Howard Marks: Understand Everything About 20 Companies Rather Than The Slightest Bit About 400

In his latest interview on the Youth Finance Summit, Howard Marks explains why its better to understand everything about 20 companies than the slightest bit about 400. Here’s an excerpt from the interview:

Marks: Everything I’ve done has been on that basis and for the most part at Oaktree we don’t buy high quality assets, we buy low quality assets for the most part but we try to buy them so cheap that we’ll make money.

In general we have and the extreme example of that in 1987 I was joined at TCW by a guy named Bruce Karsch, who’s my partner at Oaktree, and Bruce had the idea to invest… to start a distressed debt fund.

These are the bonds of companies that are bankrupt, or they appear destined to go bankrupt, and you say well how can you possibly invest in bankrupt companies.

But the answer is if you get the securities so cheap you can make a lot of money, and Bruce has been managing a lot of money for a long time. So he’s… he has a 34 year record and before fees he’s made 22% a year for 34 years, which is a huge accomplishment by investing in the bonds of really terrible companies.

So that was a huge lesson and that lesson really put my career on the path it has followed.

Now there have been lots of other lessons, and I learned a lot of lessons about how to manage people, how to manage organizations. When I was 29 years old I was made the Director of Research at Citibank.

I was just a kid and here I am Director of Research and managing 75 people, five million dollar budget. I’m on all of the banks most important committees, the most senior committees and I learned a couple of lessons.

Number one, I hate committees. I have a short attention span. I can’t stand having people talk just to hear their own voice, and number two I don’t like… you know in that job I had to know two sentences on 400 companies and my knowledge was by definition superficial. I found that very unsatisfying.

I like to get into the nuts and bolts and know the details, and I’d like to know everything about 20 companies rather than the slightest bit about 400 companies.

You can listen to the entire interview here: