Howard Marks Memo 1990 The Route to Performance – Review

In Intelligent Investor, one of the great book ever written on value investing by Benjamin Graham, The preface written by Warren Buffett, in that preface Buffett says

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”

Howard Marks is the cofounder of Oaktree Capital management, he is one of the wealthiest Americans, He is famously known for his memos to investors.

Warren Buffett once said:

“When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something, and that goes double for his book.”

So, Howard Marks memos are great for value investor, the book written by Howard “The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor” is must read for every value investor, it’s a great read….

In Howard marks memos, they are very insightful and always relates very well to the investor, so I decided to review Howard Marks memos, these are all my opinion, and for educational purpose only, nothing is recommended as a investment advice….

In 1990 memo “The Rout of Performance” We all want great performance which is above average, and the major question arises How to achieve it? So let’s find the answer…..

Howard write about the prominent money management forms, whose performance lag behind the S&P 500, by 18.40% which ultimately affect the five years of performance. The president justified it by saying

If you want to be in the top 5% of money managers, you have to be willing to be in the bottom 5%, too.    

Where Howard is disagree, with the explanation

In 1987 convertible mutual fund, The fund has large amounts of common stocks, in the first eight months, of 1987 and cash after that, as a result it generates more than 16% better return than average fund. But in next half year performance was behind the 1987 achievement and down its 18  months return, and this time fund manager says

 . . . in order to strive for performance which is far different from the norm and better, you

must do things which expose you to the possibility of being far different from the norm and worse.

This shows that bold steps taken for greater performance can be easily wrong as right.

Whereas, other mid-west pension plan, whose return over fourteen years, has been ahead of the S & P 500, he says:

We have never had a year below the 47th percentile over that period or, until 1990, above the 27th percentile. As a result, we are in the fourth percentile for the fourteen year period as a whole. 

As per Howard Marks, Its better to do little better than average every year, and through discipline to have highly superior relative results in bad times — is:

– less likely to produce extreme volatility,

– less likely to produce huge losses which can’t be recouped and, most importantly,

– more likely to work (given the fact that all of us are only human).

Better than average return mentality with discipline, will produce less volatility, less huge losses, and you don’t need worry to cover that huge losses, because you cover that by expecting average return.

As Howard Marks write, with his valuable experience:

in equities, if you can avoid losers (and losing years), the winners will take care of themselves. I believe most strongly that this holds true in my group’s opportunistic niches as well — that the best foundation for above-average long term performance is an absence of disasters. It is for this reason that a quest for consistency and protection, not single-year greatness, is a common thread underlying all of our investment products

In 1990 memo, Howard Marks explains great points.

  • Don’t look for short term performance, no matter how good or bad it is?
  • Above average return is always good
  • Avoid losers, the winners will take care for themselves

Disclaimer: All figures and data used from Howard marks Memo 1990, (You can download from Oaktree capital site), All are my opinions only, this is only for educational purpose only. I am not genius or clever to understand all things, I may be wrong in interpreting the data and letter, take your decision on your own)


To Your Success with Lot of Love!


Harish S Kawalkar


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