Welcome to today's talk.

We have a very, very special guest today.

And I couldn't be more pleased.

In thinking about an introduction for him,

I quickly realized there's nothing that's

going to beat his own words.

So I'm going to share a couple of snippets from his writings

over the years.

And as I do so, think about what would be your guess when

he wrote them.

So here's one.

The bottom line is that many of the investors setting

the prices in today's markets don't care about valuation.

I get no sense, at all, that the analysts and portfolio

managers backing the large cap growth

stocks and internet high flyers can imagine

prices at which they would be mere holds or, heaven forbid,

sells.

When do you think this was written?

AUDIENCE: [INAUDIBLE].

MALE SPEAKER: This was '99.

So yeah, there's something to say about the timeliness

of what our guest writes.

And here's one more.

This is from the last 10 years.

In the end, buyers took out the biggest mortgage possible

given their incomes and prevailing interest rates.

Such mortgages would land them in the houses of their dreams

and would leave them there as long

as conditions did not deteriorate,

which they invariably do.

Anyway you slice it, standards for mortgage loans

have dropped in recent years and risk has increased.

Logic based?

Perhaps.

Cycle induced and exacerbated?

I'd say so.

Certainly, mortgage lending was made riskier.

We'll see in a few years whether that

was intelligent risk taking or excessive competitive order.

When was this?

AUDIENCE: [INAUDIBLE].

MALE SPEAKER: This was 2007.

And we are a few years from there.

And we've seen what happened.

So I'm sure all of you want to know what's on our guests

mind today.

And we are so fortunate that he's here with us in person.

So without any further ado, ladies and gentlemen,

please join me in welcoming the one and only Howard Marks.

[APPLAUSE]

HOWARD MARKS: Well that's quite an induction

and [INAUDIBLE] puts a lot of pressure on me

that I have to be right.

So it's hard.

But I'm really excited to be here.

I want to thank [INAUDIBLE] for setting up this event.

And he's worked very hard to make

it go well for you and for me.

And I hope it'll be fun for all of us.

And because I get the impression here at Google

that fun is important.

Right?

AUDIENCE: Absolutely.

HOWARD MARKS: So there aren't too many things in life

that are worth doing if they can't be fun.

As you know, I wrote a book in 2011

called the most important thing.

And the reason it has that title is because I would find myself

in my client's office.

And I would say the most important thing in investing

is controlling risk.

And then five minutes later, I would say the most important

thing is to buy at a low price.

And five minutes later, I would say the most important thing

is to act as a contrarian.

So back in 2003, I believe, I wrote

a memo called The Most Important Thing.

I listed 19 things.

Each of which was the most important thing.

And then I used that.

I couldn't think of a better format for my book.

So I used the same format in 2011.

Interestingly, some of the things are different.

That goes to show you that one's thinking should still be alive

and should still evolve.

And I know that [INAUDIBLE] and some of the other fellows

went to see Charlie Munger speak in Los Angeles

this week at age 91.

And I'm sure he's still evolving and getting younger.

So I'm going to try to do the same.

Now I should tell you, and I don't know if you know this,

but I write memos to the clients.

And I'll refer to a lot of memos in this session, probably.

And they're all available on oaktreecapital.com website.

And the price is right.

They're all free.

And I've been sending them out now 25 years.

I started in 1990.

And I got a letter from a guy named

Warren Buffet in 2009 or '10.

And he said, if you'll write a book,

I'll give you a quote for the jacket.

So I had been planning on writing a book when

I retired from work.

But Buffet's promise caused me to accelerate my time frame.

And what the book is is-- who here has read it?

OK, about half.

So what the book is, it's a recitation

of my investment philosophy.

And as it says in the forward to the philosophy, which

I took the forward-- I don't know about you,

I never read the forwards books.

But I took the forward to mine very seriously.

And what it says in there-- it's not

designed to tell you how to make money.

And it's not designed to tell you how easy investment is

or to try to make it easy.

And in fact, my highest gold is probably

to make it clear how hard it is.

Investing is very difficult because it's,

kind of, counter intuitive.

And it, kind of, turns back on itself all the time.

And there are no formulas that work.

So what I tried to do in the book

is teach people how to think.

Now the thoughts they should hold change from time to time.

