Investing Is a Serious Pursuit of Money, Not a Way to Get Rich Quick: Howard Marks

The co-founder of Oaktree Capital Management talked to Bloomberg Línea about the best way to approach investments in an era when social media and information offerings can saturate the public

Oaktree co-founder has a piece of advise: "People should try to avoid getting carried away and need direction when the massive investors get excited and make something go up too much."
August 04, 2022 | 08:00 AM

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São Paulo — Investors shouldn’t let social media and the crowds drive them crazy or follow excited, massive investors who want to make an easy kill, get a profit and jump to another thing, says Howard Marks, the co-founder of Oaktree Capital Management

“Sometimes, people are too optimistic, sometimes, too pessimistic. People should try to avoid getting carried away and need direction when the massive investors get excited and make something go up too much. Maybe you should take some profit and get out, but surely not jump in,” Marks told Bloomberg Línea on the side of Brazilian broker XP’s summit in Sao Paulo.

Oaktree handles, according to its own data, $164 billion for its customers, mainly in distressed securities. The firm is mostly involved in the U.S., it also operates in Europe and China, and according to Marks, it’s not very active in Latin America. Still, the legendary debt operator says investors everywhere should stick to the same pattern of stability when making decisions on their money.

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“It’s very important when people are trying to be good investors to be stable, steady, and not change their minds from day to day. You can say that you can only trade on Thursday. The other days you should stick. More thinking than trading,” Marks said.

Below are the main excerpts from the interview, edited for clarity purposes.

Bloomberg Línea: People sometimes don’t see through the perspective of psychology. How is that?

Howard Marks: Psychology is in the short term. Sometimes people are too optimistic, sometimes too pessimistic. People should try to avoid getting carried away and need direction when the massive investors get excited and make something go up too much. Maybe you should take some profit and get out, but surely not jump in. When investors get too depressed, and they make something fall, that’s not the time to sell. Maybe buy, but not sell. The point is that psychology floats away from volatile people who should try to be steadier.

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Bloomberg Línea: In the era of social media so much information comes from the internet. How can the investor behave with so much information coming from so many ways?

HM: “How” is a difficult story. The point is... that should be the goal. To be unemotional, to be steady, to be consistent, and not let social media and the crowd make you crazy, make you too optimistic or too pessimistic. But that’s the goal, how you do it may be difficult. I find it easy to do, but that’s me. That’s what people should look for. It doesn’t do any investor any good to surf on these psychological waves. The point is as a philosopher said: keep your heart when others are losing theirs. That’s the secret to success.

Bloomberg Línea: How investors that see themselves as volatile people could drive these opinions. What are the skills that these people have to develop to remain calm in this situation?

HM: I’m not a psychiatrist. But I think that first of all, establish that as a goal. Secondly, recognize when you’re getting too excited or too depressed. Third, maybe write down some notes. My goal is to be steady and have some mechanisms: maybe if you have a thought to buy something, say to think about it for a day and decide tomorrow. Just don’t react to the spur-of-the-moment (under) emotional influences. I think you can’t jump in (into jump trading), you can’t do a good job. You have to be thoughtful and have to be composed. You don’t want to go to a doctor that gives you a different medicine every day. Or a lawyer that gives you different advice every day. It’s very important when people are trying to be good investors, to be stable, steady, and not change their minds from day to day. You can say that you can only trade on Thursdays. The other days you should stick. More thinking than trading. Investors have to learn that you don’t make money by buying and selling. You make money by holding. It’s what you hold that makes you money. You should figure out what to hold in a very conscious way through research and thinking about the long-term things that are important and not get in and get out every time. (...) I’d suggest finding a few good investments based on a serious analysis of the long-term future and holding it.

You don’t want to go to a doctor that gives you a different medicine every day. Or a lawyer that gives you different advice every day

Bloomberg Línea: Brazil is a relatively new market, small when compared to the US, and we’ve seen a boom in the pandemic of small investors coming to the stock market. How is it different from an investor style in Brazil compared to the US?

HM: We had the same phenomenon in the US, most people were at home during the pandemic, there were no sports to watch and many of them turned to the stock market. And you know, when you go to a racetrack and you pick a horse, people like the color of some, they pick random. That’s what they do in the stock market, beginner investors, not all of them, but a lot of them didn’t do their study. A lot of people came in and said, “that is a good idea, that should go up, my friend told me to buy that.” If you invest without a solid foundation and analysis then, when the going gets tough, it is hard to know what to do and it is hard to hold on. Investment is not easy. It’s not easy to make money. People should recognize and should take it very seriously. It’s not like going to the movies or football games. Most people take a serious approach to their health, their legal affairs, to their banking... They should take a serious approach to their investment. It was reported that Robinhood, which was the online center for this increased activity of beginners, laid off 23% of their staff yesterday. So, the point is these things were overdone and attracted too many people that invested without an intellectual foundation. They invested for fun, and investment shouldn’t be fun. Maybe they did it to get rich quick. It’s not a way to get rich quick. So, there was a boom amid the pandemic and now it’s coming off. But maybe it’s what it should be, a serious, patient, intellectual pursuit of making money steadily over time, not getting rich quick.

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Bloomberg Línea: So investments shouldn’t be fun. But how do we attract people to understand that it’s important?

HM: I have fun doing it. But I have fun intellectually. Like when you study something, or you read a good book. But it’s not fun like a videogame, and I think what people should understand is that economies and companies generally have a growth track, and by investing your money you can get on that growth track, and the growth track will make you better off financially in the long run. The goal should be to improve your finances in the long run patiently, steadily, and gradually. High-risk speculation usually doesn’t work for long. It is easier for people with large amounts to get advice, but the key is to give great advice. But a young person with not so much money should be able to find a financial adviser who will take an interest in them and help them in the long run in the hope that this young person without too much money over time will get more money and become better.

The goal should be to improve your finances in the long run patiently, steadily, and gradually. High-risk speculation usually doesn’t work for long

Bloomberg Línea: Do you still make mistakes regarding investments?

HM: Of course. Investing is positioning your money to benefit from future developments and I strongly believe nobody knows what the future holds, so it can’t be done perfectly. Can you be right more often than you’re wrong? The greatest investors are probably right 70% of the time. Certainly not 100%. If you don’t trade too much, that should work in the long run.

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Bloomberg Línea: How do today’s social media and information differ from what the world had at the time of the 2008 crisis?

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HM: We’re better off because we have access to more information. And by the way, anybody interested in investing can look at it online. But you have to look at the right sources, there are intelligent commentaries online about investments and there are charlatans that just want to take your money. It’s very important to have the right sources. There is a lot of information that we didn’t have 15 years ago and that’s a good thing, but there is also social media and gamification with pressure to trade more often and do things because they are cool, and that’s bad. I think social media has the potential to have a bad effect to make people crazy. I think if you are going to be involved in social media you have to keep it under control or it will try to control you.

Bloomberg Línea: Any advice to investors at any age?

HM: Invest and stay investing. Mostly. Don’t change your mind too much. Don’t trade too much. Buying and selling cost money and are a distraction. And have realistic expectations. Take it seriously and understand that the goal is to gradually compound your money, not go rich in one year.

-– With assistance from Isabela Fleischmann