Howard Marks: how I make money while you worry about a market crash

0:00 If you wait. Until you have nothing to be afraid about. Probably. The opportunity has passed. I feel like I can rule the world, I know I can be what I want to

0:11 I put my law in it like my days off on a road, let's travel to the wheel. And we were like, look, uh I don't know if other people are gonna like that, but we loved that, and then um over a million people listened to the last one. And so This morning I was reading, you wrote this blog post about how you changed your mind about uh AI. You you had written uh I don't know, a couple months back About The possibility of an AI bubble. And then

0:38 As A good thinker tends to do you Got new facts, you sort of reassessed the situation. You wrote a new post about AI. Do you want to summarize The story of how you you changed your mind on AI? Well the story's very simple.

0:51 I have this son named Andrew. He's a V C. he's dealing with A A I every day. His companies use AI, some of them Create AI, et cetera. Uh I had written the first memo around December ninth, as I recall, and then in early February he said dad.

1:07 So much has happened. You have to update the memo. And so I I rewrote the memo entirely. You I was read I was re reading one of your old books. And uh you repeat this phrase a bunch, which is like it's important to be rational and you can't get seduced into thinking something is a good idea because that's when smart people can make bad decisions, when you get emotional about something. But then when I was reading part two.

1:31 I was reading it and I was like Howard. You sound a little seduced. You sound a little seduced, you sound like you're into this. Are you at all approaching this in an emotional way, you think?

1:41 It it it depends on your definition of emotional. I Upgraded. My opinion. of AI. And its potential.

1:49 Because It's Um Ability. Two.

1:54 Talk about its own strengths and weaknesses. To Use humor. Two Put

2:02 information. In the context of me. To use what it knows about me. And you know, this is really uh Yeah.

2:11 Exceptional stuff. There's a quality to AI. Uh or more than one quality. Which uh Or unprecedented.

2:21 In my opinion. The first The obvious one is autonomy. All the other technological innovations. From the railroad.

2:33 Two computers to the internet, et cetera. Were all tools. Or uh Things to speed up.

2:41 uh and increase productivity. There's never been anything with the quality of Autonomy. The idea. But it you can

2:51 Give it a job. And not tell it how to do it and it'll figure it out. is really unique. And the it what comes with that. Yeah, of course.

3:03 nagging concern. that it may take over. So that's that's Really important. The other thing.

3:11 And this is not a Uh Kind of. Uh quantifiable is. There's never been anything, in my opinion.

3:18 So unpredictable. I don't think anybody knows the shape of the future. So I I have never had that. Since before. I never say I never thought

3:28 That that the internet, for example. Was Uh. Beyond comprehension. Or beyond prediction.

3:36 Do you think that A I will be able to do what You do. And I know you talk about this in the the memo. And I gotta be honest, when I read it

3:47 I You know. I almost felt like You know, you read stories about Warren Buffett reading the Moody's Manual. Page by page, eight hundred companies and trying to digest that information. Well

3:59 A I can do that in in a heartbeat. Right. Like a lot of the things that that go into making investment decisions they can do very well, very fast. And then also it's advancing so fast. So you know, whatever we thought it could do three years ago is laughable compared to what it can do today. And as you pointed out, even three months ago. So I guess in your heart of hearts, do you think you know, in the in the future, the next Howard Marks is not a not a human, but but Maybe a human with AI or just AI. Uh everything I say.

4:27 On the subject I preface with, I'm no expert, but I think I told the story in the memo about the fact that Indexation. Uh put a lot of people out of the equity business. Because

4:38 Yeah. you know, it it disclosed that that they couldn't do Uh what they claim to do. And Most uh active equity investors underperform the averages.

4:49 And Uh AI will unfrock or defrock. Another. Oh his talents.

4:57 As they purport I used to say about computers. You know, when I went to school and learned about computers. Uh all they could do.

5:07 was read. Remember. Add, subtract, and compare. they could do it with a lot of data. They could do it really fast. They could do it without making uh arithmetic mistakes, they could do it r without r making emotional mistakes.

5:22 So While the list was limited. it was still better than most people. No. What's the list?

5:29 For AI. Is the list for AI unlimited. Or Limited. That's a big part of the question, right there.

5:38 I don't I know I don't know the answer. Maybe you do. Um And then Is there anything left?

5:47 that AI can't do. And I think we've helped our clients. uh over the years.

