Howard Marks: how I make money while you worry about a market crash

Key Takeaway

When markets crash and everyone sees terrible news, successful investors overcome fear not by ignoring it, but by acting despite trepidation. True investing courage isn't fearlessness—it's acknowledging uncertainty while still taking action. As Howard Marks explains: invest during crises because if you wait until there's nothing to fear, the opportunity has passed. Build your 'ark before the flood' by preparing capital when things look good, not when panic sets in.

Episode Overview

Howard Marks, co-founder of Oaktree Capital Management, discusses his evolution on AI, the principles of second-level thinking, making major investment decisions during the 2008 financial crisis, the importance of humility in investing, and lessons from his 39-year partnership with Bruce Karsh and relationship with Warren Buffett.

Full Transcript

Transcript of Howard Marks: how I make money while you worry about a market crash from My First Million. Auto-generated from episode audio; may contain minor errors.

If you wait until you have nothing to be afraid about, probably the opportunity has passed. Howard, it's good to see you again. We had a lot of fun last time and we were like, "Look, I don't know if other people are going to like that, but we loved that." And then over a million people listened to the last one. And so, this morning I was reading you wrote this blog post about how you changed your mind about AI. You You had written I don't know, a couple months back about the possibility of an AI bubble and then as as as a good thinker tends to do, you got new facts, you sort of reassessed the situation, you wrote a new post about AI.

Do you want to summarize the story of how you you changed your mind on AI? Uh well, the story's very simple. I have this son named Andrew. He's a VC. He's dealing with AI AI every day. His companies use AI, some of them create AI, etc. Uh I had written the first memo around December 9th, as I recall, and then in early February he said, "Dad, so much has happened. You have to update the memo." And so, I I rewrote the memo entirely. entirely. entirely. You I was read I was rereading one of your old books.

And uh you repeat this phrase a bunch, which is like, it's important to be rational and you can't get seduced into thinking something is a good idea because that's when smart people can make bad decisions, when you get emotional about something. But then when I was reading part two, I was reading it and I was like, "Howard, you sound a little seduced. You sound a little seduced. You sound like you're into this. into this. into this. Are you at all approaching this in an emotional way, you think?" It It depends on your definition of emotional.

I emotional. I emotional. I upgraded my opinion of AI and its potential because it's um ability to talk about its own strengths and weaknesses, to use humor to to to put information in the context of me. To use what it knows about me. And you know, this is really uh uh exceptional stuff. There's a quality to AI uh or more than one quality, which uh are unprecedented, in my opinion. The first The first The first the obvious one is autonomy. All the other technological innovations from the railroad to computers, to the internet, etc., were all tools or uh things to speed up uh and increase productivity.

There's never been anything with the quality of autonomy. The idea The idea The idea that it you can give it a job and not tell it how to do it, and it'll figure it out. Is really unique. And the it what comes with that yeah, of course, is this nagging concern nagging concern nagging concern that it may take over. So, that's that's really important. The other thing and this is not uh kind of uh quantifiable is there's never been anything, in my opinion so unpredictable. I don't think anybody knows the shape of the future.

So, I I have never had that sense before. sense before. sense before. I never say I never thought that that the internet, for example was uh beyond comprehension or beyond prediction. Do you think that AI will be able to do what you do? And I know you talk about this in the the memo. memo. memo. And I got to be honest, when I read it I I you know, I almost felt like you know, you read stories about Warren Buffett reading the Moody's manual page by page 800 companies and trying to digest that information.

Well, information. Well, information. Well, AI can do that in in a heartbeat, right? Like you know, a lot of the things that that go into making investment decisions it can do very well, very fast. And then also it's advancing so fast. So, you know, whatever we thought it could do 3 years ago is laughable compared to what it can do today. And as you pointed out, even 3 months ago. So, I guess in your heart of hearts, do you think, you know, in the in the future the next Howard Marks is not a not a human, but but maybe a human with AI or just AI?

just AI? just AI? Everything I say on the subject I preface with I'm no expert, but I think I told the story in the memo about the fact that indexation uh put a lot of people out of the equity business because uh you know, it it disclosed that they couldn't do uh what they claimed to do. And most active equity investors underperformed the averages. the averages. the averages. And uh AI [clears throat] will unfrock or defrock another group of people whose talents are not as great as as they purport.

purport. purport. I used to say about computers, you know, when I went to school and learned about computers, uh all they could do was read was read was read remember remember remember add, subtract, and compare. They could do it with a lot of data. They could do it really fast. They could do it without making arithmetic mistakes. They could do it without making emotional mistakes. So, while the list was limited it was still better than most people. Now, what's the list for AI? Is the list for AI unlimited or or or limited?

