scorecardresearchHoward Marks’ investing lessons that have inspired legendary investors

Howard Marks’ investing lessons that have inspired legendary investors like Warren Buffett

Updated: 01 Jul 2022, 01:00 PM IST

Investing is not an easy game. It is a tough task considering how you must be ready to continue your stint with it. Some of the top investors like Howard Marks share their investing lessons derived from years of learning and experience. Marks encapsulates them into principles for future investors to learn and benefit. 

Howard Marks' investing lessons have inspired and benefited thousands willing to pay heed to his advice

Howard Marks' investing lessons have inspired and benefited thousands willing to pay heed to his advice

If you think that in the investing world, only Warren Buffett is the name to reckon with, think again. Howard Marks is one of those legendary investors that even the likes of Buffett look up to. Not many investors are aware of this man who co-founded Oaktree Capital Management which manages $160 billion in assets. 

Simply said, Marks is a value investor who has a knack for distressed and undervalued assets to invest in. His specialization in deep value investing translated to finding value in special situations where others found none. A formidable investor who put both his mind and money into private equity, distressed debt, and high-yield debt, Marks redefined investment strategies for the world to follow.

His strategy of studying the financial details of companies that remain largely underestimated and ignored and then assessing their possible growth has helped his investors earn roughly 19 per cent returns to date. However, more than the returns, investors applaud him for his deep insight into the world economy and the successful investing strategies that he shares in his memos.

One way to achieve success is to pay attention to the strategies of successful men, understand them and then emulate them. For those who look at the stock market not merely as a source of secondary income but as a gateway to creating wealth, Marks’ following investing tips can certainly help you boost your investing skills.

READ MORE: Investing Mantras | The Intelligent Investor author Benjamin Graham's 4 key money making lessons

Focus on what is there at present

There is no way of knowing what lies in the future. This also means that you can in no way invest based on what you estimate will happen in future. Howard Marks calls it “intellectual humility” and emphasizes how investors must acknowledge their limitations that would therefore lower their chances of making mistakes due to overconfidence.

Since investors cannot predict how the market will behave at the next turn, they must choose to be aggressive or conservative regarding their investments based on their convictions. Based on their financial goals and understanding of investments, investors can park their money in various asset classes including equity, debt, gold, etc. This would help them benefit from a diversified portfolio instead of relying on one alone. The idea is to focus on what you can control so that you can be financially prepared for the days to come.

Contrarian investing helps

You cannot think of making big by following the herd mentality. Ignore the clamour around you; think differently from other investors. While making investment decisions, do not follow blindly what your friends or peers say. Separate yourself from the herd and think about how you can earn more returns from the given investment options. There are many ways of doing this, for example

  • Scan the stocks that are less discussed
  • Evaluate businesses that are undervalued
  • Pay attention to investments rigged in controversy
  • Study special situations investments
  • Invest in sectors distressed for the time being

Contrarian investing is also referred to as value investing by many investors. While many investors aim to look for value in stocks where there is none, very few are able to stomach the idea of investing in them. Fear and apprehension have marred many investors’ chances of profiting from this investing method. This kind of investment necessitates considerable research, thus, making it difficult for many to go against the flow. However, adopting this approach also means that you must ensure that you are picking the right investments.

READ MORE: Charlie Munger’s pearls of wisdom for investing money in the stock market

Evaluate business details correctly

Buying a stock means investing in a business, which is why you must study the company’s financials correctly. Additionally, you must pay attention to analyst reports, news and updates about the company. The web has made it easy for all of us to access the necessary information about any company. Though everyone has access to the same information, very few pay attention to it or interpret it correctly. Before you invest in a company’s stock, be sure that you have understood the information that you have at hand. You can learn about the company by

  • Understanding its business model
  • Learning details about the intangible assets held by the company
  • Perceiving clearly the changing consumer patterns
  • Imbibing more information about the company’s management
  • Realizing the possible impact of technological disruptions.

Understanding business potential before putting your money in it will lend you increased chances of achieving success in your investments. This way you will be better able to identify potential investments with better chances of growth and earnings. However, this also means that investors must also deep dive into the company’s information since all the information is readily available for anyone willing to read.

The margin of safety matters

The purpose of relying on value investing is to cull out stocks whose market prices are lower than their intrinsic values. The margin of safety is intrinsic to value investing. It is the price that investors pay for the stocks as opposed to the real or fundamental value of their businesses. A large margin of safety means a huge gap between the actual value and the investment’s market price. Investors benefit from a higher margin of safety as the same translates to lower risk for them.

To choose undervalued stocks with the highest margin of safety, investors must be willing to look beyond the company’s financials and stock prices. They must delve into added factors including the stability of the business, underlying predictability of its earnings and the potential future of the industry in the long run.

Warren Buffett tips
First Published: 01 Jul 2022, 01:00 PM IST