5:55 by not investing with bad people. And sometimes. You talk to people. And for undefinable reasons. You just say, you know what

6:06 Uh uh it doesn't feel right. As somebody said to me, the hair on your b on your neck goes up. And If that's True.

6:15 And if AI doesn't have hair on its neck. Then maybe There's a role left. For experienced investors with judgment.

6:25 I b I believe so. First of all There will always be things for which there is no history to train on. And

6:35 That Yeah. A certain big percentage of what AI does is uh knowing history and

6:42 recognising. And extrapolating patterns. There will always be stuff. For which there is no history. There are just some people.

6:51 who have a better understanding of the probability distribution. That defines future events. I was reading this book on Steve Cohen. And there was this part where they're describing how he was kinda like the man at a very young age.

7:06 They were like He can just feel the ticker. He just Like is in tune and in flow with it. And I was like, Oh, that's beautiful, but like that's I can't replicate that. And I was always curious about that because I think in one of your books, I think you said something like, I can't make s I can make someone better, but I don't think I can make'em great. Can you talk to that about like what it is that makes someone

7:27 Who is a good investor, good But also how the average person could get better. Like it or do you believe that's not that's not even possible, that you just ha you have it or you don't? Well In in my first book, the most important thing. Columbia.

7:42 Which published the book. I we were talking about the book. They said, Well write us a sample chapter. So I sat down. And I wrote a chapter. That I had never even thought about.

7:53 And it turns out to be the first chapter in the book and it says On this show, we have spent hours talking to some of the best investors alive. Well, lucky for you, the team at HubSpot, they have pulled out the principles that matter most and turned it into a very simple, easy to read. Wealth Guide. It's thirty five principals from the top investors. We're talking guys who have been on the pod like Howard Marks, Manish Prabhai, Morgan Hausel, Kathy Wood, and a ton others. So these are all their frameworks, their mental models, their rules, basically how to play the long game and how to avoid ruin.

8:26 You can get it in the link below. the most important thing is second level thinking. Second level thinking. Basically says, If you don't see anything different from everybody else, you p can't possibly be superior.

8:39 So To be superior. You have to at some point si something. different from other people. That you have to either think that the

8:50 the the that the consensus of the restors overstates the quality of the company, the growth rate of the company, the earning power of the company, or or maybe the multiple it deserves. And you have to had this very good perception and you have to bet. On your perception. And you have to be right.

9:08 So that's for that's second level thinking. I say in the book and when people ask me, I say Can you teach me to be a second level thinker? And the answer is no. I I said I say in the book, I don't know. Uh but I think it's I think it's more no than yes.

9:23 Because I what I say is I can teach you the importance of being a second level thinker. Like I just have in this chapter. But I can't.

9:32 Tell you. How? Two Have Perceptions.

9:36 that are at odds with the consensus of investors and correct. You know, in basketball there's a saying you can't coach height. And I think there's something called insight.

9:50 And I think Some people have it. And I don't know if AI can have it, because when you know when you talk about uh artificial general intelligence. And and uh

10:00 A GI is when A computer. Or AI. Can do everything that a human can do.

10:08 Can it do that? Don't know. And that when I talk about the uh the uh the mysteries of AI, that's that's a big one of them. Are there things it can't d won't be able to do?

10:20 Even when it's Reaches full flower. Can you think back to some of the biggest calls that you've had? How strong did that feel? Did you still have doubt or was it

10:31 One hundred percent conviction. Uh I'm curious to hear. What it feels like. Great. I think in our last episode we talked about the day Lehman went under. You know, September fifteenth, maybe of oh eight. And we had

10:43 Thought. that there was gonna be a mess. And we had raised uh it in the distress debt world. the biggest fund in history prior to O seven.

10:53 was our O two fund, which was two and a half. And N oh. Seven eight, we raised eleven billion.

11:03 for uh a distressed dead fund because we thought that w that there was a a lot of distress coming. And we had it on the shelf. It wasn't it was for Deployment. Uh w when the stuff hit the fan. And Lemon goes under, which I think qualifies as saying the stuff has hit the fan.

11:20 But people are talking about the end of the world. and all the financial institutions are gonna melt down and everything having to do with money is gonna atomize. So We were faced with the question. Do you invest the money.