That's that's a big part of the question right there. Uh I don't I don't know the answer. I Maybe you do. Um and then is there anything left that AI can't do? And one example is I think we've helped our clients our clients our clients over the years by not investing with bad people. people. people. And sometimes you talk to people and and and for undefinable reasons you just say, you know what? It doesn't feel right. As as somebody said to me, the hair on your back on your neck goes up.

And if that's true and if AI doesn't have hair on its neck then maybe there's a role left for experienced investors with judgment. I I believe so. First of all, there will always be things for which there is no history to train on. train on. train on. And to the extent that that a certain big percentage of what AI does is knowing history and recognizing and extrapolating patterns. There will always be stuff for which there is no history. There are just some people who have a better understanding of the probability distribution that defines future events.

I was reading this book on Steve Cohen. And there was this part where they were describing how he was kind of like the man at a very young age. They were like, he can just feel the ticker. He just like is in tune and in flow with it. And I was like, oh, that's beautiful, but like this I can't replicate that. And I was always curious about that because I think in one of your books, I think you had said something like, I can't make I can make someone better, but I don't think I can make them great.

Can you talk to that about like what it is that makes someone who is a good investor good, but also how the average person could get better? Like or do you believe that's not that's not even possible that you just you have it or you don't? Well, in in my first book, The Most Important Thing Important Thing Important Thing Columbia, which published the book Uh, were talking about the They said, "Well, write us a sample chapter." So, I sat down and I wrote a chapter that I had never even thought about.

And it turned out to be the first chapter in the book and it says, On this show, we have spent hours talking to some of the best investors alive. Well, lucky for you, the team at HubSpot, they have pulled out the principles that matter most and turned it into a very simple, easy-to-read wealth guide. wealth guide. wealth guide. It's 35 principles from the top investors. We're talking guys who have been on the pod like Howard Marks, Monish Pabrai, Morgan Housel, Cathie Wood, and a ton others.

So, these are all their frameworks, their mental models, their rules, basically how to play the long game, and how to avoid ruin. You can get it in the link below. The most important thing is second-level thinking. Second-level thinking basically says, "If you don't see anything different from everybody else, you can't possibly be superior. So, to be superior, be superior, be superior, you have to at some point see something different from other people." What's called a variant perception. That you have to either think that the the the that the consensus of investors overstates the quality of the company, the growth rate of the company, the earning power of the company, or or maybe the multiple it deserves.

And you have to have this variant perception and you have to bet on your perception. And you have to be right. right. right. So, that's for that's second-level thinking. I say in the book and when people ask me, I say, "Can you teach me to be a second-level thinker?" And the answer is no. I I said I say in the book, "I don't know." Uh, but I think it's more of no but I think it's more of no than yes. Because I what I say is, "I can teach you the importance of being a second-level thinker like I just have in this chapter, this chapter, this chapter, but I can't tell you how to have perceptions that are at odds with the consensus of investors and correct.

You know, in basketball there's a saying you can't coach height. coach height. coach height. And I think there's something called insight. insight. insight. And I think some people have it and I don't know if AI can have it because when you know, when you talk about artificial general intelligence and and AGI is when a computer or AI can do everything that a human can do. do. do. Can it do that? Don't know. Don't know. Don't know. And that when I talk about the the the mysteries of AI, that's that's a big one of them.

