The Wisdom of Howard Marks: Risk, Cycles, and Contrarian Thinking
Lessons for lasting investing success from a remarkable investment thinker
Howard Marks, co-founder of Oaktree Capital Management and one of the most respected voices in the investment world, has built his reputation on a deep understanding of markets, a focus on disciplined decision-making, and his ability to communicate complex ideas with clarity. Marks’ memos, eagerly read by investors around the globe, distill his approach to key principles such as second-level thinking, the nuances of risk, and the inevitability of market cycles. These ideas are not just theoretical; they are actionable frameworks that guide me in navigating the complexities of financial markets.
Renowned for his ability to make sense of uncertainty, Marks has earned a unique place among investment legends. His insights, delivered through lectures, interviews, and his bestselling books, have shaped how investors approach risk, cycles, and value. Warren Buffett famously said:
“When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something.”
This sentiment reflects Marks’ unparalleled ability to distill complex market phenomena and human psychology into actionable insights.
This article draws on his May 2019 lecture at Banca March and a November 2024 interview with Barron’s, offering a deep dive into his timeless investment philosophy and the key takeaways for investors.
Marks’ Core Principles: Risk Control and the Power of Humility
Marks often says that the hallmark of a professional investor is not just making money but doing so while controlling risk. In his Barron’s interview, he defined risk as “the possibility of having an undesirable result”. He criticized the over-reliance on quantitative measures like standard deviation, stating, “You can be quantitative but not accurate, or accurate but not quantitative, you can’t do both”. This fundamental misunderstanding of risk often leads investors to focus on the wrong metrics. He cautioned against equating good assets to good investments, emphasizing that overpaying, even for high-quality companies, can lead to poor outcomes.
Instead, Marks urges investors to adopt a qualitative approach to risk management. In his lecture at Banca March, he warned of the dangers of overconfidence, citing Mark Twain:
“It’s not what you don’t know that gets you into trouble. It’s what you know for certain that isn’t true.”
Marks believes that humility is not just a virtue but a necessity for investors. As he put it, “For a piece of information to be desirable, it has to satisfy two criteria: it has to be important, and it has to be knowable”. Most macroeconomic predictions fail the second test, yet many investors base their decisions on them, leading to unnecessary risk. Recognizing the limits of what can be known fosters a mindset of caution and self-awareness.
Humility is a pillar for disciplined investing. By accepting uncertainty, controlling emotions, and focusing on risk management, level-headed investors can navigate the complexities of markets with resilience. Marks’ philosophy reminds me that investing success is not about predicting the future but about preparing for it while acknowledging what I don’t, and can’t, know.
Understanding Cycles: A Guide to Contrarian Thinking
Marks has often said, “You can’t predict the future, but you can prepare for it”. In his lecture at Banca March, he described cycles not as mere fluctuations but as the result of human behavior, excesses and corrections driven by emotions like fear and greed. This philosophy aligns closely with Benjamin Graham’s famous allegory of Mr. Market, who Graham describes as a manic-depressive partner prone to emotional extremes:
“The intelligent investor is a realist who sells to optimists and buys from pessimists.”
I’ve explored this allegory in detail in a previous article, where I unpack Graham’s enduring wisdom and how it applies to modern markets.
Marks recalls the “three stages of a bull market” as someone explained to him 45 years earlier:
When few believe things will improve.
When most recognize improvement is underway.
When everyone assumes things will get better forever.
Success lies in identifying the first stage and avoiding the third, where excessive optimism drives asset prices far above intrinsic value. This contrarian mindset, of buying when fear dominates and selling when greed is rampant, is foundational to Marks’ strategy. This approach also aligns closely with Warren Buffett’s famous advice:
“Be fearful when others are greedy, and greedy when others are fearful.”
Both Marks and Buffett emphasize the importance of staying rational and disciplined in the face of market extremes, making contrarian thinking a cornerstone of successful investing.

He underscored the importance of patience and valuation:
“The interesting thing about investing is it’s not what you do, it’s when you do it.”