11:36 And There's no pattern recognition. for the end of the world. And There's no

11:42 You know, uh in the In the uh Pandemic. um a Harvard epidemiologist.

11:50 Said. When we make decisions. We have Data. Analogies to past experience.

11:56 And supposition. Well, at the time of the Lehman bankruptcy we had no p data. And no prior experience. We only had supposition. So this is an interesting question.

12:09 Can AI have engaged in this kind of thinking. That if the world if the financial world melts down And we

12:19 Invest. Doesn't matter. But if we don't invest and the financial world doesn't melt down, then we didn't do our job. So we have to do it.

12:31 And we invest it on that basis. And Bruce. invest an average of four hundred fifty million dollars a week. For fifty eight weeks. Seven billion.

12:41 In a quarter. On that. Well, wasn't only on that, we also on quantitative measures, assuming the world doesn't melt down. We work. Getting great bargains.

12:52 We were buying. C the debt of companies. where we would break even. If Companies that had been bought out by private equity guys

13:02 two, three, four years earlier. If they ended up being Worth A fifth.

13:08 or a fourth of what they had paid. We would still be okay. So That was pretty easy. Quantitatively.

13:17 But we We were absolutely not confident. You weren't confident. No. I thought you were gonna say the o the opposite of that. No No. We we're the kind of people.

13:28 Who always say I could be wrong. Or it could work in a In a way that's never been seen before. And so

13:38 Yeah, I think. We all we always I wrote a memo Three or four years ago. Uh called taking the temperature. About the five Major calls.

13:48 uh macro calls that I made. Uh in the last dud. Well, in the last twenty six years. And They're all

13:56 With some doubt. When the markets are crashing. Why are they crashing? They're crashing. Because the news is terrible.

14:05 I read the same newspapers. I watch the same shows on T V. Um I'm I'm attached to the same news feeds. I see the terrible news. It looks terrible to me.

14:17 I overcome it. In some way. And conclude, No, I should invest. But I'm that it.

14:25 Immune. to ev what everybody else is reading. If you do these things Without Any

14:32 Uh trepidation. You know, th maybe there's something wrong with you. But You know. People who look at

14:39 the world probabilistically. And admit to Uh Ignorance and uncertainty. Can't act.

14:49 Without trepidation. Hey, can you tell me about raising eleven billion dollars?'Cause you said that like Very casually, like so we raised an eleven billion dollar fund. And that's like if I just said, Hey I just turned water into wine. I think for for for most people. So I I'm just actually curious, how does that happen? Is that

15:06 Is that you go to people and you say, Hey, we think the world's y you make a really persuasive case. Are you using a pitch deck? Is this just prior relationships? Are you selling upside? Are you selling safety against downside and fear? Like what what actually goes in? To raising eleven billion dollars like that. So there's a list of things. Number one. Certainly prior experience. Uh relationships. People had

15:30 You know, we started this business in nineteen eighty eight. And Uh so we're talking about uh t twenty years later. And in the eighty in the twenty years.

15:40 We uh Managed a lot of money. and had very good results for a lot of people. And so you can Work. On that.

15:48 Mm. Uh number two. Uh that this strategy Is particularly well suited for crisis.

15:57 And We had managed money through a few crises. Uh ninety ninety one and oh one oh two. and done i i e exceptionally well. So we were able to convince people that Number one.

16:09 So many of your investments. are set up for prosperity. This is a good way to hedge it. by making an investment that will do particularly well if If the stuff hits the fair.

16:20 But we were also able to Call attention. Two. Faws. in the environment.

16:28 the things that gave rise to the global financial crisis we could talk about and we could point out and You know, the fact that the market Uh was not acting as a disciplinarian, which is its main job. Main job.

16:41 It's the is to you know, people come in and say, I want money for this, this and this. And the market's job is to say, No, that doesn't make any sense, that's a stupid idea. We're not gonna invest in that. That's the job.

16:52 Uh and uh sometimes the market doesn't do that job. And when the market doesn't do that job, then dumb ideas get tense. And They and when they turn out to be dumb, people lose money. So I think we were able to convince people that some dumb things were happening.

17:09 And then of course uh th there's a great respect for for Bruce Carsh. For the investing he's done. Of over the years. I think those are the main reasons. Why we were able to do it.

17:21 And by the way, you hit the nail on the head. We did it in advance of the crisis. The best time to invest is in a crisis. You can't raise money. during the crisis because the news is so terrible.