Are there things it can't won't be able to do even when it reaches full flower? full flower? full flower? Can you think back to some of the biggest calls that you've had? How strong did that feel? Did you still have doubt or was it 100% conviction? I'm curious to hear what it feels like. Great. I think in our last episode we talked about the day Lehman went under, you know, September 15th maybe of '08. And we had thought that there was going to be a mess and we had raised it in the distressed debt world, the biggest fund in history prior to '07 was our '02 fund which was 2 and 1/2 billion and in '07-'08 we raised 11 billion for for for a distressed debt fund because we thought that that there was a lot of distress coming.

distress coming. distress coming. And we had it on the shelf, it wasn't it was for deployment when the stuff hit the fan. And Lehman goes under which I think qualifies as saying the stuff has hit the fan. But people are talking about the end of the world. world. world. And all the financial institutions are going to melt down and everything having to do with money is going to atomize. So, So, So, we were faced with the question. Do you the money? And there's no pattern recognition for the end of the world.

And there's no, you know, in the in the pandemic, a Harvard epidemiologist said, "When we make decisions, we have data, data, data, analogies to past experience, and supposition." supposition." supposition." Well, at the time of the Lehman bankruptcy, we had no data and no prior experience. We only had supposition. So, this is an interesting question. Can AI have engaged in this kind of thinking? thinking? thinking? And what we said is that if the world if the financial world melts down melts down melts down and we invest, doesn't matter.

doesn't matter. doesn't matter. But if But if But if we don't invest and the financial world doesn't melt down, then we didn't do our job. So, we have to do it. And we invested on that basis. And Bruce, Bruce, Bruce, who runs those funds, invested an average of $450 million a week for 15 weeks, $7 billion On that, well, was it only on that? We also on quantitative measures, assuming the world doesn't melt down, we were getting great bargains. We were buying cup the debt of companies where we would break even if companies that had been bought out by private equity guys two, three, four years earlier, if they ended up being worth worth worth a fifth or a fourth of what they had paid, we would still be okay.

So, So, So, that was pretty easy quantitatively. But we we were absolutely not confident. You weren't confident? No. No. No. I thought you were going to say the the opposite of that. No, but I mean, we we're the kind of people people people who always say, I could be wrong or it could work in a in a way that's never been seen before. And so And so And so we all we always I wrote a memo three or four years ago called taking the temperature about the five major calls macro calls that I made in the last well in the last 26 years and they're all all all with some doubt.

When the markets are crashing why are they crashing? They're crashing because the news is terrible. terrible. terrible. I read the same newspapers. I watch the same shows on TV. I'm I'm attached to the same news feeds. I see the terrible news. It looks terrible to me. I overcome it in some way and conclude no, I should invest. But But But I'm not immune to have what everybody else is reading. If you do these things without any any any trepidation trepidation trepidation you know, maybe there's something wrong with you.

with you. with you. But you know, people who look at the world probabilistically and admit to uh uh uh ignorance and uncertainty can't act can't act can't act without trepidation. without trepidation. without trepidation. Hey, can you tell me about raising $11 billion cuz you said that like very casually like so we raised an $11 billion fund and that's like if I just said hey, I just turned water into wine. I think for for for most people so I'm just actually curious. How does that happen? Is that is that you go to people and you say hey, we think the world's you make a really persuasive case.

Are you using a pitch deck? Is this just prior relationships? Are you selling upside? Are you selling safety against downside and fear? Like what what actually goes in to raising $11 billion like that? So there's a list of things. Number one, certainly prior experience. Relationships. People have, you know, we started this business in 1988. And And And so, we're talking about 20 years later. And in the 80 in the 20 years, we managed a lot of money and had very good results for a lot of people.

And so, you can work on that reservoir of goodwill. Number two, that this strategy is particularly well suited for crisis. And we had managed money through a few crises, crises, crises, 1991 and 01 02, and done and done and done exceptionally well. So, we were able to convince people that number one, so many of your investments are set up for prosperity, prosperity, prosperity, this is a good way to hedge it by making an investment that will do particularly well if if the stuff hits the fan.

