Good afternoon, everyone. I want to welcome you all to the 2026 Howard Marks Investment Series lecture. It is my pleasure to introduce our speakers today-- speaker, really. Some investors are known for the capital they deploy. A far smaller group is known for the clarity with which they think. And Howard Marks belongs very firmly in the latter category. As Co-Founder and Co-Chairman of Oaktree Capital Management, he has spent decades shaping not just the firm but a philosophy, one grounded in discipline, patience, and a deep respect for market cycles. Since Oaktree's founding in 1995, Howard has served as both steward and communicator of these core principles, guiding investment strategy while translating complex market dynamics into ideas that resonate far beyond the firm's walls. He is, perhaps, best known for many of his memos-- widely read, widely shared, and often treated as required readings across the investment community. In them, he distills decades of experience into reflections that are, at once, practical and philosophical, offering a rare combination of accessibility and depth. These ideas are further explored in his books, including The Most Important Thing-- Mastering the Market Cycle, where he examines how investors can better understand and navigate the inevitable swings in financial markets. Beyond investing, Howard has remained deeply committed to education and intellectual exchange. A graduate of both Wharton and the University of Chicago, he has maintained close ties to academia, serving as a professor of practice, an advisor to international institutions, and, of course, a longtime supporter of the University of Pennsylvania. His contributions have helped shape not only investment thinking, but also the educational experience of future generations through endowed professorships, scholarships, and initiatives like this Howard Marks Investor Series. It is this combination of practitioner, thinker, and educator that makes Howard such a distinctive voice in finance and such a compelling figure to learn from today. To guide today's conversation, we're very fortunate to have Professor Christopher Geczy as our moderator. Chris is an Adjunct Professor of Finance at Wharton and serves as a Co-Academic Director of the Jacobs Levy Equity Management Center for Quantitative Financial Research. Chris' work sits at the intersection of academic research and practical investing, with a particular focus on asset management, portfolio construction, and the evolving challenges faced by wealth managers and institutional investors. In addition to his academic roles at Wharton, Chris has been deeply engaged with practitioners across the industry, bringing a perspective that is both analytically rigorous and grounded in real world applications. Please join me in welcoming Christopher and Howard.
Thank you, Vice Dean Gomes. And thanks to all who have joined today. It's a great pleasure to welcome Howard home back to Penn. This investor series that Howard is responsible for not just supporting with and his family's munificence, but with its architecture, and its setup, and its thinking gives us an opportunity to learn from Howard and other leading investors of our times in all kinds of investing, but focusing on value investing risk and so much more. Today's conversation will center on three of Howard's foundational memos-- or, I would argue that most of your memos are foundational. We've asked you to read them-- "Fewer Losers or More Winners," "What Really Matters," and "Taking the Temperature." These three memos pose enduring questions about the source of investment success, the distinction between process and outcome, and how investors should interpret and respond to changing market environments. I hope everyone will have had a chance to see the memos and read the memos. I would have read all three of them, if I were you. That's my suggestion if you haven't done so already. We're going to start with a short conversation, then we're going to open it up for your Q&A as the scene evolves. So a couple things. Today's session is being recorded, and if any members of the press, besides the DP, slipped past the front doors, this is not for attribution unless you check with Howard. So, Howard, the last time you were on campus, life was different. We were not talking about Claude, or Gemini, or AI. The words "private credit" were in the air, but not the way they are today. The memos that you asked us to read is striking because, taken together, they outline a philosophy-- and, really, a complete philosophy, but which is still relevant for today, which is really the test of an enduring system. "Fewer Losers, More Winners" asks where the great records are built, primarily by avoiding disasters or by finding exceptional upside-- making money by not losing it. "What Really Matters" reminds us that many of the things investors obsess over, which we hear about all the time in mythology and in an ex-post sense, short term forecast trading activity, relying on volatility as a complete measure-- these are distractions from what compound's value across time. And, finally, "Taking the Temperature" ultimately suggests that rare moments that really matter are ones when investor psychology pushes markets to the extreme. So get us started. Help us think about how this investment philosophy gives us a good background against which we can think about today's environment, where the Fed is holding policy rates between 350 and 375, CPI is running relatively tamely, although we'll see what happens when the numbers get updated. Credit spreads might be pricing some of the stress. What's the temperature of today's market?
