Source: Smart Investors
Luck is when opportunity comes, and you are already prepared.
This is a thought-provoking statement made by Howard Marks, co-founder of Oaktree Capital, during this year’s 'Money Ma' interview.
He does not shy away from acknowledging the role of luck in investing and has even openly described himself as “the luckiest person in the world.” However, he emphasized that luck does not come without reason but is built on a foundation of continuous preparation.
Howard reflected on his career: from joining Citi in 1969, to being unexpectedly transferred to the bond department, and eventually co-founding Oaktree Capital—all of which were fortunate turns of events.
He believes that opportunities in the market do not fall into your lap; instead, you must position yourself correctly, be prepared, and seize them when they arise.
“You cannot predict the future, but you can prepare for different possibilities.”
This is his understanding of investing: the market is unpredictable, but investors can build a robust investment strategy for various scenarios through discipline, research, and a structured framework of thinking.
Howard repeatedly emphasized that investing is not about finding absolute certainty but rather about making rational decisions amid uncertainty. Markets are always volatile, with sentiment oscillating between 'flawless optimism' and 'utter despair.' Smart investors must learn to remain calm in emotionally driven markets.
Howard also shared Buffett’s investment philosophy: focus on a few key things and study them deeply, rather than trying to master all available information.
He said, “It is crucial to understand the difference between data, information, wisdom, and insight. But you must accept early on the fact that success does not come from knowing everything—it comes from mastering what truly matters.”
“You cannot control the market, but you can control yourself.” This statement applies not only to investing but also to life.
Sometimes, one might find Howard Marks a bit verbose, as he tends to revisit certain topics repeatedly and remembers details with remarkable clarity. Whether reading his memos or listening to interviews, the consistency in his expression is striking.
Yet, it’s hard not to translate all of his content because these simple yet profound principles are worth revisiting time and again. It reminds me of what Charlie Munger once said: 'The best thing a person can do is to help others become more knowledgeable and wise.' Howard certainly embodies this quality.
Especially if you are encountering his insights for the first time or only occasionally, it’s worth taking the time to read through this piece. Smart Investors has carefully translated and shares it with everyone.
1. Important lessons learned in youth
Brewer: We like to start by looking back at early experiences. I know you were born in Queens, New York, and you once told our old friend Nicolai Tangen that you are a 'left-brain thinker,' logical and fond of symmetry.
I am curious about how this trait manifested during your childhood.
Howard: This was perhaps most evident when I was 16 years old.
For some unknown reason, I took an accounting course in high school. At its core, accounting revolves around double-entry bookkeeping, the most symmetrical system in the world.
I immediately resonated with it, understanding almost instinctively all the underlying principles.
This was the first time I became truly aware of my inclination towards this type of thinking.
Brewer: If you had to choose between a candidate with an accounting degree and one with a CFA (Chartered Financial Analyst) certification, which do you think would be more valuable?
Howard: Accounting is to businesspeople what an excellent English course is to someone who wants to write a book. It is the foundational language of the industry and therefore indispensable, though it alone is not a sufficient condition.
To truly master the essence of financial investment, you need further study, such as pursuing an MBA, a master’s in finance, or obtaining the CFA certification.
But you can’t start writing a book without knowing English, right?
Brewer: Your career began at Citi, where you joined in 1969, initially working in the equity investment department but were later transferred to convertible bonds and high-yield bonds. What kind of nourishment did this experience provide during your career?
Howard: To be precise, I didn’t actively choose to study convertible bonds; I was asked to leave the equity department.
At that time, banks were heavily invested in the 'Nifty Fifty' stocks, but their performance was disastrous, so almost everyone involved in that strategy was reassigned.
However, large U.S. companies at the time typically offered 'lifetime employment,' so I wasn’t fired but instead transferred to the bond department, which was considered the 'Siberia' of the investment world (extremely unpopular).
Fortunately, the Chief Investment Officer at the time was highly creative. He had prior positive experience investing in convertible bonds with his previous employer, so he tasked me with creating a convertible bond fund—something Citi didn’t have at the time.
I moved from a large equity research team to a completely uncharted area of the bond market and began studying convertible bonds. Soon, I realized its unique characteristics—it behaves like both a stock and a bond, combining the features of both. This transition gradually led me into the fixed-income market and eventually into the world of distressed asset investing.
