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Oaktree Capital founder who redefined risk management through market cycles and second-level thinking
Howard Marks co-founded Oaktree Capital Management, which manages over $170 billion in assets and specializes in alternative investments. His investment philosophy centers on market cycles, risk perception, and second-level thinking. His Oaktree memos, written since 1990, are considered must-reads by top investors including Warren Buffett. His 2011 book 'The Most Important Thing' became a classic in value investing literature.
Superior investing is not about maximizing returns but about achieving reasonable returns for a given level of risk; the ability to perceive risk is what separates ordinary from exceptional investors.
Source: The Most Important Thing: Uncommon Sense for the Thoughtful Investor, Howard Marks, 2011 (Columbia University Press) / Oaktree Capital Management Memos, Howard Marks, 1990-2024, oaktreecapital.com/insights/howard-marks-memos
Markets do not random-walk; they pendulum between fear and greed in cycles. Identifying where we are in the cycle is the most critical context for investment decisions.
Source: Mastering the Market Cycle: Getting the Odds on Your Side, Howard Marks, 2018 (Houghton Mifflin Harcourt) / The Most Important Thing, Howard Marks, 2011 (Columbia University Press)
First-level thinking says 'this is a good company, buy it'; second-level thinking says 'this is a good company, but the market already knows it, so the price isn't cheap.' Alpha comes from thinking one level deeper than the consensus.
Source: The Most Important Thing, Howard Marks, 2011 (Columbia University Press), Chapter 2
Contrarian investing is not about being different for its own sake, but about having the courage to hold an independent view when market sentiment is extreme; genuinely contrarian behavior always feels uncomfortable in the moment.
Source: The Most Important Thing, Howard Marks, 2011 (Columbia University Press), Chapter 11 / Oaktree Memo: 'On the Cowardice of Crowds', Howard Marks, 2011
The future is unknowable; investors should not pretend to predict market direction, but instead build portfolios that are resilient under uncertainty.
Source: The Most Important Thing, Howard Marks, 2011 (Columbia University Press), Chapter 14 / Mastering the Market Cycle, Howard Marks, 2018 (Houghton Mifflin Harcourt)
Market sentiment swings like a pendulum between optimism and pessimism; extreme positions signal the best buying or selling opportunities.
During the 2008 financial crisis, the sentiment pendulum swung to extreme pessimism; Oaktree bought distressed assets aggressively and generated exceptional returns.
For every investment judgment, ask one level deeper: what does the market already know? Is the consensus already priced in?
During the 2000 tech bubble, the consensus was 'the internet will change everything'; second-level thinking required asking which companies' valuations had already over-discounted this consensus.
True risk is not volatility but the possibility of permanent capital loss; risk accumulates during market optimism and is released during pessimism.
In his 2007 memo 'Is It Time?', Marks warned that risk had accumulated massively under low rates and loose credit, issuing an early warning before the crisis erupted.
By observing credit standards, investor sentiment, valuation levels, and capital flows, determine where the market sits in its cycle and adjust the offensive-defensive balance accordingly.
Oaktree adopted an offensive posture in 2009-2012 during the late credit crisis, aggressively deploying into distressed debt, and achieved outsized returns as the credit cycle recovered.
Marks repeatedly emphasizes that the future is unknowable, yet his memos frequently make explicit judgments about market cycle positioning — a logical tension he resolves by distinguishing positioning from prediction.
Oaktree is known for its defensive philosophy, yet Marks took an extremely aggressive stance during 2008-2009, buying distressed assets at scale — demonstrating the dialectical unity of defense and offense.
1969-1978
High-yield bond research, establishing credit analysis foundations
At Citibank, Marks researched equities and convertible bonds before shifting to high-yield bonds, laying the methodological foundation for credit investing.
1978-1995
Building high-yield bond and distressed asset investment systems
At TCW Group, Marks launched and managed high-yield bond funds, began writing investment memos, and gradually formed his investment philosophy centered on risk perception and market cycles.
