Aug 30, 2022 · 1h 34m · acquired
Howard Marks & Andrew Marks: Something of Value · Acquired
Howard Marks · 33m spoken Andrew Marks · 27m spoken Ben Gilbert · 13m spoken David Rosenthal · 9m spoken Christina Cacioppo · 2m spoken
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In this special episode of Acquired, legendary distressed debt investor Howard Marks and his son, venture capitalist Andrew Marks, engage in an in-depth conversation bridging multi-generational perspectives on value investing, technology, market psychology, and firm building.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ben and David hold 26.3% of the talking time here. How this is scored →
Ben and David as informed peer 4.0 Guest teaching 2.6 Guest disagreement 1.6 Ben and David pushing back 1.7
speaking balance: gold is Ben and David, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 1:21:05 Andrew rejects premature profit-taking on compounders
Andrew aggressively dismantles the conventional value investing habit of trimming winners, using mathematical examples of perpetual compounding to illustrate why selling early is a colossal mistake.
Hardest push from Ben and David ▶ 28:38 Ben challenges valuations in an era of rapid disruptionBen directly challenges Andrew and Howard by asking whether heightened disruption velocity and fragile moats should logically force investors to discount future cash flows more aggressively.
Biggest teaching moment ▶ 20:05 Howard explains risk pricing via life insurance analogyHoward educates the hosts on the fundamental logic of credit underwriting by showing how life insurers profit reliably off mortality risk as long as the price and diversification parameters are sound.
Ben and David hold their own ▶ 15:30 David connects Amazon's cash conversion cycle to MauboussinDavid immediately matches Andrew's technical breakdown of Amazon's income statement versus cash flow by citing Michael Mauboussin's seminal 'cashflow.com' research note.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ben and David as informed peer | Guest teaching | Guest disagreement | Ben and David pushing back | Why |
|---|---|---|---|---|---|---|
| Quarantined Together: The Genesis of 'Something of Value' | 3 | 1 | 1 | 1 | David and Ben set the stage regarding the co-authored memo 'Something of Value'. Howard and Andrew describe being quarantined together in Los Angeles during early 2020 and having natural cross-generational debates about value versus growth investing. | |
| Reconciling Value and Growth: Reinvestment and Optionality | 5 | 3 | 2 | 2 | Andrew outlines how value and growth converge when analyzing reinvestment through the income statement rather than traditional cash flow statements. David demonstrates domain expertise by citing Michael Mauboussin's classic 'cashflow.com' research on Amazon. | |
| History of High Yield and the Nifty Fifty Fallacy | 4 | 5 | 2 | 1 | Howard details the origins of high-yield bond investing in 1978, explaining how Moody's blanket rejection of non-investment grade debt ignored price. He uses the life insurance analogy to explain why taking quantifiable, diversified risk generates alpha. | |
| Disruption, Speed of Change, and Inviolate Moats | 5 | 3 | 2 | 3 | Howard and Andrew analyze the disruption of supposedly impregnable moats like newspapers and Nifty Fifty stocks. Ben engages deeply by pointing out how rapid shifts in consumer behavior seem counterintuitive in real time. | |
| Increasing Returns to Scale and Quantitative Edge Erasure | 6 | 4 | 3 | 4 | Ben pushes back on whether companies should have lower valuations given accelerated disruption risks. Andrew counters using Brian Arthur's increasing returns to scale and explains why ubiquity of quantitative data shifts edge entirely to qualitative future judgment. | |
| Contrasting Venture Capital with Credit Investing | 5 | 3 | 2 | 2 | David contrasts Howard's core mantra of avoiding permanent capital loss with venture capital's power-law dynamics. Howard and Andrew explain how their contrasting investment strategies reflect their fundamental personality differences. | |
| Sponsor Spotlight: Tiny's Model for Capital-Efficient Businesses | 0 | 0 | 0 | 0 | Sponsor spotlight for Tiny. Host-read advertisement; zero scores applied. | |
