Buffett’s Favorite Writer on the Value-Growth Quandary

Buffett’s Favorite Writer on the Value-Growth Quandary

In a recent interview at his annual Strategic Investment Conference, Oaktree Capital Management co-founder Howard Marks shared his thoughts on value and growth investing with John Mauldin (of Mauldin Economics).  This according to a recent article in Financial Advisor magazine.

Here is a summary of Marks’ comments:

  • Marks reportedly “questioned the entire investing paradigm and whether it makes sense to ‘circumscribe investing as thoroughly as [has] been done.’”
  • He referenced Warren Buffett who, he argued, most consider as the “paragon” of value investing but who himself “does not circumscribe value investing to the extent that has come to be the case.”
  • During the late 1960s, according to Marks, both the value and growth schools began to “create this big swath in between the two camps so that each one is firmly and crisply defined.” But he doesn’t believe it’s that simple, arguing that some great opportunities exist in the “gap” between the two approaches.
  • In the early part of his career in distressed debt, Marks learned that equities of strong companies could be bad investments if priced to perfection, while bonds of weak companies selling at significant discounts could generate strong returns: “If there’s a space in the middle that nobody’s prospecting, you can find better opportunities there,” he said.
  • Most bear markets, according to Marks, are triggered by “an excess of optimism,” but last year’s collapse was caused by “an exogenous factor, the virus.” Because of that, Marks said, “we’re kind of off cycle.” Specifically, he noted that we typically see a “coincidence of economic growth and market appreciation” which is not currently the case.
  • According to Marks, the Fed’s manipulation of interest rates “accelerates future transactions into the present” and “warps price discovery,” which causes him concern. “We do not have a free market in money today,” he said, adding that when the Fed sets the discount rate at zero, people begin “running into 3% investments and think they are in Nirvana.”

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