So, people are skeptical about what we do, but when you do something others haven't done, such skepticism always exists.
As the saying goes, 'Pioneers always get the arrows.'
But what I've learned—and this is one of the most important lessons in investing—is that the main way to achieve extraordinary success is to do what others are unwilling to do.
Mathematically speaking, it’s very difficult. But if you think carefully, it's hard to achieve unique success by following the crowd.
2. The real big issue: When to sell
Brewer: When you adopt a contrarian investment strategy and establish a favorable position, and then the market cycle begins to recover and prices correct, a challenge arises—how do you determine how long to hold? Timing your exit is an extremely difficult question. What insights can you share on this?
Howard: After making an unconventional investment decision, the biggest challenge isn’t when to exit; it’s how long you can persevere until it starts to pay off.
Because if you make an investment and it shows no signs of improvement after six months, a year, or even two years, will you start doubting yourself? Can you stay committed to the business? These are the first major hurdles.
By comparison, deciding when to exit a successful investment is a relatively minor issue. The real big problem lies in how long you can hold on without being swayed by short-term market noise.
The first crucial maxim I learned dates back to the early 1970s: 'Being too far ahead of your time is almost indistinguishable from being wrong.'
Do you remember what I just said? To become an exceptional investor, you must see what others cannot see, or interpret the market in a way that differs from the majority.
You discover an investment opportunity and believe it holds more value than the market generally perceives, so you buy it. However, this does not mean the market will immediately change its stance the next day to support you and drive up the price. This process can take a long time.
How do you endure this waiting period? That is the most important question.
The answer is that you need strong psychological resilience, unwavering determination, the ability to remain unemotional, and the resolve to persist.
But if you have persisted for 20 years and it still shows no sign of improvement, then you may truly be wrong, and eventually, the market will eliminate you.
There must be a proper balance in this process.
Returning to your question: when exactly should you sell?
Interestingly, among all the books and articles on investing, I would wager that less than 1% discuss selling. Almost all discussions focus on how to buy — when to invest, what to invest in, and how to select investment targets.
I once wrote a memo specifically about selling, around 2016 or 2017, titled 'Selling Out, When Do You Sell.'
I half-jokingly said that most people sell stocks for one of two reasons: either because the stock price has risen, or because it has fallen.
When stock prices rise, they might say: 'I’d better sell some; otherwise, if it drops back and I haven’t locked in my profits, I’ll regret it and feel like a fool.'
Or, after buying a stock, if its price falls by half, they might say: 'I’ve already lost half of my money, so I’d better sell quickly; otherwise, if it drops another half, I’ll lose everything, and wouldn’t that make me feel even more like a fool?'
Many decisions to sell are not made to do the right thing but to avoid feeling like a fool.
You shouldn’t sell just because the stock price has risen, because if it was initially a good buying opportunity, it may still have further room to grow. Similarly, you shouldn’t sell just because the price has fallen, because if it was initially a good buying opportunity, it’s now cheaper and could represent an even better opportunity.
Therefore, selling simply because the stock price rises or falls is, in itself, not the right approach in either case.
Of course, there may be personal circumstances that prompt you to sell.
For example, you may need cash, or you may plan to retire with $10 million while currently holding $15 million worth of stocks. If the market retraces to $6 million, your retirement plan could be jeopardized.
Thus, some reasons for selling are unrelated to the intrinsic value of the investment itself—these are reasonable personal considerations.
But if you don’t have these external constraints and are purely considering the intrinsic value of the investment, then clearly there is only one correct reason to sell:
You reanalyze the investment, revisit your investment rationale, check whether your original assumptions still hold, assess whether it still has appreciation potential, or, after adjusting your investment logic, determine whether it remains worth holding.
If your conclusion is 'I would absolutely never buy this stock,' then you probably shouldn’t continue holding it either.
However, many people who adhere to established investment principles, and even some who are somewhat self-righteous, might say that every asset is either a buy or a sell. I don’t agree with this perspective.
I believe there are indeed stocks that are suitable for 'holding.' This means that if you bought the stock at 10 and it has now risen to 20, after reevaluating, you realize your original target price was 20, but now you think it could potentially rise to 25.
You might not buy it anew just for the potential rise from 20 to 25, but you still find the upside from 20 to 25 sufficiently attractive to justify holding onto it.
