In one of his famous “memos” released on Sept. 12, Howard Marks (Trades, Portfolio), co-chairman of multibillion-dollar asset management firm Oaktree Capital, discussed the balance between winning and losing investments.
The paper, titled “Fewer Losers, or More Winners?” began with the investor recalling his first memo and the events that caused him to write it. He wrote:
“One was a dinner in Minneapolis with David VanBenschoten, who was the head of the General Mills (GIS, Financial) pension fund. Dave told me that, in his 14 years in the job, the fund’s equity return had never ranked above the 27th percentile of the pension fund universe or below the 47th percentile. And where did those solidly second-quartile annual returns place the fund for the 14 years overall? Fourth percentile! I was wowed. It turns out that most investors aiming for top-decile performance eventually shoot themselves in the foot, but Dave never did.
Around the same time, a prominent value investing firm reported terrible results, causing its president to issue an easy rationalization: ‘If you want to be in the top 5% of money managers, you have to be willing to be in the bottom 5%, too.’ My reaction was immediate: ‘My clients don’t care whether I’m in the top 5% in any single year, and they (and I) have absolutely no interest in me ever being in the bottom 5%.’”
The guru went on to explain how these two events influenced him and later helped define his investment philosophy, which “emphasizes risk control and consistency above all.”
Marks then discussed different “aspirational strategies” employed by Oaktree to produce winning stocks, as well as stressed the importance of risk control.
Read Marks’ full memo here.