But we were also able to call attention to flaws flaws flaws in the environment. The things that gave rise to the global financial crisis, we could talk about and we could point out. And you know, the fact that the market was not acting as a disciplinarian, which is its main job. Main job is to is to, you know, people come in and say, "I want money for this, this, and this." And the market's job is to say, "No, that doesn't make any sense. That's a stupid idea.

We're not going to invest in that." That's the job. And sometimes the market doesn't do that job. And when the market doesn't do that job, then dumb ideas get financed. And And And and when they turn out to be dumb, people lose money. So, I think we were able to convince people that some dumb things were happening. And then, of course, there's great respect for for Bruce Karsh, for the investing he's done of over the years. I think those are the main reasons reasons reasons why we were able to do it.

And by the way, you hit the nail on the head. We did it in advance of the crisis. crisis. crisis. The best time to invest is in a crisis. You can't raise money during the crisis because the news is so terrible. So, you know, my wife and I have a favorite movie we watched called uh Spy Game Game Game with Robert Redford. And uh And uh And uh he says in the Red- Redford says, "When did Noah build the ark?" Before the flood. You got to build the ark before the flood.

You have to have some sense that the that there may be a flood. But, one other point. other point. other point. In the in the prior 20 years, there had been these occasions when we thought there was going to be a great investment opportunity. investment opportunity. investment opportunity. And it And it And it we were generally right because we took the temperature of the market accurately, and we raised a large fund, and we invested in it, and we made a lot of money. of money. of money.

But then, But then, But then, our next fund was smaller because we thought the opportunities weren't as good. Now, most people in the investment business, if they have a fund that does great, the next fund is bigger cuz they can sell on the back of those results. results. results. But we make it smaller because we think those results mean that things have appreciated and are not so attractive. so attractive. so attractive. I I think that having done that for 20 years, years, years, I think we gained a lot of credibility, and people tend I think people tend to say when Howard and Bruce say there's a great opportunity, they're not just trying to raise money, they really believe it, and they're and they tend to be right.

be right. be right. And sometimes you have to speak against your own interest. And admit your limitations, and admit your uncertainties. So, in 19 uh uh uh 98, 98, 98, we had the meltdown of Long-Term Capital Management, we had a Russian Ruble crisis, we had a panic in Southeast Asia. And And And especially with Long-Term going under, one of the skilled portfolio managers, young portfolio managers at Oaktree, came to me. He says, "I think this is it. it. it. I think we're melting down. It's all over." And I said, "Well, tell me your concerns." And he laid out his concerns.

And I said, "Okay, I I understand it. Now go back to your desk and do your job." job." job." You know, You know, You know, a battle hero is not somebody who's unafraid. It's somebody who's afraid, but does it anyway. If you're running into a hell of bullets and you're not afraid, there's something wrong with you. But you do it anyway, because it's what you have to do. And I don't want to elevate, I'm not saying we're analogous to a a combat hero, but you have to do it despite your trepidation.

And if By the way, if you wait until you have nothing to be afraid about, about, about, probably the opportunity has passed. That's a great point. You mentioned Bruce, and I wanted to ask you about this, cuz it seems like you guys have had a very long-term partnership now at what, 30-plus years? I think people don't talk about that enough, the value of compounding in a relationship, and how to be a good partner for the long-term. You know, a bad partnership can ruin you, but we don't really talk about what it takes to make a great partnership at the same time.

If you were going to teach me and Sam, if we said, "Hey, Ben and Sam want to do this podcast for 30 years." Or, you know, I have a business partner, Ben, I want to be in business with him for 30 years. What do we got to get right to do that? Well, it's a great question, Jen, and it's very important. Bruce and I have been partners for 39 years this month. And it's one of the greatest things in our lives. our lives. our lives. After I think we would both say that after family after family after family and and maybe some good friendships it's really the best thing we've had.

We've worked together closely for all that period. We've obviously produced a lot of success. Had a lot of fun. Have have never had a fight. We have intellectual disagreements but we've never had a fight. Probably because neither of us is really a financial maximizer. maximizer. maximizer. And a lot of fights are probably about money. The bedrock of our relationship is mutual respect. And I think it would be very hard to have a have a have a successful long-term relationship with the partner if you didn't have respect for each other.

