Warren Buffett’s favorite writer destroys value-growth dilemma


Search for Howard Marks on Wikipedia and you’ll see him identified as an American writer.

Never mind that Marks is the co-founder of Oaktree Capital Management, the world’s largest distressed debt manager with $ 150 billion in assets under management. No less than an investor than Warren Buffett of Berkshire Hathaway called the Marks investment notes a must read.

Last month, John Mauldin of Mauldin Economics conducted a fascinating interview with Marks at his annual Strategic Investing Conference. While many value investors like to say that “only 5% of investors are truly value investors,” Marks questioned the entire value investing paradigm and s ‘it makes sense’ to limit the investment as completely as possible. [has] been done. ”

The reality is more nuanced. “Everyone considers Warren Buffett, for example, the value investing model,” Marks told Mauldin.

He noted that Buffett was “making a lot of money” in Coca-Cola dating back to the 1950s, when the stock was a member of the top-flight Nifty Fifty. For a time in the 1970s, the soft drink giant’s stock was crushed, but it reappeared as a growth stock in the 1980s and 1990s. “Buffett himself does not limit value investing. to the extent that it has become the case, ”Marks said.

Between the mid to late 1960s, Marks believes that the schools of value and growth began to “create this great strip between the two camps so that each is defined firmly and neatly.”

He doesn’t think it’s that simple. “When you get up from the playroom, the change falls between the sofa cushions,” he told Mauldin. “I’ve always found that a lot of the best opportunities are in this gap.”

Marks himself has seen it all – almost. He started out by following some of the big growth stocks of the 1960s like Xerox and Citibank. A decade later, the bank asked him to move to Los Angeles to help establish his presence in the emerging junk bond market.

As he said Financial Advisor in October 2018, it was there that he learned that stocks of great companies could be bad investments because they were priced to perfection, while bad corporate bonds selling at big discounts could produce disproportionate returns. .

“If there is a space in the middle that no one is looking for, you may find better opportunities there,” he told Mauldin last month.

In 2018, Marks wrote a widely acclaimed book, Master the market cycle. When Mauldin asked him about the current market cycle, punctuated by a brief and violent bear market last March, Marks noted how different he was.

Most bear markets are triggered by “over-optimism”. Last year’s collapse was caused by “an exogenous factor, the virus”.

That’s why Marks told Mauldin “we’re kind of off the cycle.” Normally there is a “coincidence of economic growth and market appreciation”. Usually, he said, the market and economic peaks are in close proximity to each other.

Once recessions occur, markets usually anticipate recoveries. But since last year, Marks noted, “asset prices have risen much more than the economy has grown.”

When asked if the markets are short-sighted, Marks said the manipulation of interest rates by the Federal Reserve is speeding up future transactions in the present. The result is that it skews the price discovery.

It worries him. “We don’t have a free market for money today,” he noted. When the Fed sets the discount rate to zero, people end up “at 3% investment and think they’re in Nirvana.”

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