Recognizing where we are in the market cycle helps level-headed investors avoid overpaying and seize opportunities when prices are low.
Mispricing: The Key to Investment Success
“Good investing isn’t about buying good things, it’s about buying things well.”
Marks asserted in his lecture at Banca March and reaffirmed five years later during his Barron’s interview. Even the highest-quality assets can become poor investments if purchased at inflated prices. Drawing from his early career experience with the Nifty Fifty, he noted that buying the best companies in the U.S. at any price in the 1970s led to devastating losses when valuations collapsed.
This principle remains relevant today, as we grapple with high valuations in markets. Marks’ timeless advice is to focus on the relationship between price and intrinsic value.
A Sea Change: Adapting to a Changing Environment
In his Barron’s interview, Marks discussed the sea change in interest rates: For decades, declining rates fueled asset prices and investment returns. However, he cautioned that the post-2008 low-rate environment was an anomaly, driven by crises like the global financial meltdown in 2008-2009 and the COVID-19 pandemic in 2020-2021. He warned against extrapolating that era into the future:
“Declining interest rates or ultra low interest rates dominated the last 44 years, but I don’t think they’re going to be the norm going forward.”
Marks sees the current environment of higher interest rates as a return to normalcy. He explained that low rates had distorted financial markets by subsidizing borrowers and penalizing savers. Now, with rates normalizing, level-headed investors must adapt to a world of higher borrowing costs and potentially lower returns. As Marks put it, “You should not make financial decisions based on the assumption that the future is going to look like that [the past]”.
Marks explores this topic in depth in his acclaimed Sea Change memo from December 2022. For a closer look at the broader impact of federal funds rate on stock markets and the broader economy, I’ve also discussed this in a previous article, which you may find insightful.
His Take on Fixed Income Assets
Marks’ focus on risk-adjusted returns is another cornerstone of his philosophy. In his Barron’s interview, he noted that bonds and other lending investments now offer “a substantial contractual return” in the form of fixed interest payments. For investors seeking dependable income, such assets can be attractive.
Key Takeaways for Level-Headed Investors
Marks’ wisdom distills decades of experience into practical principles that can guide level-headed investors through uncertainty and complexity. These takeaways offer a timeless framework for achieving long-term investment success:
Focus on risk: The primary goal of investing is not to maximize gains, but to avoid losses. Controlling risk is the hallmark of a professional investor.
Understand market cycles: Recognize where we are in the cycle and adjust your strategy accordingly. Avoid the herd mentality during periods of excess.
Value over price: Great assets can make poor investments if bought at the wrong price. Focus on buying undervalued assets.
Adapt to change: The investment environment evolves, and strategies must adapt. Prepare for a future that may look different from the past.
Be contrarian: Success often comes from doing the opposite of the crowd. As Marks said, “The riskiest thing in the world is the belief that there’s no risk”.
Think long-term: Investing is not about short-term predictions but about positioning yourself for favorable long-term outcomes.
Final Thoughts
Howard Marks’ enduring wisdom lies in his ability to distill decades of experience into clear, actionable principles that empower investors to navigate uncertainty with discipline and resilience. His focus on controlling risk, understanding market cycles, and valuing humility over over-confidence offers a timeless framework for investment success.
Marks reminds us that investing is as much about psychology and behavior as it is about numbers and analysis. By staying grounded, avoiding emotional extremes, and recognizing that the future is uncertain, we can position ourselves to capitalize on opportunities while minimizing unnecessary risks.
As Marks so often emphasizes, success in investing isn’t about predicting the future; it’s about preparing for it. His philosophy challenges us to think deeply, act deliberately, and approach markets with patience and rationality, qualities that remain as essential today as ever.
In a future article, I will delve into the remarkable wisdom Marks shares in his book The Most Important Thing Illuminated, where he expands on his foundational principles and offers even deeper insights into successful investing. Stay tuned for an exploration of this must-read guide for thoughtful investors.