Mar 5, 2019 · 1h 31m · knowledge-project
#53 Howard Marks: Luck, Risk and Avoiding Losers
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In this in-depth interview with Shane Parrish, Oaktree Capital co-founder Howard Marks shares essential mental models for navigating market cycles, managing risk, and mastering contrarian decision-making. He also provides thoughtful commentary on economic policy, the profound role of luck in success, and the importance of sound decision processes over immediate outcomes.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Shane holds 10.8% of the talking time here. How this is scored →
Shane as informed peer 4.3 Guest teaching 5.4 Guest disagreement 1.5 Shane pushing back 1.1
speaking balance: gold is Shane, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 44:50 Marks dismantles the 'you make your own luck' myth
Marks strongly rejects the Silicon Valley premise that success is entirely earned, directly confronting the idea that innate intelligence is a personal accomplishment rather than luck.
Hardest push from Shane ▶ 56:45 Parrish challenges Marks on historical job transitionsParrish directly challenges Marks's bleak technological outlook by pointing out that humanity has successfully navigated every past wave of industrial disruption.
Biggest teaching moment ▶ 35:10 Marks dismantles tariff rhetoric with economic realityMarks corrects widespread political misconceptions by demonstrating that import tariffs are paid directly by domestic consumers via higher retail prices rather than by the exporting nation.
Shane holds their own ▶ 18:57 Parrish crystallizes the cyclical paradoxParrish demonstrates his deep theoretical grounding by summarizing Marks's complex supply-and-demand dynamic with the aphorism that success sows the seeds of its own destruction.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Shane as informed peer | Guest teaching | Guest disagreement | Shane pushing back | Why |
|---|---|---|---|---|---|---|
| Navigating the 2008 Financial Crisis through Contrarian Action | 4 | 5 | 1 | 1 | Shane Parrish prompts Howard Marks with an insightful setup regarding the 2008 crash and injects the insight that the meltdown was unknowable. Marks delivers an extensive masterclass on Oaktree's contrarian logic during the crisis. | |
| Market Psychology and Emotional Pitfalls of Investing | 4 | 6 | 2 | 1 | Parrish asks about professional managers failing to act, and Marks reframes the market as merely human participants governed by emotion rather than an abstract entity. | |
| Organizational Culture, Risk Control, and Decision Quality vs. Outcome | 5 | 5 | 1 | 1 | Parrish digs into decision quality versus outcome and probability distributions. Marks explains Oaktree's psychological hiring and risk-first ethos ('avoid the losers'). | |
| Understanding Market Cycles and Economic Interventions | 4 | 5 | 1 | 1 | Parrish provides historical context on Paul Volcker and synthesizes Marks's points about cyclical excess sowing its own destruction. Marks explains the dynamics of economic recoveries. | |
| The Role of Central Banks, Government Policy, and Wealth Redistribution | 4 | 6 | 2 | 1 | Parrish asks about the government's wealth redistribution role, prompting Marks to challenge the concept of 'fair share' as a political rather than economic term. | |
| Economic Reality, Tax Policy, and Global Trade | 5 | 6 | 2 | 2 | Parrish probes how global competition and game theory defection affect tax policy. Marks breaks down economic reality, trade deficits, and the common misconceptions surrounding tariffs. | |
| Political Reality, Polarization, and Systemic Trade-Offs | 4 | 5 | 2 | 1 | Parrish explores how citizens can make sensible choices amid political polarization. Marks emphasizes economic trade-offs and rejects simplistic utopian promises. | |
| The Role of Luck, Innate Advantages, and Gratitude | 5 | 5 | 2 | 1 | Parrish shares his philosophy of equal opportunity versus unequal outcomes and brings up the ovarian lottery. Marks agrees while rejecting the meritocratic Silicon Valley myth of self-made luck. | |
| Automation, Technological Unemployment, and the Dignity of Work | 5 | 6 | 2 | 2 | Parrish repeatedly challenges Marks's pessimism regarding technological displacement, noting historical precedents, but Marks insists AI and automation represent an unprecedented structural break. | |
| Defining Risk, Uncertainty, and Probability Distributions | 5 | 5 | 1 | 1 | Parrish asks about uncertainty versus known probability distributions and uses a roulette analogy, which Marks refines into a craps and backgammon expected-value framework. | |
| Second-Level Thinking, Variant Perception, and Daring to Look Wrong | 4 | 6 | 1 | 1 | Marks delivers an in-depth breakdown of second-level thinking and variant perception, emphasizing that outperformance requires daring to look wrong. | |
| Parenting, Financial Responsibility, and Embracing Inevitable Mistakes | 3 | 5 | 1 | 0 | Shane Parrish adopts a reflective listening posture as Marks provides life lessons on parenting, financial literacy, and embracing inevitable mistakes. |
Statements from this episode (26)
Marks: Investor psychology swings between perfection and total collapse
“In the real world, things fluctuate by, between pretty good and not so hot. But in the investment world, investors go from, you know, perfect to no chance of survival in their psychology.”
Marks: Oaktree invested $10 billion across final 15 weeks of 2008
“For the last 15 weeks of oh eight, we invested an average of six hundred and fifty million a week for a total of ten billion, and the financial world did not melt down.”