And that ties into something I wrote in '02, I think. But in '02, I wrote a memo called The Most Important Thing. And there was a section in there which talked about having a successful partnership. partnership. partnership. And I said the key to a successful partnership partnership partnership is shared values and complementary skills. skills. skills. If you don't share values, I don't think you can have a successful partnership. Let's say one person is super aggressive and the other is a chicken. One person is super ethical and the other one likes to cut corners.

I don't think you can have a successful relationship partnership. And I've seen many, many, you know, I mean a friend of mine when I was a kid, AT&T went public. Can you imagine the days before AT&T was was public? But anyway, they went public. They It was the biggest deal in history and and they had a full-page tombstone ad in the newspaper. And it listed all the investment firms that were the investment bankers. And there were probably 40. And a friend of mine, Ed Ramsdell he used to carry that out around and every time one went out of business he would would would mark it off.

And eventually I think they almost all disappeared except for Goldman Sachs. Goldman Sachs. Goldman Sachs. But why do they go under? But why do they go under? You have some cowboys and some chickens. And you know and when in bad times the chickens say the cowboys are getting us killed. And in good times the cowboys say the chickens are holding us back. And they disparage each other. So you have to share values in my opinion. The other thing is you have to have complementary skills. So So So the beauty of a partnership is when your partner can do things you can't.

That means that you are both additive to each other, synergistic. If I can do everything you can do or if I think that, what do I need you for? It's not going to last very long cuz eventually I'm going to say you're overpaid. I don't need you. And And And the beauty of my relationship with Bruce is that we both recognize that there are things that the other is good at that we're not we're not we're not and that the other wants to is willing to do that we don't want to do.

For example, from the very beginning Bruce approached me in in '87 with the idea of a distressed debt fund. You know, I went into the high yield bond business in '78 and he had a a background in law and got into into into some distressed investments which went well and he said came to me said we should do a distressed debt fund. And and it was quite a novel idea. But from the beginning the beginning the beginning you know, I go on the road and talk to people people people and Bruce stays back and manages the money.

I go on podcasts with people like you you you and Bruce doesn't. But the third element is you got to be appreciative. And you have to thank your lucky stars that you have a partner who will do the stuff you don't want to do. Can you do the same towards parenting? Because both on this episode and last one, one, one, you reference your son a bunch. Do you have any insights into how you've been able to raise a kid that you not just love, but you enjoy being around?

Well, you know, uh uh uh I think it was Forbes 30 or 40 years ago had an article about so-and-so who was the only shrink with an office on Wall Street. And they asked this guy about his patients' problems. problems. problems. And he said that his patients' problems, and they were all men, of course, cuz it was Wall Street a long time ago, his patients' problems were inversely proportional to the support they got from their fathers. We had people over for dinner last night, uh and one of the guys we we and we're talking about so-and-so who was a character of some kind.

And one of the guys said, "Well, you know what? His father treated him like hell. I just never wanted to be that father." And it's amazing how many men, and especially so successful men, have to assert assert assert their superiority over their sons. Maybe daughters, too, but I think it's more with sons. And I guess it's Freudian or or something else. But it's What a terrible thing that you have to you you had this kid and you have to prove you're smarter. And so, you know, I mean, I always let Andrew Andrew Andrew be smarter than me in in some things.

Uh and of course, I always gave him full support in the things he wanted to do. If your kids want to do something, and A, it's not going to be injurious, uh and uh yeah, I think maybe there's no B. Let him do it. Like when when uh when my daughter was getting out of lower school and had to choose an upper school, school, school, uh she applied to the two good schools in LA, got in, and and and we let her choose. My wife and I had a sense for which one we wanted her to go to, to, to, but we concluded that like I always say, we could be wrong.

Our choice could be the wrong choice. And anyway, And anyway, And anyway, of the two choices, while one might be better than the other, neither was a bad choice. So, if that's true, let the kid make the choice. And they get experience with making choices. And maybe they get a a a uh experience with making incorrect choices, which is very important. important. important. On the subject of choice, I have a I'm I'm interested to know, you know, when you were younger, you let's say you're 21 years old and you're trying to figure out what you want to do with your life.

