Howard Marks: AI, Debt vs Equity & The Next 40 Years Of Investing | Nikhil Kamath | People by WTF

Howard Marks recounts his origin story, from his middle-class upbringing in Queens, New York, to studying accounting and then finance at Wharton and the University of Chicago. He highlights the influence of his Japanese literature studies at Wharton, particularly the concept of 'mujo'—the inevitability, unpredictability, and uncontrollability of change. This philosophy underpins his belief in preparing for an unpredictable future rather than attempting to predict it.

Marks contrasts game theory and strategy with his skepticism about predictions. He argues that while strategy is valuable, predicting the future is often misleading. Instead, he advocates for preparing for a range of possible futures by building a resilient portfolio. He discusses market cycles as excesses and corrections driven by human psychology (greed and fear) rather than steady growth, using the S&P 500's fluctuating returns as an example. He also touches on the current state of the economic cycle, describing it as 'middle age' with few excesses except perhaps in the AI sector.

Marks shares his strategies for staying intellectually sharp at 80, attributing it to genetic luck, continuous learning, reading widely, and engaging with new technologies like AI. He emphasizes the hunger for learning and staying relevant. He reflects on his career, noting that many pivotal decisions, including his move into high-yield bonds and the founding of Oaktree, were initially driven by happenstance rather than proactive intention, highlighting the significant role of luck and serendipity.

Marks, a seasoned debt investor, explains his preference for bonds over equities. He notes that his initial transition to the bond department was not entirely voluntary. However, he found comfort in the predictable, contractual nature of bond returns, especially in high-yield bonds, which historically have a high repayment rate. He details Oaktree's approach to credit investing, focusing on accurately assessing default probabilities better than the market, which allows them to achieve excess returns.

Marks discusses the potential of AI in investing, suggesting that success will come to those who best understand its capabilities and implications. He believes AI excels at identifying past patterns but might struggle with innovation and completely new paradigms, leaving a crucial role for exceptional human insight. He links this to 'second-level thinking'—the ability to think differently and better than the consensus to achieve superior investment results.

Marks emphasizes learning from history, particularly human nature, which he believes remains constant. He cites Mark Twain's idea that history 'rhymes' rather than repeats. He concludes by describing investing as a fascinating, ever-unfolding puzzle that requires superior insight and a willingness to be continuously challenged, but not necessarily always right. He distinguishes investing from fields like dentistry or engineering, where success is more predictable and less about outperforming others.