It’s like there’s still a bit of juice left in the orange, and you can squeeze a little more out.
3. Markets always overreact, creating opportunities for investment.
Brewer: You referenced a quote by Alphonse Karr: 'History doesn’t repeat itself, but man always does.' So do you believe that market fluctuations driven alternately by greed and fear will persist indefinitely? Does this imply that markets will always overreact, thereby creating opportunities for investors?
Howard: You’re correct.
In my book *The Cycle*, I concluded that markets will always have cycles because these cycles stem from excessive market behavior, which eventually gets corrected.
These excessive behaviors in the market are typically driven by emotions and psychological factors – you can call them greed, fear, or any other psychological term.
In fact, the fluctuations in the economy itself are not severe. GDP might grow by 1% or 2% in one year, then decline by 1% the next year, followed by a 3% increase. The volatility of corporate earnings is slightly higher, possibly around 5% or 10%, because companies are influenced by economic conditions and usually carry operating leverage and financial leverage.
However, stock market price fluctuations far exceed economic fundamentals. They can surge by 50% and then plummet by 50%; they can double and subsequently be cut in half. Thus, the volatility of the stock market significantly surpasses that of both the economy and corporate earnings.
Why is market volatility so pronounced? Because emotions come into play.
People tend to become overly excited and then excessively pessimistic. I once wrote a memo titled 'Psychotherapy' (On the Couch), as I believe the market occasionally needs psychological counseling.
In the real world, conditions typically fluctuate between 'quite good' and 'not so great.' However, in investors' perceptions, situations often oscillate between 'flawless' and 'hopeless.'
When people perceive the market as 'flawless,' that represents an excessive emotional state, which the market will eventually correct, as such extreme views should not persist. Yet, human behavior tends to swing from 'rationality' to 'despair,' with 'hopelessness' being another form of extreme emotion.
However, the reality often lies somewhere in between.
As long as humans are determining security prices, we will continue to experience extreme emotions of optimism and pessimism, creating market volatility from which those with calm heads can profit.
4. Maintain 'intellectual humility.'
Brewer: You once mentioned that if you could, you would ban the following words in investment committee discussions: 'never,' 'always,' 'forever,' 'impossible,' 'won't,' 'must,' and 'have to.' Why are these words considered culprits?
Howard: Because they are all absolute, exhibiting a sense of certainty. And I firmly believe that in our industry, there is no room for any certainty because we live in a world full of uncertainties.
I may have a slight idea of what will happen tomorrow. I may have some guesses about the situation a year from now. But I would never claim to be 100% certain.
So how dare anyone say 'must' or 'impossible'? Or 'always' or 'forever'?
I think anyone who holds such beliefs will eventually run into trouble.
Mark Twain made an extremely important point: 'It’s not what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.'
There is nothing wrong with not knowing certain things. In fact, I was just discussing with a colleague over lunch today that there are many things I do not know.
And I believe one of the keys to success is to be extremely honest and open about what you do not know, so you won't get into trouble.
If I were to drive from London to Leeds, what would I do? I would take a map, turn on the GPS, ask for directions, and drive carefully to ensure I don’t miss the exit. But if I thought I knew the way, I wouldn’t take a map, I wouldn’t turn on the GPS, I wouldn’t ask for directions, and I would drive confidently at high speed.
If it turns out I am wrong, I might end up in Devon.
Brewer: You almost perfectly described my situation. Unfortunately, that's exactly who I am. I really wish someone had given me one of your memos when I first joined Citi many years ago.
I recall a saying that there are two types of people who are most likely to get into trouble: those who know nothing and those who think they know everything.
Howard: Exactly. Thinking 'I know nothing' is also not a good strategy. If you think you know nothing, you clearly cannot succeed in this forward-looking industry.
Taleb once said in his book Fooled by Randomness that if you are not good at dealing with uncertainty, you'd better become a dentist.
In his view, dentistry has almost no uncertainty.
Therefore, if you know nothing, you will not succeed. But if you think you know everything, it won’t work either.
Because such people do not listen to advice, nor do they hedge risks; instead, they put all their chips on one choice, which usually gets them eliminated by the market.
I strongly believe in something called intellectual humility. Simply put, intellectual humility is acknowledging that the other party might be right.