17:34 So you know, m my wife and I have a favorite movie we we watched called uh Spy Game. Robert Redford. And Uh He says in the Redford says.

17:45 When did Noah build the ark? Before the flood. You gotta build the ark before the flood. You have to have some sense. that the that there may be a flood.

17:57 But one other point. In the uh in the Prior twenty years. There had been these occasions when we thought there was gonna be a great investment opportunity.

18:08 And it We were generally right. because we took the temperature of the market accurately. And we Raised a large fund.

18:16 And we invested in it and we made a lot of money. But then because we thought the opportunities weren't as good. Now m most people in the investment business, if they have a fund that does great, the next fund is binger. 'Cause they can sell on the back of those results.

18:33 But we make it smaller because we think those results mean That things have appreciated. And are not so attractive. I and I think that having done that for twenty years. I think we

18:45 gained a lot of credibility and people tend I think people tend to say when Howard and Bruce. Say theirs. a great opportunity. They're not just trying to raise money, they really believe it. And they're and they tend to be right.

19:00 And Sometimes you had to speak against your own interest. And admit your limitations. And admit your uncertainties. So in nineteen

19:10 Uh Nine the eight. We had the meltdown of long term capital management. We had a Russian ruble crisis. We had a uh panic.

19:19 Uh in South East Asia. And Uh especially with long term going under one of the Skilled. portfolio managers, young portfolio managers at Oak Tree came to me. He says, I think this is it.

19:31 I think we're melting down. Uh it's all over. And I said, Well t tell me your concerns and he laid out his concerns. And I said, Okay, I I understand it. Now go back to your desk and do your job.

19:45 You know? A battle hero. is not somebody who's unafraid. It's somebody who's afraid but does it anyway. If you're g running into a a hell of bullets and you're not afraid, there's something wrong with you.

20:01 But you do it anyway. Because it's what you have to do. And I don't want to elevate I'm not Saying w we're analogous to a Okay.

20:10 A combat hero, but Yeah to do it. Despite your trepidation. And if by the way, if you wait Until you have nothing to be afraid about.

20:21 Probably. The opportunity has passed. That's a great point. You mentioned Bruce and I wanted to ask you about this because it seems like you guys have had a very long term partnership. What, thirty plus years. I think people don't talk about that enough, the value of compounding in a relationship and how to be a good partner for the long term. You know, uh a bad partnership Can ruin you.

20:44 But we don't really talk about what it takes to make a great partnership at the same time. If you were gonna teach me and Sam. If we said, Hey, me and Sam wanna do this podcast for thirty years, or you know, I have a business partner, Ben, I wanna be in business with him for thirty years. What do we gotta get right to do that? Well, it's a great question, John. It's very important.

21:01 Uh Bruce and I have been partners for thirty nine years this month. And It's one of the greatest things in our lives. Uh after

21:10 I think we would both say that after family And and maybe some good friendships. Uh it it's really the best thing we've had. We've Work together.

21:20 closely for all that period. We've obviously produced a lot of success. had a lot of fun. uh have never had a fight. We have intellect intellectual disagreements, but we've never had a fight. Probably because

21:34 uh neither of us is really a financial maximizer. And a lot of fights. Uh probably about money. The bedrock of our Relationship is mutual respect.

21:46 And I think it would be very hard. to have a No. successful long term relationship with the partner.

21:52 If he didn't. Have respect. For each other. And that ties into something I wrote in O two, I think. But

22:00 In Oh two, I wrote a memo. Called The most important thing. And

22:06 There was a section in there which talked about having a successful partnership. And I said the key to a successful partnership. Is shared values. and complimentary skills.

22:18 If you don't share values, I don't think you can have a successful partnership. Let's say one person is Super aggressive. And the other's a chicken. One person

22:29 is super ethical. And the other one likes to cut corners. I don't think you can have a successful relationship. Partnership. And I've seen many, many.

22:40 You know I mean. Uh a friend of mine. Uh when I was a kid. A T T went public. Can you imagine the days before but anyway, they went public. They it was the biggest deal in history and and they had a full page Tombstone ad in the newspaper.

22:55 And it list it all the investment firms. That were the investment bankers. And there were probably Forty.

23:02 And a friend of mine, Ed Ramsdale. used to carry that out around and every time one went out of business he would Mark it off. And eventually I think they almost all disappeared except for Goldman Sachs. But Why do they dis why do they go under?