Well, the market has run into some trouble in the last, maybe, two months. Here's what happens. The market gets a head of steam based on optimism. It gallops ahead on further good news. One or two negatives come in, but the market finds it very easy to reject those and exclude them from their thinking. A part of it is because the general trend is still positive, but part of it is because of something called cognitive dissonance. And cognitive dissonance is something that you should all familiarize yourself with. And it is basically the human brain's ability to reject information which is at odds with its predisposition. And if you want a good book on the subject, which my son, Andrew Marks, Penn class of '09, recommended to me a couple of years ago, it's Mistakes Were Made but Not By Me. And, of course, that's the way we all think. And it was written by a woman named Carol Tavris. It's a good book. And so the market is riding on optimism, rising continuously. Good news is incorporated and causes price to go higher. Bad news is ignored. And then, at some point in time, for some reason or no reason, a kind of a critical mass of negativity arises. And it overcomes this predisposition to be optimistic. By the way, I believe that there is a predisposition to be optimistic-- not pessimistic, optimistic. Why is that? Because you have to be optimistic to be an investor. What is investing? You take your money, you give it to somebody else in the hope you'll get back more later. So if you think about it, it has to be built on optimism. But sometime, enough kind of critical mass of bad news gels-- I used the idea "confluence"-- to knock this process off stride. And so what we really had was it kind of started around the middle of last year. There were a couple of bankruptcies in the credit markets, first brands and something called tricolor. And everything had been going swimmingly. We didn't have any prominent bankruptcies for a long time because the economic conditions were very good. And then, finally, suddenly, we had these two. And not only were they bankrupt, but it appeared that they were fraudulent. The lawyers say possibly fraudulent. And then so the market kind of recoiled. Well, maybe I should go back one further. April 1, President Trump announced-- 2nd-- announced some massive tariffs, much more than had been expected, and put them on, and then a week later paused them, and then put some more on, and took some off. And the market had a negative reaction. The market actually went down 15% in the days surrounding the tariff announcements. Then we had the first brands in tricolor around September, I think it was, maybe August. And then people started to wonder about private credit. Had it been extended too freely? Poor standards. Jamie Dimon of JPMorgan says a lot of things best. He said when you see one cockroach, there are probably more. And so people started to say, well, maybe there's something wrong here. But then this year, number one, around February 1, OpenAI and Anthropic announced new models for coding, which really looked like they're going to put all the coders out of jobs. And maybe if machines could write code, what do you need software companies for? So maybe they'd put all the software companies into trouble. And a lot of software companies had raised a lot of money in the credit markets when they were taken over. They became a darling of the takeover business. So there was a lot of software debt out there. And now, all of a sudden, maybe the whole industry is going to crash. And one thing you have to bear in mind-- I'm sorry that these answers go on so long, but I can't help it-- but you have to bear in mind that, as I say, in real life, things fluctuate between pretty good and not so hot. But in the minds of investors, they go from flawless to hopeless. And the psychology swings to the extreme. First, they like them too much. Then, they hate them too much. And you don't want to be caught on the wrong side of that. Or you don't want to be part of that movement. So they go from everything's fine with software to nothing's good with software. Well, the truth is always in between. And then, of course, we had the commencement of the attacks on Iran. And nobody knows how that's going to end or what the result of that is going to be. And now, it looks like it has serious implications for the energy markets and, consequently, maybe, for the economy. And the software thing made people worry more about credit and whether a lot of credit had been extended to companies who wouldn't pay it back. And then people tried to get out of credit instruments, and then they found out that they can't get out. They had gone into instruments they probably didn't ask enough questions about how I get out if I change my mind. And then when they were told they couldn't get out, then they react even more negatively. And that's the way things go. So you asked a question some time ago, but there's been a swing toward negative. And it seems dramatic. And it seems kind of lurching. I think that we're still at a place in the markets where the markets have been driven aloft by optimism. There's been a slight retrenchment. But you look at the S&P 500, for example-- in roughly October 1 of 2022, people turned from very negative-- and '22 was one of the worst years in history for what we call the 60/40 mix-- 60% stocks, 40% bonds. I didn't say it was the worst year in history. It was a tough year. But then around October 1, people started to swing positive. The final quarter of '22 was very strong. And then the market was up about 26% in '23, 27% in '24, 18% in '25-- one of the best periods, three very strong years, up 87% in those three years. If you add in the fourth quarter of '22, probably up more than 100%. So you can't argue that it wasn't driven by optimism. But now, there's been a little retrenchment. So that's my answer to your question.
