During his recent discussion with the team at OakTree, Howard Marks explains why the classic killer in investing is to borrow short to lend long. Here’s an excerpt from the discussion:
In my experience there are certain things that tend to produce most of the meltdowns we see.
One is the belief that the more leverage you take the higher your returns. And the truth is that the more leverage you have the less likely you are to get through the rough spots.
The other is of what you allude to Armen, the mismatch. The classic killer in our business is to borrow short to lend long on the assumption as you say that you can always refinance.
If you’re approach is to prepare for the bad days it’ll constrain your actions with regard to leverage but it’ll reduce your probability of a serious problem.
You can watch the entire discussion here:
Insights Live: Howard Marks on Top Misconceptions About Private Credit (OakTree)
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