5. You can't predict, but you can prepare.
Brewer: This brings up another excellent article of yours — The Illusion of Knowledge. I would like to know, what types of forecasts, scenario simulations, or strategic planning do you consider valuable?
Howard: I wrote a memo around 2002 titled You Can’t Predict, You Can Prepare.
In fact, I borrowed this phrase from an advertising slogan by Massachusetts Mutual Life Insurance Company, one of the finest insurance companies in the United States.
I find this statement highly enlightening.
People often ask: 'If you can’t predict, how can you prepare?' Prediction is about understanding what will happen in the future, while preparation involves making arrangements for what is to come. If you cannot predict the future, how do you prepare?
The answer is: if you think you know what will happen in the future, you are a fool.
Therefore, 'preparation' does not mean preparing for a specific outcome but rather building a portfolio or adopting a lifestyle that enables you to handle a range of possible outcomes.
This is the key to success.
However, in the investment industry, too many people like to say: I believe the economy will develop this way, interest rates will change like this, the market will move in this direction, this industry will evolve in a certain manner, and this company will experience specific developments...
If you could predict all five of these things correctly, you would be as wealthy as Croesus, the King of Lydia. But what are the chances that you will get all five predictions right?
I call this approach 'single-scenario investing.'
If you invest based on a single scenario and are convinced that you are correct, but a few things turn out differently than expected, the portfolio you have constructed is likely to be entirely wrong, potentially moving completely opposite to market trends, ultimately leading to disaster.
Therefore, in a world full of uncertainties, preparing for only a single outcome is a mistake. As investors, the only thing we can do is to prepare for multiple possible outcomes.
We aim to construct a portfolio that performs well under what we consider to be the most likely scenarios; does not perform too poorly under other plausible scenarios; and avoids catastrophic losses even in those scenarios we deem less likely.
However, this is not easy, as no investment strategy can optimally prepare you for all possible scenarios.
You must ask yourself: which scenarios should I prepare for? Which scenarios do I think are most likely to occur? If I prepare for these scenarios, will I make decent returns? And which scenarios can I afford to ignore without specific preparation?
By definition, it is impossible to prepare for every conceivable scenario.
6. The era of 'silver bullets' in private equity has passed.
Brewer Let's examine the current market situation from this perspective. I recently had a conversation with Colin Kelleher, Chairman of UBS. He mentioned that, given the decline in valuations in the private equity market and the maturity of funds, there may be 30,000 companies in need of finding buyers.
The reality is, when will investors get their money back? What will the valuation multiples be?
Howard That’s an excellent question. When I was young, there was a TV show called 'The Lone Ranger.' The protagonist wore a white hat and a black mask, riding around dispensing justice. His gun was loaded with silver bullets, and because the bullets were silver, he never missed his mark.
Investors are always searching for such 'silver bullets'—a method that allows them to make fortunes without risk and never fail.
In essence, such a thing cannot exist. But as my mother often said, 'Hope never dies.'
From 2004 to 2021, private equity was crowned the 'silver bullet' of the investment world.
In December 2022, I wrote a memo titled 'Sea Change.' In it, I mentioned that in 1980, I had a personal bank loan and the bank sent me a notice stating, 'The interest rate on your loan is now 22.25%.'
By 2020, 40 years later, I could borrow from the bank at an interest rate of 2.25%. In other words, interest rates fell by 20 percentage points over 40 years, and the decline was almost one-sided.
The decline in interest rates was a significant boon for asset holders because the value of an asset is the discounted present value of its future cash flows. If the discount rate declines, the value of the asset rises.
The drop in interest rates was also highly beneficial for borrowers, as their cost of capital decreased.
So, what happens to investors who use leverage to buy assets? When interest rates fall, they enjoy a 'double dividend.' This has been the golden era experienced by the private equity industry.
The profit model of private equity mainly consists of four approaches: purchasing assets below intrinsic value; leveraging to amplify return on equity; enhancing asset value through operational optimization; and selling assets at non-discounted prices or even at a premium.
For a long time, private equity successfully achieved this.
But consider this: a strategy that relies on leveraged investment in assets happens to be the optimal approach in a low-interest-rate environment.
Were those who engaged in private equity investment during this period driven by an early anticipation of continuously falling interest rates, or did they simply choose an investment model that happened to coincide with the most favorable era for such a strategy?
