As in this memo, Howard writes about the supply, demand and convertibles.

Two principal factors determine the success of any investment;

1) Intrinsic Quality: Intrinsic quality of underlying business, how good the business is? Its better to invest in good companies than bad one, ceteris paribus.

[Ceteris paribus is a favourite term of economists. It means “everything else being equal,” and yes, at a given price, it’s smarter to invest in a better company than a worse one. Of course, “everything else” never is equal, and you’re not likely to be asked to choose between two assets of obviously different quality at the same price.]

2) Price: Second factor that determines the success of any investment is Price, given two assets of same quality, its always better to pay less.

Lot of investors focus only on first principal of intrinsic quality, that is they are searching only for companies with better products, balance sheets; they only buy top quality business.

As Howard explains his philosophy, that his group does not have that luxury, at any rate, buying quality assets, which is opposite of his philosophy, he is more price conscious than quality conscious.

Intrinsic quality of business not changes every day but the price will changes every second, so its better to focus on price, and find bargains.


Convertibles meaning: Convertibles are securities, usually bonds or preferred shares that can be converted into common stock. Convertibles are most often associated with convertible bonds, which allow bond holders to convert their creditor position to that of an equity holder at an agreed-upon price. Other convertible securities can include notes and preferred shares, which can possess many different traits. (Source: Investopedia)

In short, we feel “everything is triple-A at the right price.” We have many reasons for following this approach, including the fact that relatively few people compete with us to do so. But we feel buying any asset for less than its worth virtually assures success. Identifying top quality assets does not; the risk of overpaying for that quality still remains.

Howard thinks, everything is quality or Triple A, at right price (triple A, is a terminology for ratings bonds) because very few people thinks that way, and by buying any assets for less than its worth virtually assures success, whereas identifying top quality assets does not. Overpaying for top quality assets or business, the risk remains due to paying overprice. If price is low compare to business worth, leads to definite success.

The second principal factor of Price comes down to a matter of supply and demand. As price move higher if demand is more, and vice a versa, price move lower, if demand is low. That’s why, buy when everyone is selling, and sell, when everyone is buying.

Price is determined mostly by supply and demand, it’s nothing to do with business performance or quality in short term, and supply and demand by investors determines by the behaviour of investors, what they think? and lot of psychological biases.

Conversely, buying what no one else will buy at any price almost assures eventual success, and that leads to a discussion of the current level of demand for convertibles and its impact on their prices

As I already mention, Howard looks for price miss gambles, buying, when no one is buying at any price, assures success in Investment. It’s like contrarian investment. The bargains are available, when supply is more, than demand.

In 1992 memo, Howard Marks explains great points.

  • Two principal factors, determines the success of any investment
  • 1) Intrinsic Quality
  • 2) Price
  • Intrinsic Quality : It’s better to invest in good companies than bad one
  • Price: Two assets of same quality, it’s always better to pay less.
  • Howard explains his philosophy, He has not a luxury to buy quality asset at any given price
  • Everything is great investment at right price
  • Buy assets less than it’s worth assures success, identifying top quality assets does not
  • Price is a matter of supply and demand
  • Buy when everyone is selling, Contrarian investment


You can buy Howard Marks Book “The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor” is must read for every value investor, it’s a great read.

(Disclaimer: All figures and data used from Howard marks Memo 1992, (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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