1995-2019
Institutionalizing alternative credit investing, global expansion of memo influence
Co-founded Oaktree Capital, scaling credit and distressed investing to institutional size with AUM exceeding $100 billion; memos became must-reads for global top investors, and 'The Most Important Thing' was published in 2011.
2019-至今
Transmitting investment philosophy, deepening market cycle and macro research
After stepping down as co-CEO, Marks continued as co-chairman, publishing memos, releasing 'Mastering the Market Cycle' in 2018, and launching a podcast with his son Andrew Marks to extend his ideas to new media.
Context: After completing his MBA at Wharton, Marks joined Citibank's equity research team, later shifting to convertible bonds and high-yield securities.
Decision: Chose to focus on high-yield bonds — then called 'junk bonds' — rather than mainstream equity investing.
Reasoning: High-yield bond markets were inefficiently priced with systematic mispricings, creating opportunities for alpha generation.
Outcome: Built deep credit analysis expertise that became the professional foundation for later founding Oaktree Capital.
Lesson: Seeking out inefficiently priced niches outside mainstream markets is an effective path to building differentiated competitive advantages.
Context: Left Citibank to join TCW Group, tasked with launching and managing a high-yield bond portfolio, as Michael Milken's junk bond market was rapidly expanding.
Decision: Accepted TCW's invitation to build a high-yield bond business from scratch, while beginning to systematically document his investment thinking.
Reasoning: TCW offered greater autonomy to practice and develop his investment philosophy; the high-yield bond market was still under-institutionalized, offering clear first-mover advantages.
Outcome: Over 17 years at TCW, built an outstanding performance record while forming the risk-perception-centered investment philosophy framework.
Lesson: Building specialized capabilities early in emerging market niches can create competitive barriers lasting decades.
Context: In 1990, the junk bond market collapsed and Drexel Burnham Lambert went bankrupt, creating extreme pessimism. Marks began writing memos to articulate his investment views to clients.
Decision: Began writing regular investment memos in essay form to systematically articulate market observations and investment philosophy.
Reasoning: Memos are the best vehicle for organizing and disseminating investment thinking; written expression forces more rigorous and systematic thought.
Outcome: The memos gradually built a readership among the world's top investors; Warren Buffett publicly stated he reads each memo as soon as it arrives.
Lesson: Systematically recording and sharing ideas not only helps others but deepens and refines one's own thinking through repeated articulation.
Context: Together with colleagues Sheldon Stone, Bruce Karsh and others, left TCW to co-found Oaktree Capital, focused on alternative credit investing.
Decision: Left the stability of a large institution to co-found an independent asset manager, gaining greater investment autonomy and the ability to shape culture.
Reasoning: In large institutions, investment philosophy can be diluted; an independent firm can build a purer, more consistent investment culture and risk management system.
Outcome: Oaktree became one of the world's largest alternative credit asset managers, with AUM exceeding $170 billion, and went public on NYSE in 2012.
Lesson: Building an institution deeply aligned with one's investment philosophy is the most effective path to scaling a personal methodology.
Context: In early 2000, the internet bubble reached its peak with the Nasdaq at all-time highs and extreme market euphoria; nearly everyone was chasing tech stocks.
Decision: At the market peak, published the memo 'bubble.com', explicitly warning that tech stock valuations were severely bubbled and refusing to chase the trend.
Reasoning: Applied second-level thinking: the internet would indeed change the world (first-level), but current valuations had already over-discounted the most optimistic expectations (second-level); the sentiment pendulum was at extreme optimism.
Outcome: The Nasdaq subsequently crashed from 5,000 to 1,100; Marks' warning was fully validated, and Oaktree preserved capital by avoiding the tech bubble.
Lesson: Maintaining independent judgment when market consensus is strongest requires enormous contrarian courage, but this is precisely the source of alpha.