I lean more toward the latter.
I believe that the performance of an investment portfolio ultimately depends on how it fares within the future environment, and this encounter is more akin to a 'fortuitous meeting.'
The success of private equity in that unique environment was almost an 'unexpected windfall.'
This industry emerged precisely during this period. If you invented an investment mechanism and then encountered an environment perfectly suited to it, its tremendous success would not be surprising.
As Einstein once said: 'Insanity is doing the same thing over and over again and expecting different results.'
Another manifestation of 'insanity' is doing the same thing in different environments yet expecting identical outcomes.
If you entered the market after 1980, you have almost only experienced declining interest rates, ultra-low interest rates, or both, up until 2022.
This trend created an ideal environment not just for private equity but also for other leveraged investment strategies.
However, as I wrote in my December 2022 memo, this situation has come to an end. In the coming decade, interest rates can no longer be described as 'continuously declining' or 'persistently ultra-low.'
From early 2009, when the Federal Reserve cut interest rates to zero in response to the global financial crisis, to late 2021, when they decided to raise rates to combat inflation, the federal funds rate was almost always near zero during these 13 years, averaging approximately 0.5%.
In my view, this situation will not return.
If that is the case, private equity will still benefit investors who can purchase assets at low prices and enhance their value, but the dividends brought by falling interest rates and ultra-low rates will no longer exist. It will no longer achieve the tremendous success it once did and will also prove not to be a 'silver bullet.'
7. Three Determining Factors of an Excellent Investor
Brewer: I remember you also wrote, 'Successful investing relies more on making superior judgments about unquantifiable, qualitative factors and predicting potential future developments.'
I understand this is also your broader observation of assets, but could you elaborate further?
Howard: At the start of the pandemic in March 2020, my son and his family moved into the house where my wife and I live, and we spent several months together.
This kind of three-generation household is rare today, but that period was very enjoyable.
My son is an investor, and most of our time was spent discussing value investing. Therefore, in January 2021, I wrote this memo titled 'Something of Value.'
The title is a pun, I admit (laugh). On one hand, we were discussing 'value investing,' and on the other hand, this period of living together was itself valuable.
He is extremely intelligent and has profound insights. However, relying solely on these qualities does not necessarily make you an exceptionally successful investor from a mathematical perspective.
By the way, if you look at the regulatory direction of the U.S. Securities and Exchange Commission (SEC) today, you will find that one of their main tasks is to ensure that all investors receive the same information at the same time.
For instance, the fair disclosure rule requires listed companies to disclose material information to all investors simultaneously. Therefore, the availability of quantifiable information about the current market cannot serve as a decisive advantage among investors.
If you want to become an outstanding investor, what would be the decisive factor? I believe this is the crux of your question, right?
I think there are three possible approaches:
First, you can interpret the same information at a higher level and extract its significance more accurately.
Of course, now everyone has the same computers, uses the same software, and can perform the same data filtering, so this is unlikely to be a secret weapon.
But returning to my son's experience studying investments in college, he often told me during his holidays: 'We should buy Ford’s stock because they are launching an amazing new Mustang.'
My response was always the same (mainly for educational purposes), and I would ask him: 'Andrew, who doesn’t know this news?'
If you know something that everyone else also knows, it is likely already fully reflected in the stock price. You cannot profit from investing because the market has already factored this into the share price and priced it accordingly.
Therefore, you must know what others do not know, or you must be better than others at interpreting the same information and correctly extracting its core value.
Secondly, perhaps you are better than others at understanding qualitative factors. Not everyone has a grasp of qualitative information, and by definition, qualitative factors are more difficult to evaluate.
For example, which company has the best R&D capabilities? Which company has the strongest product pipeline? Which company’s management is the most outstanding and creative?
I wrote a memo around 2016 about unmanned investing, discussing index investing, passive investing, algorithmic investing, and even ultimately artificial intelligence (AI) and machine learning.
In it, I mentioned that I don’t think a computer can take five business plans from venture capital firms and predict in advance which one will become Amazon.
I believe this requires unique human insight.
Of course, most people can't achieve this either. Simply removing the computer from the equation and handing decision-making over to humans does not automatically solve the problem. However, at least when someone undertakes such a qualitative analysis task, they have the potential to make extraordinary decisions.