| Firm Building, Partnership Dynamics, and Staying in Your Zone | 4 | 2 | 1 | 1 | Howard details Oaktree's founding based on shared values and complementary skills with Bruce Karsh. Andrew explains TQ Ventures' deliberate choice to remain a tight partnership focused strictly on early-stage founders rather than expanding AUM. | |
| Intellectual Humility, Second-Level Thinking, and Investor Judgment | 5 | 4 | 2 | 3 | Ben presses on how investors cultivate judgment when compelling arguments exist on both sides. Howard cites Charlie Munger and discusses second-level thinking, while Andrew emphasizes intellectual humility and self-awareness of cognitive biases. | |
| Identifying Exceptional Judgment in Startup Founders | 6 | 3 | 2 | 2 | Andrew explains his methodology for evaluating founders by interrogating past decisions from first principles rather than relying on rehearsed pitches. Ben adds his framework of looking for founders who are four standard deviations away from the mean. | |
| Sponsor Spotlight: Brex's Modern Spend Management | 0 | 0 | 0 | 0 | Sponsor spotlight for Brex. Host-read advertisement; zero scores applied. | |
| Strategic Partnership: Brookfield's Majority Stake in Oaktree | 4 | 2 | 1 | 1 | Ben inquires about Brookfield's majority acquisition of Oaktree. Howard explains how Brookfield met Oaktree's strict 20-year governance criteria by preserving independent operations and client relationships while providing an orderly liquidity path. | |
| The Psychology and Mechanics of Selling ('Unbuying') | 5 | 4 | 3 | 2 | Howard and Andrew discuss the psychology of selling. Andrew explains why selling compounders early to lock in gains is a catastrophic error in venture and growth investing, while Howard reframes selling as a deliberate decision to 'unbuy'. | |
| The Origin of Howard's Memos and Countercyclical Fund Sizing | 4 | 3 | 2 | 2 | Howard recounts the origin of his investment memos in 1990 and explains Oaktree's countercyclical discipline of raising massive funds during market distress and shrinking fund sizes during market euphoria. |
Statements from this episode (24)
Howard Marks: 'Something of Value' is his most popular memo ever
“That's right, David. Previously, that was held by a, when I wrote, I think it was in January of 14 or 15, called Luck, in which I talked about how lucky I've been and that I'm a big believer in luck and it's great to be on the right side of it. And I listed ab…”
Andrew Marks: Amazon proves great founders trump static business models
“And so he sort of talks about the primacy of business model over management, but I think Amazon's a great example of the opposite because You could have never dreamed that if you owned Amazon when the story was about growing as a retailer, you could have never…”
Howard Marks: Oaktree Historically Avoided Contact With Tech Companies
“In the credit field, where I've spent the last 44 years, we historically have not had contact with what you would call a tech company.”
Howard Marks: The Value Versus Growth Dichotomy Should Not Be Hardwired
“And by the way, when I say the value investor does this and the growth investor does that, Probably the biggest single theme of the memo was that that dichotomy should not be so hardwired.”
Marks: High-yield debt succeeds through aware, analyzable, and diversified risk
“How can they insure people's lives when they know they're all gonna die? And the answer is, number one, it's risk they're aware of... Number two, it's risk you can analyze... Number three, it's risk you can diversify... Number four, it's risk they're well paid…”
Marks: Holding the Nifty Fifty for five years from 1969 wiped out capital
“If you bought the nifty 50 the day I got to work, and if you held it tenaciously for five years, you lost almost all your money in the best companies in America for the main reason that they had been priced too high.”
Andrew Marks: Corporate Durability Is Far Lower Today Than in 1950
“It was very possible for companies to be much more durable. Back then than it is today, in my opinion. I mean, if you transport yourself back to 1950 and you think about, well, how many businesses are there where I think I can say with high conviction that the…”
Rosenthal: Cormac McCarthy helped edit W. Brian Arthur's 'Increasing Returns' paper
“Brian Arthur was friends with Cormac McCarthy, the author who wrote All the Pretty Horses and No Country for Old Men, and Cormac helped Shape the pros in that piece.”
