Howard Marks on the US Dollar, Three Ways to Add Defense, and Good Questions | The Tim Ferriss Show

In this second appearance on the show, Howard Marks talks with Tim Ferriss during the early COVID-19 market turmoil of 2020. He recounts his career arc from the Nifty 50 era at Citibank to founding one of the first high-yield bond funds, illustrating his core thesis that success comes from finding mispriced propositions rather than picking winners. Marks explains why the future is unusually unknowable given four simultaneous unprecedented crises, and lays out three concrete ways investors can add defense to a portfolio. He also explores whether unlimited Fed and Treasury stimulus could threaten inflation, U.S. creditworthiness, or the dollar's reserve-currency status. Throughout, he emphasizes the value of good questions, awareness of personal bias, and balancing the risk of losing money against the risk of missing opportunity.

• Holding the 'best companies in America' (the Nifty 50) from 1968 lost investors almost all their money over five years because price was overlooked, with P/E ratios collapsing from around 80 to 8.
  00:07:14
• A 1978 phone call about a guy named Milken and 'high-yield bonds' led Marks to start what he believes was the first high-yield bond fund from a mainstream financial institution.
  00:09:51
• Marks reframes investing through horse-race odds: betting on an overwhelming favorite can be a bad bet, and a long shot can be the better bet, because payoffs matter as much as probabilities.
  00:18:11
• Every investor faces two risks daily: the risk of losing money and the risk of missing opportunity, and you can only eliminate one by fully surrendering to the other.
  00:35:25
• Marks lays out three ways to add defense: go to cash, shift to more defensive asset classes, or use more defensive tactics within the same allocation.
  00:38:03
• Oaktree came into the virus crisis with a higher-quality, more defensive portfolio, but with risks now on the table and securities cheaper, has shifted toward offense.
  00:40:35
• Marks reveals he wishes the Fed would 'go away' from buying junk bonds and distressed debt, because its intervention prevents the bargains Oaktree historically captured in crises.
  00:43:12

• Warren Buffett has written that when he sees memos from Howard Marks in his mail, they're the first thing he opens and reads.
  00:03:34
• Marks characterized the moment as the worst public health crisis in over 100 years, the worst economy since the Great Depression, the worst oil collapse in history, and the greatest Fed/Treasury rescue in history all at once.
  00:14:02
• Oaktree has invested in distressed debt since 1988, and over 32 years there were five major high-default crisis periods: 1990-91, 2001-02, and 2008.
  00:42:40
• 26 million people filed for unemployment insurance in the five weeks before the interview, with second-quarter GDP expected to decline 20 to 30 percent.
  00:45:51
• Unemployment fell to about 5 percent under the Obama administration by 2016 and down to 3.5 percent under the Trump administration before the pandemic.
  00:47:26
• Marks first read about decision-making under uncertainty in a 1963 book titled 'Decisions Under Uncertainty: Drilling Decisions by Oil and Gas Operators' by C. Jackson Grayson Jr.
  00:25:34
• Marks notes only about half of Americans get flu shots even though flu averages roughly 40,000 to 50,000 deaths a year in the U.S.
  00:53:32
• Marks repeatedly cites Harvard epidemiologist Marc Lipsitch's framework dividing knowledge into facts, inferences based on analogies, and opinions.
  00:21:51
• Marks went from heading a 75-person department with a $5 million budget to working alone with no colleagues, budget, or committees, and was ecstatic about it.
  00:09:19
• Oaktree offers 30 years of Howard Marks's memos free in the archive at oaktreecapital.com.
  01:02:53