This is the second point — qualitative analysis.
The third point is to look toward the future.
If all current information is public and accessible to all investors, then clearly, the best investors are those who understand the future better than others.
But the greatest paradox, or the biggest problem with investing, is — what exactly is investment? The essence of investment is to allocate capital in order to profit from future events. And I firmly believe that the future is unknowable.
So how should we invest? The answer is, no one can achieve perfection.
No one can fully know the future, but some people have greater insight than others. I am willing to believe that even the most advanced computers in the world are not smarter than the most insightful individuals.
In the investment industry as a whole, the smartest computers may be more insightful than 80%, or even 90%, of human investors.
Therefore, the answer is that if you are not at the very top of the investment industry, then it is probably best not to enter this field.
8. The likelihood of the United States maintaining its advantage is not high.
Brewer Elroy Dimson, Professor of Finance at Cambridge Judge Business School, once told me: 'Among the long-term financial market histories of the countries we studied, the U.S. performed the best. At the time, we did not think this situation would persist, but it indeed did.'
He wanted to ask you: 'Does Mr. Marks believe that this American 'exceptionalism' will continue?'
Howard: First of all, I am not a futurist, and my way of thinking is not like that. Therefore, such questions are not the focus of my daily reflections.
If you ask whether I would be willing to bet ten cents on it, my answer would be no.
I once wrote that the value of macro forecasting is very limited. However, I also believe there is a distinction between having an opinion and betting on it. I can hold my own views, but that doesn’t mean I would bet on them.
I think the United States has an excellent system, and America’s success stems from a combination of factors: a free enterprise system, private ownership, capitalism, economic incentives, the rule of law (which we consider a reliable legal environment), a spirit of innovation, and perhaps the relatively short history of the United States—we have only 250 years since our founding, not 900 years.
Coupled with our education system and admiration for pioneers and adventurous spirits, these factors together have shaped America's remarkable achievements.
Starting from zero just 250 years ago, the United States has remained at the forefront of the world for the past century—since the end of World War I—not only in economic terms but also in excellence across various fields, including the arts, sciences, and technology.
I will not hastily claim that American excellence is bound to continue indefinitely, nor will I pessimistically assume that it must come to an end.
From a probabilistic standpoint, the likelihood of maintaining supremacy is not high—after all, trees do not grow infinitely into the sky.
However, the situation in the U.S. remains favorable for now. And please convey to Elroy that I hold him in great respect. If the U.S. were to lose its position of excellence, not only would our strengths need to diminish, but another country or region would also need to emerge to take its place.
So, who might it be? Which society could possess all the elements I mentioned earlier—free enterprise, innovative spirit, incentive systems, pioneering attitudes, and educational frameworks, among others?
Perhaps we will not shine as brightly as we did in the last 100 years. The 20th century was called the 'American Century,' but I would not insist that the 21st century must also be the 'American Century.'
The question is, who will replace us?
9. The Importance of Luck and How to Become Luckier
Brewer: This brings me to another topic I want to discuss—luck. In our industry, few people acknowledge the significant role luck plays in success. I have two questions for you.
First, what role has luck played in your career? Second, how do you think people can 'help themselves become luckier'?
Howard: I am a firm believer in luck. I consider myself one of the luckiest people in the world.
In January 2014, I wrote a memo titled 'Getting Lucky.' The first half of the article was entirely about my belief in luck and how lucky I have been.
I listed over a dozen instances of good fortune in my life, such as the time and place of my birth.
My parents conceived me during World War II. If you’ve read Malcolm Gladwell’s 'Outliers,' he discusses 'demographic luck,' which I refer to as being in 'the right place at the right time.' Simply being born at the right time and place can confer significant advantages.
If you were born during World War II, you would have been in the most advantageous position to benefit from the post-war economic boom.
I attended public schools in Queens, New York, where I received a first-class education—for free. Later, when I applied to the Wharton School, I was told I wouldn’t get in, but I did anyway.
Another example is when I was 'kicked out' of Citi's equity department and assigned to oversee the high-yield bond business. At the time, it felt like being exiled to 'Siberia,' but it turned out to be the greatest stroke of luck in my career.
Later in my career, I encountered outstanding partners. Thirty years ago, we co-founded Oaktree Capital together.