OK. Well, then, let me follow it on. Is now a time when investors should be following the advice of the first memo-- should we be focused on avoiding losers? Or should we be starting to stretch? And, by the way, I want to remind investors and our students that if you go back to what you said in the pandemic, at a certain point, you said one of the wisest things we ever heard anyone say, which you do all the time. Which was, at a certain point, you're not going to feel bad for buying an asset when it's down x percent-- 15%, 20%, 30%. You don't have to time the bottom, per se, because you have a longer horizon. Where are we in the temperature?
Well, I really believe, Chris, that there's been a slight turn from optimism to pessimism. We're certainly not suicidal. Depressed. And, now, it's hard to gauge where the market is. But one thing we look at is the price earnings ratio on the S&P 500. It was probably 23 times. Now, it's probably 22 times. Still very high. Historic average is between 16 and 17. So it's still high priced. The optimist has a rejoinder for that. The optimist always says, yeah, but this time it's different. In other words, history is not relevant. This time, the companies in the S&P are better than they ever were. And the Magnificent Seven, I think, with the possible exception of Tesla, are maybe the greatest companies I've ever seen. And on the one hand, that's true. But on the other hand, whenever there's a big, optimistic move, it's always defended by the bulls who say "this time is different." So, first of all, are things cheap? Probably not. The S&P is not cheap by historical standards. But they are cheaper than they used to be. And that should be encouraging. Are we at the bottom? Well, that's the stupidest question in the world. You never know when you're at the bottom. What is the definition of the bottom? Think about it for a minute. What is the bottom? Anybody know? Pardon me? No, not zero. Nothing goes to zero. But the bottom is the day before it starts going up, right? And if that's true, then, by definition, you never know when you're at the bottom, because you can only tell the next day. And if it goes up the next day, you say, well, I guess I missed the bottom. Then maybe it resumes its downward swing. So I think one of the dumbest things you can do in the investment business is to say, I'm going to wait for the bottom, because logically and practically, you'll never know. And so the only basis for buying is that things are cheap. You can tell when things are cheap. You can't tell when the day has been reached that it's never going to go down anymore. So, for example, in mid-September of '08, Lehman Brothers, Bear Stearns, Wachovia National, Washington Mutual, AIG had all disappeared. And then, in mid-September of '08, Lehman Brothers filed for bankruptcy. And the world absolutely crashed. And everybody concluded that the financial sector would melt down. And we had raised a big fund for distressed debt. We had $10 billion of capital commitments sitting on the shelf that we could call. The biggest fund in history prior to that was $2.5 billion, our '01 fund. Now, we've raised $11 billion. We have $10 billion unspent. Should we spend it? Should we spend it? Or is the world going to melt down? How do you figure it out? There's no place to look. There's no data. There's no prior experience with the world melting down. How do you figure it out? And we just concluded that, very simple-- if the world melts down, it doesn't matter what we did today. But if it doesn't melt down and we didn't invest, we didn't do our job. So we had to invest. Had to. And so we started to invest. And then everything kept going down because nobody else wanted to invest. And we could not stem the tide. We couldn't buy everything that everybody wanted to sell. So prices kept going down, down, down. And we kept buying down. The lower it went, the more we bought. And eventually, we passed the bottom, started going up.
But give us a sense of what the conversations were like with you and Bruce, your partner, and in the firm. That's hard for anyone to do.