23:17 You have Some Cowboys and some chickens. And You know, in the w in the when the

23:24 In bad times. The chickens say the cowboys are getting us killed. And good times. The Cowboys say. The chickens are holding us back.

23:33 And they disparage each other. So you have to share values, in my opinion. The other thing is You have to have complimentary skills. So

23:43 The beauty of a partnership. is when your partner can do things you can't. That means That you are both additive. To each other.

23:53 Synergistic. If I can do everything you can do, or if I think that What do I need you for? It's not gonna last very long. Because eventually I'm gonna say you're overpaid. I don't need you.

24:04 And The beauty of my relationship with Bruce. is that we both recognize That there are things. that the other is good at that we're not.

24:13 And That the other wants to is willing to do that we don't want to do. For example, from the very beginning, Bruce approached me in in eighty seven. With the idea of a distressed debt fund.

24:25 You know, I went into the high yield bond business in seventy eight. And He had a a background in law and got into uh some distressed investments which went well and he said came to me he said we should do a distressed debt fund.

24:38 And and it was quite a novel idea. But From the beginning. Uh, you know, I go on the road and talk to people. And Bruce stays back and manages the money.

24:50 I go on podcasts. With people like you. And Bruce doesn't. But the third element is you gotta be appreciative. And you have to

25:00 Thank your lucky stars that you have a partner who will do the stuff you don't want to do. Can you do the same towards parenting? Because both on this episode and last one You referenced your son a bunch. Do you have any insights into how you've been able to raise a kid that you not just love, but you enjoy being around? Well you know Uh

25:18 I think it was Forbes. Thirty or forty years ago. had an article about so and so. Who was the only shrink

25:26 With an office on Wall Street. And they asked this guy. About his patients. Problems. And he said

25:37 that his patients' problems and they were all men of course'cause it was Wall Street a long time ago. His patient's problems were Inversely proportional. to the support they got from their fathers. We had people over for dinner last night.

25:50 Um And one of the guys We and we're talking about so and so who was a character of some kind. And one of the guys said, Well, you know what? His father treated him like hell. I just never wanted to be that father.

26:03 And it's amazing how many Men and Especially so Successful men. Have to

26:12 A certain. their superiority over their sons. Maybe daughters too, but I think it's more with sons. And I guess it's pro idea or Or something else.

26:22 But it's it what a terrible thing. That you have to If you had this kid. And you have to prove you're smarter. And

26:31 So you know, I mean I always let Andrew Be smarter than me in in some things. Uh And Of course I always

26:40 Gave him c full support. in the things he wanted to do. If your kids want to do something And A, it's not gonna be injurious. Uh and uh

26:49 Yeah, I th uh maybe there's no B. Let'em do it. Like when when uh And my daughter.

26:58 lower school and had to choose an upper school. Uh she applied to the two good schools in LA. Got end. And We let her choose. My wife and I

27:09 had a sense for which one we wanted to go to. But we concluded. That Like I always say. We could be wrong.

27:18 Our choice could be the wrong choice. And anyway. Of the two choices. While one might be better than the other, neither was a bad choice. So if that's true, let the kid make the choice.

27:30 And they get experience with making choices. And maybe they had a uh experience with making Incorrect choices. Which is very important. Hey, let's take a quick break. You know that feeling when strategy is done, the brief is written, everyone's aligned, and you realize someone still has to sit down and actually create all the content?

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28:08 On the subject of choice, I have a I'm I'm interested to know, you know. When you were younger, you let's say you're twenty one years old and you're trying to figure out what you want to do with your life. Probably one of the more. Important questions you should figure out.

28:23 At some point is what do I want to actually do every day for eight hours a day, that half my waking hours. And I doubt that, you know, a lot of nineteen year olds wake up and say I wanna work with distress debt and Bonds you know, it's that's not a un that's not a knowable answer at that stage. What do you think is the right approach to figuring out your thing?

28:43 First I wanna say Up front gen. That The thing you describe I did it. A terrible job of.

28:50 I was unconscious. M the decisions I made In my first. Twenty years. As they say.

28:58 in in in religion. I did not apply intention. I just I let other people make the decision. I made decisions haphazardly. I didn't think about it a lot. Um I'm embarrassed.