Over the past two decades, global investors have become less interested in equities and bonds, shifting their focus to 'alternative investments.' Coincidentally, we were already positioned there.
Brewer: But does this mean that as early as 2005, you foresaw investors moving toward alternative assets?
Howard: Of course not.
I mentioned just 15 minutes ago that the rise of private equity was not due to investors foreseeing a low-interest-rate environment.
Similarly, back then, we didn’t say: 'The world will grow tired of stocks and bonds but will embrace alternative investments, so let’s position ourselves ahead of time and offer these products by 2005.'
In fact, we simply discovered areas where we excelled and believed we could make money, so we pursued them. Later, the market told us: 'Now, we need what you offer.'
Brewer: So, for the second question, how can people 'help themselves get lucky'?
Howard: There are many classic sayings about luck. One of them is: 'Luck is when opportunity knocks, and you’re already prepared.'
Just like private equity, high-yield bonds, and Oaktree’s alternative investments—our experiences have all followed this pattern.
We are not deliberately preparing for a specific future, but rather positioning ourselves to seize opportunities when market conditions change. Then, when the opportunity arises, we are already in the right place.
I prefer to view success as a process rather than attributing it to some form of 'genius.'
In my memo titled "Luck," I shared the following story:
A man walks into a bar and passes by a dart game area. At that moment, a dart player misses his throw, and the dart veers off target. However, just then, a passerby accidentally knocks over the dartboard, and as it falls, the dart hits the bullseye.
That is luck.
But I believe life often works this way, rather than relying on meticulously calculated plans leading to a perfect path. You must put in your best effort and work hard to get things done. How the future unfolds will determine whether you benefit from it.
10. Success comes from understanding what truly matters.
Brewer: In every aspect of our lives today, especially in the investment world, we are bombarded daily with vast amounts of information. This reminds me of a line from T.S. Eliot’s poem: “Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?”
How do you handle such an overwhelming amount of information?
Howard: It is crucial to understand the distinction between data, information, wisdom, and insight. You must accept early on that success does not come from knowing everything, but from mastering what truly matters.
I have been reading the Wall Street Journal since I was young, and I read it every day. Especially during earnings season, when you open the newspaper, you see a full page of data listing the revenue, profits, and earnings per share of many companies. Each earnings season, there would be data for 10, 20, 30, 40, or even 50 companies.
I used to carefully examine these figures, but soon, I stopped looking at them.
Because I realized that if I didn’t know what market expectations were, these numbers meant nothing to me.
For example, if a company earned $20 last year and $30 this year, is that good or bad? If the market expected it to earn $20 again this year, and it made $30, that’s a huge positive surprise. But if the market expected $40 and it only earned $30, that’s a major disappointment.
Simply knowing that a company earned $30 doesn’t tell you anything valuable. So why should I waste my time looking at these numbers?
You need to let go of the pursuit of trivial details and not assume that mastering all the facts equates to being 'well-informed.'
You need to learn from people like Buffett and Munger, especially Charlie Munger. I’ve been fortunate to spend a lot of time with him because we both live in Los Angeles.
He once said, 'Wisdom does not come from memorizing a bunch of facts.'
There is a book called *The Warren Buffett Way*, and I was invited to write the preface for one of its editions. I wrote an article titled *The Exception: What Makes Warren Buffett, Warren Buffett?*.
In the article, I discussed what sets him apart, and one key point is this: he can identify the most important few things and study them deeply, instead of trying to master all the facts.
Returning to Andrew Marks and the topic of 'quantitative information accessible to everyone,' typically, the most important matters are not the current data but rather the forces that determine a company’s future success or failure.
The key to success lies in this: you need extraordinary intelligence to identify the few most critical factors, then apply exceptional insight to predict their trajectory.
This is the path to success, not becoming a 'walking encyclopedia.'
11. Fiscal issues are the biggest hidden danger for the United States.
Brewer: You’ve witnessed so many market changes; surely there have been surprises, such as the explosive growth of global government debt, particularly in the United States. People can't help but ask, will governments address this through monetization? What exactly do they plan to do about it?
In your view, how would a strong nation deal with its debt problem if it cannot achieve a fiscal surplus?
Howard: The last time the United States achieved a budget surplus was during Clinton’s administration, around the year 2000.