Howard Marks: Internet information cannot provide an investing edge
“Human knowledge is cumulative, and lately it's been rushing forward at an incredible pace, so it's hard to imagine that there's a piece of information that I can get off the internet that's going to make me any money for the simple reason that everybody else c…”
Andrew Marks: Consensus qualitative praise is dangerous without checking asset price
“It's very dangerous to just make qualitative judgments about a company that seemingly everyone has. Oh, this is a great company, whatever, and it'll just continue winning without also saying, well, to what extent is this reflected in the price? And so that's t…”
Andrew Marks: Venture capital is not an inefficient market
“First of all, I think you'd be hard pressed to say that venture is super inefficient. It's not a market where everyone can transact, and it's actually hard to get in the place where you can invest in seemingly great companies, but the competition to invest in …”
Howard Marks: Top drug analysts can only pick Merck versus Lilly 50% accurately
“You can take the best drug analyst in the world and sit him down on the first day of every year and ask him which is going to perform better, Merck or Lilly. And my guess is he'll get it right half the time.”
Howard Marks: Investor edge requires better data analysis, qualitative judgment, or forecasting
“If everybody has all the company data about today and the means to massage it, How do you get a knowledge advantage? And the answer is you have to either somehow do a better job of massaging the current data, which is challenging, or you have to be better at m…”
Andrew Marks: Buffett avoided tech moats because they were outside his comfort zone
“I mean, one critique you could make of Buffett is he just totally ignored technology, and technology not only became much more pervasive, but I also think that, I mean, he's an incredibly smart guy, and he understands lots of different elements of business, an…”
Howard Marks: Computers cannot pick the next Amazon or Steve Jobs
“I always say that I don't think that a computer can sit down with five business plans and figure out which one is Amazon in advance, or meet five CEOs and know which one is Steve Jobs.”
Howard Marks: Teaching second-level thinking is like coaching height
“People say to me, can you teach somebody to be a second level thinker? And I said, I don't know. It's kind of like asking the basketball coach to coach height. All his efforts won't make his players any taller. Some people get it, some don't.”
Howard Marks: Oaktree avoids lone wolves and single-year individual performance pay
“We don't want the lone wolf. We don't want the you eat what you kill kind of person. And we don't pay people on the basis of their one year's quantitative performance as an individual, and we don't want people to work that way.”
Howard Marks: Trimming winning investments just to lock in profit is a mistake
“This idea that as soon as there's a profit, you should take some of it off the table, seems like a huge mistake.”
Howard Marks: Investor selling behavior is primarily driven by avoiding regret
“And a huge amount of people's preoccupation, in my opinion, is with avoiding regret. Embarrassment in front of others, regret themselves.”
Howard Marks: Investors should rebrand the selling decision as 'unbuying'
“You know, it all comes down to maybe we can think better about the selling decision if we rebrand it and we call it the decision to unbuy. The thought process should be the opposite of the buying decision and not some chicken stuff about being afraid to lose.”
Howard Marks: Consistent median performance compounds into top-decile overall returns
“In 1990, I went to visit a client in the Midwest who told me that the pension fund he ran for 14 years was between the 27th percentile and the 47th percentile every year for 14 years... That pension fund was in the fourth percentile of all pension funds for th…”
Howard Marks: Oaktree memos received zero client feedback for ten years
“For the first 10 years I never had a response. Not only did nobody say it was good, nobody ever said, I got it.”
Howard Marks: Managers should raise smaller funds following strong performance
“Most firms, if they have a very successful fund, will follow it up with another fund which is larger on the back of that. But if you think about it, if you had a success in a given area, the good performance of that fund is synonymous with appreciation. In oth…”
Marks: Oaktree raises its largest funds during crises and cuts fund sizes afterward
“There were debt crises, or crises in general, in 1991, oh one oh two, oh eight oh nine, and then of course a brief one in 2020. And the biggest funds we've raised were the funds that invested in those years. Usually because we had some foresight about what lay…”