In a recent interview with The Motley Fool, Howard Marks reflects on decades of investing. He returns to a simple yet powerful idea: “Good company, bad balance sheet.” That’s the kind of setup his firm, Oaktree, looks for — situations where strong businesses are dragged down by too much debt. “If you have a good company with a bad balance sheet, it’s easy to fix. It goes through bankruptcy, they reject a bunch of their debt, and they emerge with low leverage.”
But beyond credit investing, Marks’s philosophy applies broadly. In an age obsessed with forecasting, he urges restraint: “You can’t predict. You can prepare.” What matters is not guessing the future, but positioning for it wisely. “We never know where we’re going, but we sure as hell ought to know where we are.”
That starts with understanding the market mood. “Is everybody ecstatic and optimistic and thrilled with the way things are going and generous and paying high prices, in which case the market is risky? Or is everybody chasened and pessimistic and downcast and paying low prices, in which case the market can be above average in attractiveness? Or is it in between in normal territory?”
Depending on the answer, your portfolio should tilt more aggressive or defensive. “The main thing that matters is the balance in a portfolio between offense and defense.”
Marks believes risk is essential — but must be taken with care. You shouldn’t expect to make money without bearing risk, but you shouldn’t expect to make money just for taking the risk. In fact, some of the greatest opportunities appear when fear is highest. “Buffett said, ‘The less prudence with which others conduct their affairs, the greater prudence we must conduct our own.’”
That contrarian spirit is central to Marks’s thinking. “You have to be sober when everybody else is elated, and you have to be stable when everybody else is suicidal.” The hard part? “When the time comes to buy, you won’t want to.” Because the conditions that create bargains — recession, panic, market collapse — also provoke the strongest emotional resistance.
Most investors, he warns, fall into traps driven by emotion. “Emotionalism gets you to buy high when things are going great and sell low when things are going badly — and that’s a formula for disaster.” The antidote? Stillness. “Don’t just do something — sit there.”
Above all, Marks believes success demands independent thinking. “Above average success can never lie in doing the obvious.” That means going where others aren’t — and having the conviction to hold. “If you want to be an above average investor, read and study until you can really explain why that sentence is true.”
You can watch the entire interview here:
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