But how to think, I think, is valid in the long term.

And it's my invest philosophy.

And I wasn't born with an investment philosophy.

You'll hear from a lot of people,

if you're interested in investing, he'll say, well,

I started reading prospectuses at age eight, and I didn't.

Or you know, at 13, I invested my bar mitzvah money,

which I didn't do.

But in fact, when I was getting out of graduate school-- age

23 in 1969 so I know you can all do the math--

I didn't know what I wanted to do.

I had studied finance at Wharton and accounting at Chicago.

And I knew I wanted to do something in finance.

But I wasn't very specific.

So I interviewed in five or six different fields.

Large consulting firms, small consulting firm,

accounting firm, corporate treasury,

investment management, investment banking, six, so I

ended up in the investment business.

Why?

Because I had a summer job in '68

at city in the investment research department and I

liked it.

I had fun, right.

That's a good reason.

So I went there.

And by the way, interestingly, there

was nothing magical about working in the investment

business at that time.

It paid the same as all the rest.

All six jobs that I was offered had the same pay.

Between 12.5 and 14 a year, not a month.

And there were no famous investors at the time.

Investing was not a household word.

There were no investment TV shows.

So I just did it because I liked it.

I liked the people.

And I thought that the investing was intellectually interesting.

So I didn't have a philosophy then when I started.

And I had some things I had learned in school.

But I think that your philosophy-- your philosophy--

as opposed to somebody if you studied

Descartes or Locke or somebody like

that, you learn his philosophy.

You might learn a philosophy by studying a religion.

But that's not your philosophy.

Your philosophy will come from the combination

of what you have been taught by your teachers

and parents and your experiences and what your experiences tell

you about the things you were taught

and how they have to be modified.

So I developed my philosophy.

It might seem like I started writing the memos a long time

ago-- 25 years-- but I had been working already

over two decades, at that time.

So I think that the integration of real life into philosophy

is essential.

Now I prepared a few slides for today.

And basically, the slides are here

to illustrate where philosophy came from.

Talk to you about some of the foundations and roots.

So I call it origins and inspirations.

And I hope you'll find it interesting.

So first of all, not in order chronologically

but, hopefully, in order to try to make something intelligible.

Fooled by Randomness, by Nassim Nicholas Taleb.

Now who here has read that?

All right, more people than have read my book.

And I think it's very important.

I think it's an excellent book with very, very

important ideas.

Now don't tell Nassim I said this,

but I tell all the people I speak to that it is either

the most important badly written book or the worst written very

important book that you'll ever read.

I think it's not very clear.

And I think it's not-- well, maybe

there's no attempt to make it clear.

But I think a lot of the ideas are very important and even

profound, in my opinion.

So among other things, and the basic theme

is that in investing there's a lot of randomness.

And if you look at investing as a field

without randomness where everything is determinative,

you'll get confused because you will not

draw the proper inferences from what you see.

For example, just a brief example, you see somebody

and they report a great return for the year.

The scientist who thinks that the investment world runs

like the world of physics might think, well,

great return, that means the guy's a great investor.

But in truth, it might be somebody who took a crazy shot

and got lucky.

Why?

Because there's a lot of randomness in the world.

When I went to Wharton in 1963, the first book

I remember learning was called Decision Making

Under Uncertainty, by C. Jackson Greyson who

became, as I recall, America's first energy czar.

And I learned a couple important things from that book.

Number one, that you can't tell from an outcome

whether a decision was good or bad.

It's very important.

Most people don't understand this.

Totally counter intuitive.

But the truth is, in the real world

where there's randomness at work-- I mean,

if you build a bridge and it falls down,

then you must assume that the engineer made

a mistake that it was a bad decision

to build the bridge that way.

But in the real world of where there's randomness,

good decisions fail to work all the time.

Bad decisions work all the time.

The investment business is full of people who are, quote,

right for the wrong reason.

Made a bad decision, it didn't work out the way they thought,

but they got lucky.

And they were bailed out by events.

So this is very important.

And this is the basic theme of "Fooled By Randomness,"

Taleb's first book.

Since then, he has written the black swan, which

became more famous, but I don't think is as good a book.

And he's written a book called anti fragile.

And that one didn't get famous.