Bargains are scarce these days, but Howard Marks still sees pockets of opportunity. The co-chairman of Oaktree Capital Management and veteran distressed investor spoke with Bloomberg from the Dynasty Financial Partners’ 2021 Investments Forum about the challenges facing investors large and small, where individual investors can seek better returns right now and about his investment in crypto. His comments have been edited and condensed.
On where individuals might invest a big bonus:
If you don’t want to be cute, put it all in S&P 500 index funds and close your eyes. If you want to try to add value at the margin you might invest in debt with a floating interest rate rather than fixed, if you believe higher inflation and interest rates are coming. You could invest in real estate where a landlord has the ability to pass on rent increases. Or invest in companies that have neutralized inflation, or companies that grow faster than the rate of inflation, that are in tech or in the business of marketing innovations. With most of those companies, the potential is not disguised so you have to pay a lot for that growth.
On the challenges facing individual investors:
It’s really important to remind people that in the investment world there is no such thing as a good idea or bad idea — it all depends on the price. It’s also important that people realize you don’t make money through what you buy and sell. You make it through what you hold. People should invest as heavily as they can, as early as they can, and then let the magic of compounding work.
There’s a joke going around that in the factory of the future there is one man and one dog. The dog’s job is to keep the man from touching the equipment, the man’s job is to feed the dog. Most investors, in the same way, need a dog that has the job of keeping them from putting their hands on the portfolio. Buying too high is not necessarily the cardinal sin, selling out at the bottom is the cardinal sin.
On his stake in cryptocurrencies:
My son handles cryptocurrency investments, along with other technology and growth investments, and I try not to look too much. He has a diversified portfolio and it’s not too heavy on the coins themselves but more on the crypto infrastructure. The world used to be a stupid place where Warren Buffett could go out and buy dollars for 50 cents. Now information is much more pervasive, so if you want to buy a dollar for 50 cents you have to know something that other people don’t. It takes an expert to invest in tech and esoteric things like cryptocurrencies.
On the money pouring into private equity:
Most pension funds and endowments need roughly 7% returns, and most have given up on getting it from stocks and bonds. Treasuries are paying 1%-2%, high-grade bonds 3%, high-yield bonds are paying 4ish, and people will tell you with stocks you can expect 5%-6%. You’re not getting to 7% from there. So everyone says you need to go into alternative investments, and the biggest category is private equity. So most people think private equity holds the key, and now private equity funds have trillions to spend.
The question is: how you can find trillions of dollars of bargains in a climate where there's money everyplace? It will be interesting to see if PE turns out to be the panacea people are hoping for. A lot of money is also flowing into private debt, but it's a little less saturated than PE.
This article was provided by Bloomberg News.