However, since then, fiscal deficits have become the norm over the next 25 years, and in recent years, the scale of these deficits has grown extremely large.
The response to the COVID-19 pandemic led to massive fiscal spending, and even after the pandemic ended, the government seemed to continue large-scale expenditures. Perhaps they did not explicitly decide to keep doing so, but in any case, the reality is that they cannot stop.
Last year, the U.S. fiscal deficit approached $2 trillion, while the economy was still in a period of prosperity.
Keynes, known as the 'father of deficit spending theory,' proposed that during periods of economic weakness, governments can moderately increase spending to stimulate economic growth and create jobs. However, during economic booms, governments should reduce expenditures to achieve fiscal surpluses in order to repay debt.
Thus, it forms a cycle — increasing spending during economic downturns and cutting expenditures to repay debt during economic prosperity.
In reality, everyone enjoys the part about 'increasing spending,' while everyone seems to forget the part about 'cutting spending.'
This is because cutting spending is not enjoyable, and unpopular actions are often avoided by all.
Unfortunately, politicians have realized that their popularity is directly proportional to how many benefits they provide to voters.
Politicians who advocate for fiscal austerity and proclaim that 'we must maintain fiscal discipline, spend no more than we earn, and even use surpluses to pay off debt' are unlikely to be re-elected, as they would likely be portrayed as 'rigid moralists.'
This is truly unfortunate, reflecting both a failure of leadership and the manifestation of the instant gratification mindset in the 21st century.
The prevailing mindset now is: 'I want this, and I also want that.' This approach to living within one's means and making careful choices seems to have become outdated. So, when will this situation change?
Brewer: Trump may be changing this. He is drastically cutting government spending. Of course, he also aims to cut taxes. The 'American Fiscal Blueprint,' passed by the House of Representatives on February 25, plans to reduce spending by $2 trillion over the next decade while cutting taxes by $4.5 trillion.
Howard: I am not a futurist. Let me emphasize again, I do not predict the future, nor will I place bets on this topic, whether with clients’ money or my own.
But in my view, the worst problem facing the United States today is our lack of restraint, impatience, and long-term fiscal deficit spending.
I previously listed many of America's strengths, which have made us the dominant global power. However, these fiscal issues represent our greatest vulnerability.
However, Trump may become a turning point. Perhaps in the future, politicians will no longer win votes by promising more 'free benefits,' but by committing to reasonable fiscal discipline.
12. Finally, life-related questions
Brewer: Lastly, I have three short questions. First, who do you think is the most interesting person you've met in your life?
Howard: Jacob Rothschild. He is an outstanding investor with deep expertise in finance, but he is also a 'Renaissance man,' with profound insights into art, public service, and national affairs.
I have learned a great deal from him and enjoy our conversations across many fields.
I was very fortunate that between 2006 and 2018, I spent one-third of each year living in London, during which we spent a lot of time together.
Brewer: Second, if you were to recommend your favorite book to a close friend, what would it be?
Howard: I would recommend 'A Short History of Financial Euphoria' by John Kenneth Galbraith.
This is a very thin book, and I like thin books because I am a slow reader (laugh).
It has only about 100 pages, but it gave me a deep understanding of the psychological fluctuations in the market.
This book greatly influenced me and led me to focus on studying the impact of market sentiment on investment, which has been one of my core investment principles over the past 30 years.
Brewer’s third question: If you could give only one piece of advice to young people entering the financial industry, what would it be?
Howard: To be honest, my first suggestion might be for them to 'consider whether they really want to enter the financial industry.' But if they decide to go ahead, I would tell them:
There was a writer named Christopher Morley who once said something I love to quote: 'There is only one success – to be able to live your life in your own way.'
Though this may sound simple, its true meaning is profound: when choosing a career path, you should not be swayed by societal expectations, or the hopes of friends, classmates, or parents, nor should you enter an industry solely for monetary gain.
You should find something that genuinely satisfies you. I don’t mean fleeting pleasures, but rather something that brings you deep fulfillment and happiness.
Of course, this is difficult.
After all, at the age of 20, it’s hard to know precisely what will still make you feel fulfilled at 60. However, I believe that striving to find such a path is far more meaningful than blindly following social trends or choosing a career you don’t truly love just because of money.
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Editor/jayden