Probably one of the more important questions you should figure out at some point is what do I want to actually do every day for 8 hours a day, that half my waking hours. And I doubt that, you know, a lot of 19-year-olds wake up and say, say, say, "I want to work with distressed debt and bonds." You know, it's not a That's not a knowable answer at that stage. What do you think is the right approach to figuring out your thing? First, I want to say up front and that the thing you describe I did a a terrible job of.

I was unconscious. The decisions I made in my first 20 years, 20 years, 20 years, as they say in in in religion, I did not apply intention. apply intention. apply intention. I just I let other people make the decision. I made decisions haphazardly. I didn't think about it a lot. Um I'm embarrassed uh embarrassed uh embarrassed uh at at how terrible my decision-making process was. In fact, it's it's a misnomer to apply that term. But, having said that, I I think it's desirable to make your choices with intention, well-reasoned, etc.

And what I tell kids is my favorite quote is from a writer named Christopher Morley who said there is only one success to live your life your own way. I think it's a beautiful quote. You know, I go to Wharton and Harvard and and all these places and Columbia. And and I say, "And you know, the fact that you're that you're that you're in this room probably means that you can live your life your own way. You probably have what it takes to live your life your own way, intellectually and intellectually and intellectually and work ethic is a word." But you have to figure out what it is.

That's the hard part. Who are you? And what I say to them is, "Try to find something that will play to your strengths, strengths, strengths, avoid your weaknesses, and make you happy." What that means is, "Well, that sounds obvious. Well, who would who the hell wouldn't wouldn't follow that instruction?" Well, the answer is what it means is you can't let your friends decide what you should do. should do. should do. You can't do things because your friends are doing them. You can't let society decide what you should do.

should do. should do. You can't let your parents decide what you should do. You have to think it out for yourself. Having said that it's very difficult because it's hard to know yourself. And And And we know we know we know that in 20 years you'll be a different person. person. person. How can you make a decision today on what will make that person happy? Very difficult, but you got to try. That's my advice which which I didn't take when I was a kid and I was derelict, but I got lucky.

Well, you eventually did become as you described what living well-intentioned. well-intentioned. well-intentioned. Yes. must have changed. What Do you remember Did you do any exercises to become that way? Not that I recall. I think part of it, you know, and I said I said for the next 25 years I didn't do it. That took me up to roughly 95, which is when I left with Bruce to start Oaktree. That was really That's so interesting. So you think that up until the age of 50 or 49 you were floating floating floating or living according to other people.

Well, not not just that, but just not making good decisions, conscious decisions. decisions. decisions. You know, why did I go to Citybank Investment Research Department when I got out of University of Chicago in 1969? Because I had a a good summer there the year before. Why did I move from the equity research department to the bond department? Because my work in equity research was unsuccessful and I was told to get out. Why did I move to California in 1980? Sunshine. Sunshine. Sunshine. Palm trees. Palm trees.

Palm trees. I just can't claim that I was making good decisions. I got sent to the bond department at Citybank in 1978. in 1978. in 1978. And And And 3 months later the head of the bond department calls me up. Since I was I didn't have that much to do. I was fairly idle. And he says there's a guy named Milken or something in California and he deals in something called high-yield bonds. Do you think you can figure out what that means? That was just luck.

You know, if you if you read Malcolm Gladwell in Outliers, it was just luck. Right time, right place. And if that call came at And if that call came at lunchtime lunchtime lunchtime and I had been out at lunch, maybe somebody else would get the call. And and they'd be me. Your uh your humility is very striking to me. We have a lot of people on this podcast that I I think, you know, claim to be humble or try to be humble. You You really are extremely humble person.

I mean, one note I wrote down is from now on at the top of all my investor memos, I'm just going to start it with I could be wrong, but um because I I I think whenever I make an investment, I'm so boastful about the my my excitement and my exuberance and why this is right and why it's the right move to do. And I think, you know, you've you've kind of infected me with a little bit of your your humility there. Well, you you make the investment because you believe in it.

