http://knowledge.wharton.upenn.edu/article/investor-howard-marks-luck-risks-job-got-away/
“it shouldn’t take you too long to figure out that success in investing is not a function of what you buy. It’s a function of what you pay.” An asset of high quality, Marks pointed out, can be overpriced and be a bad investment; an asset of low quality can be bought cheaply and be a good investment.
“Our return over the past 25 years has been 23% a year. And 95% of our outcomes are positive,” he noted, adding that Oaktree has raised about 50 funds over the same period and never had one that lost money. “It’s not a crapshoot like — if you’ll pardon the expression — venture capital, where you invest in 10 companies but if one of them turns out to be Google, you’re a success.”
Referencing a book by famed investment advisor Charles Ellis called Winning the Loser’s Game: Timeless Strategies for Successful Investing, Marks said he doesn’t play “winner’s” tennis — he plays “not-loser’s” tennis. “If you think you can see the future and the world is going to go according to your decisions, go for winner’s tennis. But if you think the world is full of randomness and uncertainty, spend your time trying to avoid losers.” The Oaktree model is based on the latter, Marks noted: If we avoid the losers, the winners will take care of themselves. “If we can make a large portfolio of investments where none of them [strike out], then we’ll have … no bad ones to pull down the average.”
Another metaphor for successful investing which Marks is fond of citing is based on his many years in California. He compared an investment portfolio to a house located in an earthquake zone. “The house might have a structural flaw. And you might live in that house for 30 years and it doesn’t fall down. But that doesn’t prove it doesn’t have a flaw — it only means it wasn’t tested.” Marks said that the important question about a portfolio is not if it made money when the market went up, but if it would have stayed intact if the market went down: “Has the investment professional been prudent, farsighted and versatile enough to include risk controls at the same time as upside potential?”
An audience member asked Marks what he thought about new currencies like Bitcoin. Marks said that Bitcoin did not constitute dependable, safe, consistent investing. He likened it to investments such as gold, oil, paintings, jewelry or Internet start-ups with no revenue to show, saying that these things have no intrinsic value — only the value people give them. Stocks, on the other hand, have intrinsic value. “If a company produces a $2 dividend, and it’s highly likely to be able to do that for the next 20 years, you’re not going to sell that stock for $2 because you could double your money every year. You can base your decision on intrinsic value.”
“Do things you like to do,” Marks told the audience. “It’s OK to take a drudge job and work in an investment bank 20 hours a day for a couple of years if it will advance you up that career path, but don’t do it for 30 years. This is the only life you get.”