29:12 Uh At at how terrible. my decision making process was in fact it's a b it's a misnomer to apply that term. But Having said that.

29:22 I I think it's desirable. To make Uh your choices with intention, well reasoned, etc. And what I tell kids is my favorite quote.

29:32 is from a writer named Christopher Morley. Who said there's only one success. to live your life your own way. I think it's a beautiful quote. You know, I go to Wharton and Harvard and

29:44 And all these places and Columbia. And I say, and you know, the fact that you're In this room. Probably means

29:53 You can. Live your life your own way. You probably have what it takes. To live your life your own way. Intellectually. Yeah.

30:01 Mm Work ethic is that work. But You have to figure out what it is. That's the hard part.

30:08 Who are you? And what I say to them is try to find something That Will play the strengths. Avoid your weaknesses.

30:18 And make you happy. What that means is well that sounds obvious, but well who would who the hell wouldn't wouldn't follow that. Instruction. Well the answer is what it means is

30:27 You can't let you Your friends decide what you should do. You can't do things because your friends are doing'em. You can't let society decide what you should do. You can't let your parents

30:39 decide but you should do. You have to think it out for yourself. Having said that. It's very difficult. Because

30:49 It's hard to know yourself. And We know. that in twenty years you'll be a different person. How can you make a decision today on what will make that person happy? Very difficult. But you gotta try.

31:03 That's my advice, which which I didn't take when I was a kid and I was derelict. But I got lucky. Well you eventually did become As you described, w uh living well intentioned. Yes. Something must have changed. Wha do you remember did you do any exercises to

31:18 Not that I recall. Um I think You know and I said I said for the next tw twenty five years. I didn't do it.

31:28 That took me up to uh roughly ninety five, which is when I left with Bruce to start Oak Tree. That was really That's so interesting. Wait, so you think that up until the age of fifty or forty nine You were

31:40 Floating. Or living according to other people. Well, not not just that, but Just not making good decisions. Conscious decisions.

31:50 You know, wh why did I go to Citi Bank Investment Research Department when I got out of University of Chicago in nineteen sixty nine? Because I had a s a good y summer there the year before. Uh why did I move from the Equity Research Department to the bond department. Because

32:07 My work in equity research was unsuccessful and I was told to Get out. Why did I Move to California.

32:16 in nineteen eighty. Sunshine. Palm trees. I just can't. Claim.

32:23 uh that I was making good decisions. I got sent to the bond department. a City Bank in nineteen seventy eight. And Three months later, the head of the bond department calls me up. Since I was

32:35 I didn't have that much to do. I was fairly idle. And he says, There's a guy named Milken or something in California. And he deals in something called high yield bonds. Do you think you can figure out what that means? That was just luck.

32:48 Yeah, you know, if you if you read Matthew and Gladwell. And outliers. It was just luck. Right time, right place. And

32:56 I if that call if that call came at lunchtime And I had been out at lunch. Maybe somebody else would get the call. And and they'd be me.

33:07 Your uh your humility is very striking to me. We have a lot of people on this podcast that I I think, you know, claim to be humble or try to be humble. Uh y you you really are a extremely humble person. I mean, one note I wrote down is uh from now on, at the top of all my investor memos, I'm just gonna start it with I could be wrong, but Um because I I think whenever I make an investment, I'm so Boastful about the

33:30 my my excitement and my exuberance and why this is right and why this is the right move to do and I think You know, you've you've kind of infected me with a little bit of your your humility there. Well you you make the investment because you believe in it. But it's important to see The other side. and know what you're doing. By the way, Churchill said he's a

33:48 He's a humble man. And he has a lot to be humble about. But Mark Twain says It ain't what you don't know that gets you into trouble. It's what you know for certain that just ain't true. And

34:00 I always tell people I in line with what you just said, Sean. No sentence that starts with I could be wrong, but Or I don't know, but

34:12 ever got anybody into trouble. The sentences that get people into trouble are I'm a hundred percent convinced that And if you If you really Feel that you're a hundred percent

34:24 Right? And you bet like you're a hundred percent right. And it turns out it was only eighty twenty. And the twenty comes up. That's how you get into big trouble.