Context: In 2007, credit markets were extremely loose with spreads at historic lows, leveraged buyouts booming, and markets broadly believing risk was contained.
Decision: Published a memo explicitly noting that credit market risk had accumulated massively, recommending investors shift to a defensive posture.
Reasoning: Tight spreads and loose credit conditions are not signals that risk has disappeared but that risk has accumulated; the market's ability to perceive risk systematically declines during booms.
Outcome: The 2008 financial crisis erupted; Oaktree's early defensive positioning reduced losses, and its aggressive distressed buying at the crisis bottom generated historic returns.
Lesson: Risk perception is a prerequisite for counter-cyclical action; heighten vigilance when markets are most optimistic, and seek opportunities when markets are most pessimistic.
Context: After Lehman Brothers collapsed in 2008, credit markets froze, bonds were sold at extreme discounts, and panic permeated markets.
Decision: During peak market panic, Oaktree aggressively purchased distressed bonds and credit assets that were being sold off, deploying billions of dollars.
Reasoning: The sentiment pendulum was at extreme pessimism; asset prices had fallen far below intrinsic value; the credit crisis was a short-term liquidity crisis, not systematic value destruction.
Outcome: Oaktree's 2008-2009 distressed debt funds generated annualized returns exceeding 20%, becoming a classic case study in crisis investing.
Lesson: Being greedy when others are fearful requires not just courage but a pre-built risk perception framework and adequate capital reserves.
Context: After more than 20 years of memos and practical experience, Marks compiled his core ideas into a book published by Columbia University Press.
Decision: Systematized the investment philosophy scattered across dozens of memos, integrating it into a framework of 'the most important things' accessible to general investors.
Reasoning: A book can spread ideas to a broader audience and forces the author to conduct a more rigorous self-examination and integration of the thought system.
Outcome: 'The Most Important Thing' became a classic investment textbook, was listed as required reading at multiple business schools, and received a preface and high recommendation from Warren Buffett.
Lesson: Systematizing practical experience into a teachable framework is both a contribution to others and the ultimate test of one's own thinking.
Context: Following the success of 'The Most Important Thing', Marks deepened his research on the dimensions of market cycles and published his second book.
Decision: Focused specifically on market cycles, systematically explaining how to identify, understand, and exploit economic, credit, psychological, and other multi-level cycles.
Reasoning: Market cycles are the most underappreciated force in investing; most investors understand cycles only superficially rather than deeply understanding their driving mechanisms.
Outcome: 'Mastering the Market Cycle' became an authoritative work in market cycle research, further cementing Marks' status as a cycle thinker.
Lesson: Deep focus on a core theme builds genuine professional authority and intellectual influence more effectively than broad coverage.
Marks distilled the essence of his memo series into this book; Buffett wrote the foreword, saying 'I found in this book what I myself think about on a daily basis'
Marks' second book, focused on market cycle recognition; the core argument is that investors cannot predict the future but can assess 'where we are in the cycle' and adjust risk accordingly
Graham's margin of safety concept and Mr. Market parable profoundly influenced Marks' risk perception and contrarian investment philosophy.
Buffett's long-term value investing and independent judgment of market emotions have a mutually reinforcing relationship with Marks' cycle thinking.
Galbraith's research on market bubbles and collective irrationality influenced Marks' understanding of market psychology and cycles.
Klarman's margin of safety philosophy deeply resonates with Marks' risk perception framework, the two mutually reinforcing each other.
Greenblatt's practice in value investing and distressed assets was influenced by Marks' credit investing methodology.
Dalio's debt cycle theory and Marks' market cycle theory are highly complementary methodologically; both emphasize the central role of cyclical patterns in investment decisions.
Buffett publicly praised Marks' memos as must-reads; the two share highly aligned views on contrarian investing and risk management.
When I see memos from Howard Marks in my mail, they're the first thing I open and read. I always learn something, and that goes double for his book.
Howard Marks is one of the most thoughtful investors I know. His memos are required reading for anyone serious about investing.