But, it's important to see the other side side side and know what you're doing. By the way, Churchill said he's a he's a humble man and he has a lot to be humble about. But, Mark Twain says, "It ain't what you don't know that gets you into trouble. It's what you know for certain that just ain't true." And I always tell people, in line with what you just said, John, no sentence that starts with I could be wrong, but wrong, but wrong, but or I don't know, but ever got anybody into trouble.

The sentences that get people into trouble are I'm 100% convinced that and if you if you really feel that you're 100% right and you bet like you're 100% right and it turns out it was only 80/20 and the 20 comes up, that's how you get into big trouble. big trouble. big trouble. So, I think the thing that I think the thing that Mark Twain said was incredibly important. incredibly important. incredibly important. Yeah, last memo Sean sent me about some deal he had was uh bet everything you have, this is it.

Mortgage the house. Um hey, can I ask you about Buffett? You know, Buffett famously has said, you know, he reads your memos. Uh I assume you guys have interacted. Do you guys hang out? What's What's he like? And uh give me some some Warren Buffett stories from from your your life, your experience. Well, Bruce actually was always a Buffett watcher. And if you go back to the '80s, no, I don't think anybody had heard of Buffett. Maybe not the '90s. I don't remember exactly. In the in the late '90s, people said, "Well, Buffett's lost it it it because he's not in tech." And then, of course, tech blew up.

And then they said, "Ah, maybe Buffett knows what he's doing." But anyway, when Enron Enron Enron melted down, melted down, melted down, Enron did most of its misbehavior misbehavior misbehavior through through through off-balance sheet entities. And there was a lot of opportunity there. And so, we became the largest holder of the debt of one of them. them. them. It was called Osprey. And Warren was the second largest holder. holder. holder. And I don't remember how it came to pass, but he gave us his proxy. And he let us run that position for him.

And Bruce did a masterful job of restructuring that company, and we came out with a big old big win. So, So, So, this was around '02. So, around '03 or '04, Warren writes Bruce a letter. And he says, you know, "Nice job on on Osprey. And if you ever find yourself in Omaha, let me know. We'll have lunch." So, Bruce and I write him a letter or Bruce writes him a letter. It says, "It happens happens happens that Howard and I will be in Omaha this week.

Can we take you to lunch?" And and so, with that's how we met. And the relationship had a lovely start. And it went on like that. We never actually did any business together after that because, you know, he was always looking for something big that he could acquire. And and we don't we don't really deal in big acquirable things. But it was a very nice personal relationship and relationship and relationship and I don't I've never said this to anybody else before but in '09 I wrote a memo in which I mentioned him and I sent it to him and I said I want to make sure that you see this memo because it mentions you.

And he says I do see the memos and blah blah blah and I have seen this. He says and by the way you should write a book and if you do I'll give you a a blurb for the book. And that's why I wrote the first book. Most important thing I always thought I'd write a book when I retired but instead you know when when you get that kind of note from a guy like Warren Buffett you you can't let it sit. So that was that was the start of that but you know you know you know I've been fortunate to visit him a few times and times and times and and it's it's a big plus.

Is there any part about the Warren mystique the Buffett personality that you think like popular lore gets wrong or is inaccurate? No I think it's mostly what you see is what you get. The one thing I'll say that I don't think people know about they don't get wrong they don't know about is the depth of his love for Charlie. Charlie. Charlie. And Warren sent out a a note I think it was at Thanksgiving last year. year. year. And he said you know I'm not going to be at the Berkshire meeting and I'm not going to be writing this or that whatever it was.

And he talked about his relationship with Charlie and anybody who wants to should get a get a hold of that letter and see it because it's it's you know we talked earlier about the importance of the a partnership and how great a contributor to your life it can be. And and that's what that's what uh he had with Charlie. I think he as I recall he talked about Charlie being the big brother and and and himself being the little brother. And I think we can say that about my relationship with Bruce.

And And And for one reason or another, he's always been very kind to me uh about my role, you know, and generous about my role and he look, he's he's he's certainly he's certainly he's certainly as smart as I am and as talented as I am, maybe in different ways. But But But there was always this this feeling of respect and affection and love and and and the as the more time passes, the more we're conscious of that, he and I. And that's what Warren and Charlie had and it was beautiful thing to watch.