34:34 So I think the thing that I think the thing that Mark Twain said was incredibly important. Yeah, l last m memo Sean sent me about some deal he had was uh Bet everything you have, this is it. Mortgage the house. Um hey, can I ask you about Buffett? You know, Buffett famously has said, you know, he reads your memos. Uh I assume you guys have interacted. Do you guys hang out? What's uh what's he like? And uh give me some some Warren Buffett stories from from your uh your life, your experience. Well, Bruce actually

35:03 was uh always a buffet watcher. And If you go back To the eighties.

35:10 No, I don't think Anybody had heard of Buffett, maybe not the nineties. I don't know exactly. In the in the late nineties people said, Well, Buffett's lost it. Because he's not in tech. And then of course tech blow up. And then they said, Ah, maybe Bluffett knows what he's doing.

35:25 But anyway. When And Ron. Melted down. And Ron

35:31 Did most of it. Mm. misbehaviour. uh through uh off balance sheet.

35:37 uh entities. And there was a lot of opportunity there. And so we became the largest holder of the debt of one of them.

35:47 It was called asprey. And Warren was the second largest holder. Um I don't remember how it came to pass.

35:55 But he gave us uh his proxy. And he led us. Run. that position for him. And Bruce did a masterful job.

36:03 of restructuring that company. And we came out with the baby boom. Big win. So Uh this was around uh

36:12 Oh two. So around all three or four. Warren writes Bruce a letter. And he says, you know, nice job on on Osprey.

36:20 And if you ever find yourself In Omaha. Let me know. We'll have lunch. So Bruce and I write him a letter.

36:28 Bruce Riceman letters is it happens that Howard and I will be in an Omaha t m this week. Can we take you to lunch? And and so with that's how we met. And

36:38 The relationship had a lovely start. And it went on like that. We never actually did any business together after that. Because You know, he was always looking for something big that he could

36:49 Acquire. And and we don't We don't really deal in Big acquireable things.

36:56 But it was a very nice personal relationship. And uh I don't uh I've never said this. But in

37:04 Oh nine. I wrote a memo in which I mentioned him. And I sent it to him and I said, I want to make sure that you see this memo, because it mentions you. And He says I do see the memos and blah blah blah. And uh

37:18 I have seen this. He says, and by the way You should write a book. And if you do, I'll give you a Uh a blurb. For the book.

37:27 And that's why I wrote the first book. uh most important thing. I always thought I'd write a book when I retired. But instead you know, when when you get that kind of note from a guy like Warren Buffett, you You can't let it sit. So that was the that was the start of that.

37:41 You know Uh I I've been fortunate to visit him. A few times. And uh And it's it's a big plus.

37:49 Is there any part about the Warren Mystique, the Buffett uh personality that you think like popular lore gets wrong or is inaccurate? No, I think it's mostly what you see is what you get. The one thing I'll say. that I don't think people know about. They don't get wrong. They don't know about it.

38:08 is the depth of his love for Charlie. And Warren sent out a That note. I think it was at Thanksgiving.

38:17 Last year. And he said, you know I'm not going to be at the Bertrand meeting and I'm not going to be writing this or that, whatever it was. And

38:27 He talked about his relationship with Charlie. And anybody who wants to should get a get a hold of that letter and see it because it's It's you know, we talked earlier about the importance of the uh a partnership and how great a contributor to your life it can be.

38:43 And uh And that's what That's what uh He had but Charlie. I think he

38:49 I think he as I recall he talked about Charlie being the big brother. And and himself. Bango little brother. And uh

38:59 I think we can say that about my relationship with Bruce. And For one reason or another he's always been very kind to me. Uh.

39:09 About My role. You know. And uh generous. about my role in the okay so he's

39:18 He certainly As smart as I am. And as talented as I am, maybe in different ways. But

39:27 There was always this this feeling of respect. And affection and love and And uh the and the as the more time passes, the more We're conscious. Uh of that. He and I and that's what Warren and Charlie had and it was

39:40 Beautiful thing to Watch and also the uh the Warren used to love Telling funny stories about Charlie. Uh of which there were a lot. And their relationship.

39:50 was always suffused. Uh with humor. Okay. So you've probably have heard this on the podcast, but if you're running a company, I think that the number one attribute that will determine if you are gonna succeed in business is how fast you can learn from others. Specifically how fast you can learn from other entrepreneurs. But there's a problem with that. I have this problem and in fact you probably have it too. That's one of the reasons why you listened to my first million in the first place.

