Howard Marks & Andrew Marks: Something of Value
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This was a discussion between Howard Marks, legendary value investor and co-founder of Oaktree Capital Management, and his son Andrew Marks, co-founder of TQVentures, about their respective investment strategies and the differences between value investing and growth investing.
This episode of Acquired Podcast(?)(?) focuses on the different investment strategies of Howard and Andrew Marks and their discussion on value and growth investing, as well as the success of Vanta and Amazon, and the importance of diving into the details of a business.
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Howard Marks, legendary value investor, and his son Andrew Marks, co-founder of TQ Ventures, discussed their respective investment styles, successes, and their collaboration on a memo debating value investing versus growth investing. They discussed the complexities of modern companies and the importance of understanding them deeply, as well as the divergence between value investors and growth investors. They also discussed the importance of recognizing that there is no single approach to investing that guarantees success, and the need to be able to ask questions and evaluate potential risks and rewards. They emphasized that the competition in the market is fierce and those who succeed must have an advantage in knowledge or skill in order to out-compete their rivals. Finally, they discussed the differences between investing in public equities and private markets, and how the latter can be more advantageous for investors.
The Evolution of Value Investing: How Andrew and Howard Marks Find Success
The world of investing is a complex one, with a multitude of approaches, strategies, and philosophies. It can be difficult for investors, especially those new to the game, to decide which approach is best for them. In this special episode of the Acquired podcast, legendary value investor Howard Marks and his son Andrew Marks, co-founder of TQ Ventures, discussed their differing investment styles and how they have evolved over the years.
The discussion began with Howard and Andrew's memo debating value investing versus growth investing. Howard Marks' investment memos and books are highly sought after, with even Warren Buffett praising them for their insight. Christina Cassiopo, CEO and co-founder of Vanta, then spoke about how the company is operating in the changed environment of 2022 and the advice she has for other founders in the same situation.
Howard and Andrew Marks then collaborated to write a memo about the value of luck during the pandemic, and the narrator discussed his journey from being a value investor to a growth investor, and his conversation with his dad about the evolution of investing. The conversation then moved on to the evolution of value investing, the concept of owner earnings, Amazon as an example of a company that has leveraged an amazing founder, the complexity of modern companies, and the need for investors to understand the importance of cash flow and optional profitability.
The discussion then moved on to Ben Graham's success in investing, Mike Milken's discovery of the potential for high returns from low-rated bonds, the effects of disruption on companies in the past and the skills an investor needs to have in order to be successful, and the discounted cash flow formula. The conversation then shifted to how consumer behavior has changed drastically over the past 20 years, with the rise of the internet and social media platforms such as Facebook, and the accelerating rate of technological adoption.
The discussion then moved on to few businesses that can be run by anyone have remained consistent over the years, from the 1950s to the present, and how companies must be more aware of potential disruptions while also leveraging their advantages to create more value. The conversation then shifted to the Nifty 50 and high yield bonds, and how investing in them at the time resulted in a loss due to their prices being too high or too low respectively.
The conversation then moved on to how markets and games have evolved over time, making it easier to find and transact information but harder to find hidden value. Warren Buffett was able to spot undervalued stocks by looking at the company's prospects and taking conservative assumptions about the future, but nowadays it is hard to do this due to the ubiquity of information and algorithms. The efficient market hypothesis was then discussed, as well as the sources of market inefficiencies, which are often caused by ignorance and prejudice.
The advantages of investing in private markets, and how venture investing is not necessarily inefficient, were then discussed. Venture investing appeals to a speaker's skill set, as it requires making long-term qualitative judgments about the future and imagining the potential value of a successful business. The discussion then moved on to how Andrew has evolved from traditional value investing to making qualitative judgments about the future and finding opportunities for success.
The conversation then shifted to a company's successful investments in distressed assets, which began in 1988 with an idea from Bruce Carson, and how Tiny has been buying small internet businesses that have taken venture capital, allowing the venture firms to get their money back and the founders to take control of the company, while also allowing the businesses to continue to run profitably.
The conversation then shifted to how Ben and David built their investment firm Oaktree and how their backgrounds in management and bureaucracy helped them succeed. The right culture and exceptional people enabled the company to be successful, despite its unguided management style.
The conversation then moved on to how applying traditional investing lenses to venture capital can help visualize the potential of a business in the long-term, and the danger of assuming a company will continue to be successful without considering its current price.
The discussion concluded with the five founders of Oak Tree having worked together for an average of nine years prior, so Bruce and the other three were able to split the responsibilities of the core competency of the business and finding capital, recruiting, and more easily.
In conclusion, the discussion between Howard and Andrew Marks highlighted the importance of understanding the different approaches to investing, and how investors should consider their own skills and risk-averse nature when making decisions. It also showed how applying traditional investing lenses to venture capital can help visualize the potential of a business in the long-term, and how companies must be more aware of potential disruptions while also leveraging their advantages to create more value. Finally, it highlighted the importance of having the right culture and exceptional people in order to be successful.
Howard and Andrew Marks, father and son, are two of the most successful investors in the world. In this conversation, they discuss their different investment styles and successes, the complexities of modern companies, the importance of understanding them deeply, the divergence between value investors and growth investors, and the changing business landscape from the 50s and 60s to the present day. They explain how to evaluate investments in equities, the increasing speed of technological adoption, the `Nifty 50` of the late 1960s, how Warren Buffett's investing strategy involves looking for undervalued companies, and how venture investing requires a probabilistic approach. They also discuss Oaktree Partners' successful strategy of investing in distressed assets, Tiny's solution for founders and venture capitalists, and the importance of building a great investment firm. Through their conversation, they emphasize that there is no single approach to investing that guarantees success, and that investors need to have the ability to think about the future in order to make sound decisions.