find us.” And “If we avoid the losers, the winners will take care of themselves.”
Indeed, there is a Warren Buffett–like feel to the book, with Marks’s talent for pithy phrases. The book’s drawback is that it stays at the philosophical level and provides few specifics, whether good investments, bad investments or anecdotes. But it’s an easy read with nary a number to be found in its pages.
As for hedge funds, Marks doesn’t discuss them except to mention the fallacy of so-called absolute return funds that were not the sure thing they were sold as. In this age of quantitative, overly complex markets, Marks provides a refreshingly lucid and jargon-free postmortem on the market crash of 2008 and a classic meditation on the nature of markets. Now, if investors and managers can just remember these lessons, perhaps they will better recognize the next market meltdown. AR
Leah Spiro is president of Riverside Creative Management.
