Thinkers & Behavioural

Howard Marks

Second-level thinking and knowing where you stand in the cycle.

Howard Marks is an American investor famous for the calm, clear letters he writes called memos. In them he teaches people to think one careful step deeper than the crowd, which he calls second-level thinking. He is best known for reading where the markets mood cycle sits right now - whether people are greedy or fearful - instead of trying to predict the future. He also taught that real risk is not the price wobbling day to day, but losing your money for good.

The method

Dont just have the obvious thought everyone has; ask what the crowd already believes and whether it is already in the price. Dont predict the future - read todays mood and prepare for many possible futures. Treat the markets swings between greed and fear like a pendulum that overshoots both ways, and only act against the crowd when you have honestly understood something they got wrong.

The record

Howard Marks is a long-respected investor and writer whose firm invests in distressed debt - the loans of troubled companies. He has been read and trusted for decades, but past results are never a promise of future ones, and nothing here says what anyone should buy.

Where they were wrong

Reading the cycle is far easier said than done, and it gives no exact timing - a greedy market can stay greedy for years. Being a contrarian is lonely and often makes you look wrong for a long time before you find out if you were right, and simply being different is worthless unless you are also correct. Prepare, dont predict still needs judgement about how much safety to keep.

Studies

6
  1. Study 01Second-level thinkingWhenever a thought feels obvious, take one more step: ask what everyone already believes, and whether that belief is already in the price.Read this study →
  2. Study 02Where are we in the cycle?Dont forecast the future - read the mood of the room today, because a pendulum pushed far to one side has more room to swing back.Read this study →
  3. Study 03Risk is permanent lossDont fear the price that wobbles; fear the money that never comes back - and never put yourself where youre forced to sell at the bottom.Read this study →
  4. Study 04The pendulum of moodExpect the crowd to overshoot both ways - distrust both the greedy top and the fearful bottom.Read this study →
  5. Study 05You cant predict, you can prepareYou will never know the future, so stop guessing it - get ready for many futures instead.Read this study →
  6. Study 06Contrarianism done rightDifferent is not enough - you must be different and right, and calm enough to stand alone while you wait to find out which.Read this study →

Primary sources

full register →

Read Howard Marks in their own words. We reproduce none of it - these are the real things to go to.

  • Oaktree Memos (1990–present) memos

    Three decades of Marks's memos on risk, market cycles, and psychology - where the price came from matters more than the price; the complete archive plus curated 'best of' collections.

  • The Most Important Thingbook

    A memo-style distillation of Howard Marks's thinking on value, risk as permanent loss, cycles and defensive investing. - available wherever books are sold - please buy the book

Our own plain-English reading of a publicly documented investor’s method, in our own words. It describes structural, public-record facts and the investor’s own stated mistakes; it makes no judgement on any living company and is not a recommendation to buy or avoid anything. Figures marked [illustrative] are constructed to demonstrate a method. Educational only; the author is not SEBI-registered and nothing here is investment advice.