And also, the Warren used to love telling funny stories about Charlie, of which there were a lot. And their relationship was always suffused with humor. with humor. with humor. Did they make a lot of the decisions together? together? together? I mean, I've read a little bit about them and their relationship was a a little challenging for me to understand because I don't think they've ever lived in the same place. Yeah. Yeah. Yeah. Did they Did they Did they talk daily? talk daily? talk daily? I don't know exactly how they made their decisions, but I think I think Warren used Charlie as a sounding board.

A logic checker. You know, I think this, do you think this makes sense? That kind of thing. Of course, Charlie's great credit is that Warren Buffett used to engage in what we call cigar butt investing. I don't know if you know about this. But But But cigar butt investing means you're walking down the street and you look in the gutter and you see a used cigar and you pick it up and you conclude that it has three puffs left. So, you pick it up. This is a disgusting thought.

You pick it up and you smoke it and you get three puffs for free. That's the butt investing. But But But and and you know, Warren would buy uh you know, really cats and dogs because they were cheap. And Charlie's great contribution was talking Warren out of cats and dogs. Out of cigar butts. And his revolution was that he convinced Warren not any company at a great price. Great companies at a good price. Most people credit that as Charlie's greatest contribution. greatest contribution. greatest contribution. So, but it you know, synergistic, mutual respect, love, complementary skills.

It it interestingly, they probably had the highest combined IQ of any partnership in history. in history. in history. But they were different kinds of IQ. Charlie was more of a classicist and he humanist and a man of letters. And Warren, of course, was an incredible an incredible an incredible uh uh uh uh computing machine. A man of a a man of letters. Sean, we need to bring that back. That sounds that sounds beautiful. I would be a man of letters. of letters. of letters. Charlie, you know, when we would get together, he wouldn't talk about investments or money or companies, mostly.

He would talk about ideas. about ideas. about ideas. Well, let let's wrap it with one one last quick one, which is uh give us some homework. Give us a book that that that shaped the way you think or you thought brought some good ideas to the forefront. What's a book we should read as recommended by Howard Marks? So, one is uh a short history of financial euphoria financial euphoria financial euphoria by John Kenneth Galbraith. This was very uh influential in my thinking and it teaches you about uh the the the mental weakness that gives lot give rise to booms and busts.

And of course, you know, uh know, uh know, uh taking a uh objective view of cycles is a big part of what I do. So, that was very influential and I was lucky to get to meet Galbraith. meet Galbraith. meet Galbraith. And then the other book would be Fooled by Randomness by Randomness by Randomness uh by Nassim Nicholas Taleb. And it talks about See, I'm a great believer that a lot in life is random. And uh And uh And uh so, this is one of the reasons maybe it's my rationale for not being such a decisive thinker.

Taleb basically says, "In the short run, uh uh uh anything can happen because of randomness. And this determines our attitude toward risk, our attitude toward portfolio construction, our attitude toward published records. You know, you see a published record, the guy had a great return that year. Is he a great investor or did he get lucky that year? etc. etc. etc. So, and I So, I think that Fooled by Randomness is really uh and I've written the memos if anybody wants to you you the what we used to call the classic comic version, uh they can read the memos rather than reading the whole book.

Uh but I think it's very valuable and I would recommend it strongly. Well, we appreciate you, man. This is fun. fun. fun. I hope so. We got to do one with your son, actually. That would be a lot of fun. Uh well, we did one in January of '21 called Something of Value because uh he moved during the last during the pandemic and I thought that the the opportunity to for three generation of Markses to live together was a great was of great value and we spent most of the time arguing about value investing.

Uh and and uh and I think that uh I think with the possible exception of the latest AI memo, I think that one got the most positive reception. But but uh we'll we'll we'll keep on working together and uh you guys don't don't need an excuse for for another session. Thanks. Thanks. Thanks. Thank you for playing therapist for us. Okay. Okay. Okay. Thank you so much Howard. That's it. That's a pop.