The Vulture of Wall Street | Billionaire Investor Howard Marks

The Vulture of Wall Street | Billionaire Investor Howard Marks
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Financial Landscape

In the world of finance, a distinctive group of investors has stood the test of time, navigating markets with discipline and rationality to make profits when others falter. These investors seek value in unconventional places and employ unique investment strategies. One such investor is Howard Marks, whose approach stands out in the financial landscape.

Howard Marks grew up in a prosperous middle-class neighborhood in Rego Park, Queens. While his father, a successful accountant, ensured financial stability, his mother faced severe health challenges. Despite financial security, Marks’ mother turned to Christian Science in a quest for healing, an experience that influenced Howard’s perspective on religion and certainty.

Raised in the Jewish faith, Marks developed a tendency to question and be skeptical, traits that would later define his approach to investing. His journey took an unexpected turn when, driven by ambition, he aimed to attend the Wharton School. Against the odds, Marks secured admission, setting the stage for a career in finance.

Japanese Philosophy

Marks initially considered accounting but found finance more interesting and creative. His studies at Wharton led him to explore Japanese philosophy, particularly the concept of “mujo,” emphasizing the impermanence and unpredictability of life. This philosophy would unconsciously shape Marks’ future endeavors.

After graduating from Wharton in 1967, Marks pursued an MBA at the University of Chicago’s Booth School of Business. Armed with his degrees, he entered the job market at 23 and received numerous lucrative offers. Marks joined Citibank as an equity research analyst, capitalizing on the innovations introduced by banking legend Walter B. Wriston.

As the head of Citibank’s equity research group, Marks excelled in predicting company trends. However, a pivotal moment came in the mid-1970s when his team recommended the “Nifty 50” stocks, expecting them to rise by the decade’s end. By 1979, these stocks had lost 90 percent of their value, prompting Marks to reevaluate his approach.

The Nifty 50 experience taught Marks a crucial lesson about the importance of humility and acknowledging uncertainty in investing. It marked a turning point in his career, laying the foundation for the distinctive investment philosophy he would develop in the years to come.

Howard Marks

At that time, Howard Marks comes to the realization that what matters most in investing is not necessarily what you buy, but what you pay for it. He acknowledges that his success in the industry might have been more a result of luck than skill, leading him to question the feasibility of predicting stock prices.

By the end of 1977, Marks, who had recommended stocks that turned out to be significant losers, faces a critical decision about his future in the industry. His reputation and track record are tarnished, and he is at a crossroads: either quit or face the possibility of getting fired. However, fate intervenes, and he is given a second chance when the chief investment officer at Citibank recognizes his value to the company and offers him another job.

Attractive Investment

In 1978, Marks takes on a new role managing a portfolio of junk bonds, a relatively niche investment at the time. This move, influenced by the emerging field of junk bonds, proves to be a turning point in his career. The 1970s, marked by economic changes after the abandonment of the gold standard, sees the rise of junk bonds as an attractive investment, especially with the high-yield they offer.

Marks adopts a new investment philosophy, emphasizing risk control and a focus on distressed securities. His approach involves seeking opportunities in companies facing distress, where market pessimism has caused bond prices to plummet. This distressed investing strategy becomes the cornerstone of his success.

In 1995, Marks, along with Bruce Karsh, forms Oaktree Capital Management with a vision to create the largest fund dedicated to distressed securities in America. They face challenges waiting for the right market conditions, but by 1999, during the dot-com bubble, they identify an opportune moment to capitalize on the distressed market.

One notable investment during this period is in Regal Cinemas, a company facing bankruptcy due to the changing economic landscape and rising interest rates. Marks, along with billionaire Philip N. Shotts, invests $800 million to purchase Regal’s bad debts, anticipating that the company’s assets will be re-evaluated higher after bankruptcy.

The Regal Cinemas investment turns out to be a success, with their initial $800 million investment swelling to $3.5 billion by 2002. This demonstrates the effectiveness of Marks’ strategy in distressed investing and his ability to identify opportunities during bear markets.


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