Marks: Unlike regular consumers, Wall Street investors buy more as prices rise
“Now, in most walks of life, people buy more when the prices go down during sales. On Wall Street, they buy more when the prices rise.”
Marks: Organizations that second-guess mistakes make investors mistake-averse
“And if you have a partner or an organization which second guesses your mistakes, then you become mistake averse.”
Marks: Oaktree achieved 16-17% distressed debt returns over 30 years without leverage
“And, you know, we have a record in distressed debt of, I think, 16 or 17% a year for 30 years without using any leverage.”
Marks: Cycles occur because human psychology drives upside excesses and downside overcorrections
“Cycles happen because people, not electrons, but people commit excesses to the upside, usually out of enthusiasm. Which then have to be corrected, and those corrections overshoot to the downside.”
Marks: The ongoing U.S. recovery will become the longest in history
“So my guess is that this recovery will set a record for the longest recovery in history. Because of the slowness and the absence of excesses.”
Marks: Accommodating Fed policy and Greenspan put contributed to GFC
“I think that in, in, in some ways, the Fed contributed to the global financial crisis by being too accommodating. And, you know I think that Greenspan was so accommodating of the need of the economy to grow that And kind of a cheerleader that he permitted the …”
Marks: 'Fair share' in taxation is rhetoric for higher taxes
“There is no such thing as a fair share. And the only question is who determines the fair share? And my feeling is that the fair share is by definition, when people say we're trying to get the rich to pay their fair share, what they mean is we're trying to get …”
Marks: Oaktree Invests at the Micro Level, Not in Macro Themes
“First of all, let me say, Oaktree is not what we call a macro investor. We do not invest in broad themes of economic growth and movements in currencies and interest rates. We are a micro investor. We invest in individual companies and situations and properties…”
Marks: US Consumers, Not Chinese Exporters, Pay US Import Tariffs
“Chinese don't pay tariffs. Tariffs are paid by consumers of goods. We have collected billions in tariffs from US consumers of Chinese goods.”
Howard Marks: Free Enterprise Requires Losers; Socialism Yields Only Losers
“You have to have losers and winners in the free enterprise system. If you don't want winners and losers, switch to the socialist system or communist system in which they in which they were only losers.”
Howard Marks: Luck is real, important, and inherently unfair
“I read a piece quoted some Silicon Valley guy who says, success is never accidental. You make your own luck. And I don't agree. I think luck is a real thing and it's important and it's inherently unfair, but that's life.”
Marks: Innate intelligence is luck, not personal merit
“What did you do to deserve, develop, or nurture your IQ? You were born with a brain that works better than others. That's luck. And it's totally, it's not merit.”
Marks: Universal basic income feeds physical needs but lacks work's psychological benefits
“Universal basic income will not give those benefits. It'll only feed the physical needs.”
Marks: US lost 24M jobs to productivity gains versus 3M to China
“The point is that we have probably lost twenty-four million jobs to increasing productivity over the last 40 years compared to three million that went to China. And it shows you the scope of the problem and the location of the problem. The problem is not China…”
Marks: AI developers will thrive while displaced workers face dystopian hardship
“The people who can develop the personless bookstore or the robot will be in great demand, and the people who can create artificial intelligence will be in great demand and very valuable, and they'll all live in a small community just south of San Francisco. An…”
Marks: Risk Is Probability of Bad Outcomes, Not Volatility
“Now, I don't think volatility is risk. I think risk is the probability of bad outcomes.”
Marks: Institutional Investors Risk Firing for Losses Over Missed Gains
“And more, an investor who works for somebody else is more likely to get fired for losing money than for missing out on opportunities.”
Marks: Investors Cannot Rely Solely on Expected Value Calculations
“And so we can't just invest on the basis of the probability distribution and the expected value. We also have to take our own tolerances and predilections into account.”
Marks: Everything important in investing is counterintuitive and obvious ideas are wrong
“Everything that's important in investing is counterintuitive. And everything that's obvious is wrong.”
Marks: Outperformance requires daring to be different, wrong, and look wrong
“The question is, do you dare to be different Because clearly by, you have to diverge from the pack is required if you're going to be a superior. In anything. And number two, do you dare to be wrong? Number three, do you dare to be look wrong? Do you dare to lo…”
Marks: Howard Marks no longer makes active investment decisions at Oaktree
“I'm not reading at this point to become a better investor. I'm not making that many investment around this decisions around here. I'm really just trying to lead the organization, the people in the culture and relate to the clients and write and speak and that …”
Howard Marks: Kids must understand that money is finite to function well
“I think one of the most important things to have kids who function well around money is for them to have a feeling of finiteness, and this goes back really to economic reality, the memo. They should understand. That money is finite. No matter how much money yo…”
Howard Marks: Insulating children from mistakes leaves them vulnerable later
“Your kids will make mistakes, hopefully not lethal ones, and insulating them from making mistakes is not doing them a favor, because if they make their first mistake at five, And they improve their decision-making process, and they learn that mistakes don't ki…”
Howard Marks: Investors shouldn't self-flagellate over mistakes if process was sound
“Being wrong comes with the franchise of an activity whose outcome depends on an unknown future. No baseball player expects to bat a thousand. Investors shouldn't. Which means they shouldn't get down on themselves if they make a mistake as long as they re-exami…”