On January 26th, 2023, the Distinguished Speaker Series Advisory Group hosted a conversation with Howard Marks, CFA, a legendary American value investor, writer, and co-founder and co-chairman of Oaktree Capital Management. He is well known for writing periodic “memos” with his thoughts and observations on investing. The conversation was moderated by the Distinguished Speaker Series Advisory Group Co-Chair, Arthur Olunwa.
Below is a summary of the topics discussed. If you missed the event, you can view the entire webcast here. https://youtu.be/cKi9QdCjB4Q
- Marks talked about the evolution and purpose of his memos, and his tendency to write when he feels the events of the day need to be interpreted in a new light. His focus in on what he feels really matters.
- Marks expanded on his recent memos noting that we may be in the midst of another “sea change” – a time when dramatic changes impact the ways investment managers perform and make decisions. From 1980 – 2020, declining interest rates gave investing a huge tailwind as low interest rates helped stimulate the economy, reduce the cost of capital, increase the value of assets, and making it easier to borrow and expand. The recent change in interest rate levels is reverting investment management back to more normal times.
- Marks commented on the role of the Federal Funds rate over the past decades, the effect of the downward shift the curve that measures risk and reward, and the impact of the quick increase in the Fed Funds rate of over 400 basis points in recent times.
- Marks gave additional thoughts on what the thought process of the Federal Reserve may be in the future, and their potential range of decisions under current Chair Jay Powell. Marks noted he may believe that the Fed will ride out this year without any rate cuts, but that those are opinions, and he doesn’t bet on micro short-term events. He expects the Fed will look for consistency and credibility. For the coming years, he expects a Fed Funds rate between 2.00% and 4.00%
- Marks gave some final thoughts on how credit spreads have tightened in recent times, and his philosophy on the differences between investing in bonds and equities. He emphasized how successful fixed income investing is very dependent on choosing creditworthiness wisely. In the future, if a recession occurs, that quickly sorts out who made good credit decisions.
- Questions from the audience included looking more into Marks’ past memos and daily routine. He noted that the pandemic offered an opportunity for him to connect more with his family and include those conversations in his writings. He mentioned that he enjoys writing, and the timing of recent memos in September and January comes from him writing over the summer and during the Christmas holiday season. Marks also gave an overview of how the priority of payments in bankruptcy filings has changed over time. In the current environment, creditors now talk amongst themselves prior to bankruptcy filing and lay out a plan. Often, this leads to more debate and jockeying among creditors
- In a final quick-fire session, Marks noted that he encourages people to be open minded to new ideas, and that he gives very little importance to guessing when short term events will happen.