Well, it's very hard to do. But since our spirit is contrarian, and everybody who works at Oaktree, nobody's ever going to say, "you idiot. You said this, and you were wrong." I don't think anybody looks back and points fingers. And we try to have a culture where everybody can say what they think. And I hope nobody's hesitant to be wrong. But in this case, Bruce and I-- my partner, Bruce Karsh and I-- agreed that we should invest. Now, it wasn't just what I described that entered into the conclusion. So there's the psychological, behavioral, or atmospheric, whatever you want to call it. But then there's also the numbers. The numbers didn't hurt either, because, in this case, we were buying the debt of companies-- almost exclusively-- we were buying the debt of companies that had been the subject of leveraged buyouts. And, given our predilection, we were buying the senior most debt of these companies. So, in order for the senior most debt holders to lose money, all the equity has to disappear. And all the junior classes of debt have to go unpaid. And if it gets bad enough, then the senior creditors start losing money. And we were buying the senior most debt of these companies at prices such that if these companies ended up being worth a third, or a quarter, or a fifth of what these great buyout firms had bought them for a year or two ago, we would be OK. So, in other words, these great buyout firms bought a company for $4 billion. And now, we can buy the senior most debt at a yield of, I don't know, let's say 15% or 20%, such that if the company ends up being worth $1 billion, we won't lose any money. Well, that's pretty damn compelling. So it was the combination of those two things that allowed us to move forward. And Bruce invested an average of $450 million a week for the next 15 weeks. That's $7 billion in one quarter.
That's a lot of underwriting.
And that's all you had to do. But all you really had to do-- I mean, you had to do the underwriting-- but what you really had to do was you had to have two things. You had the money to spend, which you can't raise money during a crisis. Nobody will give you money to invest during a crisis. We had pre-raised it. And you have to have the nerve to spend it. And a lot of people didn't have the nerve. The other thing is a lot of people had a lot of problems in their portfolio that they had to work on rescuing. We didn't have that because we had been cautious going into it and not extended a lot of loans so we could turn to actually taking advantage of the crisis.
Let's take that and turn it to your philosophy of investing and talk a bit about growth and value cycles. In part because, this was echoed in the conversation we had before you came onto the dais today-- there have been a lot of statements about how value investing has suffered. Some authors say that it's dead with respect to whatever that means. We hear statements about the Mag Seven at one point having been value stocks, even though they've been growing. At one point as a result of your conversations with your son Andrew, during the pandemic, you mentioned that your philosophy of growth may have changed a little bit. Where does it stand now? In part, because you can look at the shift from, once again, now, what was intangible to tangible value book-- shareholder common equity is suddenly back in. Has it continued to evolve? Or do you think this is really just an extension of what we always have seen with value growth?
Well, hopefully it keeps evolving, because that means you keep thinking. But, prior to the '60s, people investing in the stock market were called investors. There were no different kinds of stock market investors. Then, around the beginning of the '60s, Wall Street, I remember seeing a brochure in my dad's apartment around '62 talking about something called growth stocks. And the concept of growth stocks was invented. And these were companies that looked expensive on the basis of their current assets or earnings but had brilliant futures. And they were either in tech, or biotech, or technological advancements, or they were great consumer companies. So you had Xerox, IBM, Kodak Polaroid, Hewlett-Packard, PerkinElmer, Texas Instruments, Merck Lilly. Or you had Coca-Cola, for example, Sears, Roebuck, et cetera. All companies grow. Growth companies grow at above average rates of growth. And so the growth stocks started to attract attention. People started to specialize in growth stocks. Most of the money center banks where I started to work in '69-- Citibank, for example-- gravitated toward something called the Nifty 50, which were the epitome of the growth stocks. So, as humans do to categorize themselves-- they want to put labels on-- so the people who did not invest in growth stocks called themselves value. And value came to be a firm bifurcation. These are growth stocks. They grow faster than the average company. These are value stocks. They're cheaper than the average company. So that became the dichotomy. And so these things of hardened, calcified. And growth stock investing came to be identified with prosaic companies, which are not attractive on the face because of their potential-- they're mundane, or slow growing, or traditional. But, because they're not sexy, they sell at low prices. And they're better value. And so some people buy the growth stocks, some people buy the value stocks, but with this firm divide. So Andrew and his family moved in with us during the pandemic, and we got to exchange a lot of ideas. A lot of them were on the subject-- and I crystallized them in a memo I wrote in January of '21 called "Something of Value," because we were talking about value investing and because the opportunity for three generations to live together was of great value. But the bottom line was it shouldn't be a bifurcation. It shouldn't be either-or. But you can make a intelligent investment in a company with a high rate of growth or in a low rate of growth. And you should pay a price which is appropriate for the rate of growth. But just because a company is fast growing doesn't mean it can't be a good value investment. And you got to get away from these hard, exclusionary definitions. And I think I was right.