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40:57 Did they make a lot of the decisions together? Uh I mean I I've read a little bit about'em and their relationship was a ch a little challenging for me to understand because I don't think they've ever lived in the same place. Yeah. Talk daily.

41:10 I don't know exactly how they made their decisions, but I think war I think Warren used Charlie as a sounding board. A logic checker. You know. I think this this this this makes sense, that kind of thing.

41:23 Great credit. Is that Warren Buffett used to engage in what we call cigar butt investing. I don't know if you know about this. But Cigar bought investing.

41:34 means you're walking down the street. And you look in the gutter and you see a Used cigar. And you pick it up. And yet.

41:41 Conclude that it has three puffs left. So you p pick it up. It's a disgusting thought. You pick it up and you smoke it. And you get three parts for free. That's the car about investing. But

41:53 And and you know, e j uhren would buy Uh you know, really cats and dogs. Because they were cheap. Charlie's great contribution. was talking Warren out of

42:07 Cats and dogs. out of cigar butts. And His revolution. Was

42:12 That he convinced Warren not Any company. At a great price. Great companies. At a good price.

42:20 Most people credit that as Charlie's greatest contribution. So But you know Synergistic. Mutual respect.

42:28 Love. Complimentary skills. It interestingly. They probably had the highest Combined IQ. of any partnership in history.

42:38 But they were different. Kinds of IQ. Charlie was More of a Classicist.

42:43 And He humanist and uh. Man of letters. And Warren, of course. Was

42:49 Uh. And incredible. Uh. Uh computing machine. A man of a man of letters.

42:57 Sean, we need to bring that back. That sounds that sounds beautiful. It would be a bear letters to Charlie. You know, when we would get together he wouldn't talk about investments or money. Or companies. Mostly. He would talk about ideas.

43:10 Well let's wrap it with one one last quick one, which is uh give us some homework, give us a book. That shaped the way you think or you thought brought some good ideas to the forefront. What's a book we should read? As recommended by Howard Marks. So one

43:26 is uh a short history of financial euphoria. by John Kenneth Galbraith. This was very uh influential in my thinking. And it teaches you about uh the

43:39 mental weakness that gives block give rise to booms and busts. And of course, you know, uh Taking a Uh Objective view.

43:49 of cycles is a big part of What I do. So that was very influential and I was lucky to get to meet Galbraith. And then the other book would be Fooled by Randomness. uh by Nassau Nicolas Taleb.

44:03 And It talks about Yeah. See, I'm a great believer. Did a lot in in

44:09 Life is random. And Uh So y this is one of the reasons. Maybe it's my rationale for not being such a d a decisive thinker.

44:19 So that basically says In the short run. Uh Anything can happen. Because of brand on this.

44:25 And This determines our attitude toward risk. our attitude toward portfolio construction. our attitude toward published records.

44:35 You know, you see a published record. The guy had a great return that year. Is he great investor? Did he get lucky that year? Et cetera. And I th so I think that I think that fooled by rail this is really Uh.

44:47 And I've written some memos if anybody wants to. uh they can read the memos rather than reading the whole book. Um But I I think it's very valuable and I would recommend it strongly.

45:03 Oh, we appreciate you, man. This is fun. I hope so. We gotta do one with your son, actually. That would be a lot of fun. Uh well, we did one in January of twenty one called something of value. Because

45:15 Uh he moved to New Zealand during the pandemic and I thought that the the opportunity to for three generation of Marx's to live together was a great was of great value.

45:25 And we spent most of the time Arguing about value investing. Uh and and uh And I think that Uh I think with the possible exception of the latest AI memo, I think that one got the most positive reception.

45:39 But But uh we'll we'll we'll keep working together. And uh Uh you guys don't don't need a uh an excuse for Uh.

45:48 For another session. Well thank you for playing therapist for us. Okay. Thank you so much, Howard. That's it, that's the pod. I feel like I could rule the world a no way. But I want to I put my law in it like my day So on the road, let's travel, never looking back. All right, let's take a quick break to talk about a podcast. Cause if you're listening to this, you like podcasts. And what's better than one podcast? Another podcast. And let me tell you, another podcast you should check out. It's called Success Story.

46:15 If you like hearing about different success stories and hearing QA sessions with successful business leaders or hearing keynote presentations or just checking out conversations about sales and business and marketing tactics, is a great podcast for you. So check it out wherever you get your podcasts.

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