[0:06]Good afternoon, everyone. I want to welcome you all to the 2026 Howard Marks Investment Series lecture. It is my pleasure to introduce our speakers today, speaker, really. Um, some investors are known for the capital they deploy. A far smaller group is known for the clarity with which they think, and Howard Marks belongs very firmly in the latter category. As co-founder and co-chairman of Oaktree Capital Management, he has spent decades shaping not just the firm, but a philosophy. One grounded in discipline, patience, and a deep respect for market cycles. Since Oaktree's founding in 1995, Howard has served as both steward and communicator of these core principles. Guiding investment strategy while translating complex market dynamics into ideas that resonate far beyond the firm's walls. He's perhaps best known for many of his memos, widely read, widely shared, and often treated as required readings across the investment community. In them, he distills decades of experience into reflections that are at once practical and philosophical, offering a rare combination of accessibility and depth. These ideas are further explored in his books, including The Most Important Thing, Mastering the Market Cycle, where he examines how investors can better understand and navigate the inevitable swings in financial markets. Beyond investing, Howard has remained deeply committed to education and intellectual exchange. A graduate of both Wharton and the University of Chicago, he has maintained close ties to academia, serving as a professor of practice and adviser to international institutions, and of course, a long-time supporter of the University of Pennsylvania. His contributions have helped shape not only investment thinking but also the educational experience of future generations. Through endowed professorships, scholarships, and initiatives like this, Howard Marks investor series. It is this combination of practitioner, thinker, and educator that makes Howard such a distinctive voice in finance and such a compelling figure to learn from today. To guide today's conversation, we're very fortunate to have Professor Christopher Gacy as our moderator. Chris is an adjunct professor of finance at Wharton and serves as a co-academic director of the Jacobs Levy Equity Management Center for Quantitative Financial Research. Chris's work sits at the intersection of academic research and practical investing with a particular focus on asset management, portfolio construction, and the evolving challenges faced by wealth managers and institutional investors. In addition to his academic roles at Wharton, Chris has been deeply engaged with practitioners across the industry, bringing a perspective that is both analytically rigorous and grounded in real-world applications. Please join me welcoming Christopher and Howard. Thank you, Baik and Gomes, and thanks to all who have joined today. Uh, it's a great pleasure to welcome Howard home uh, back to Penn. Uh, this investor series that uh Howard is responsible for not just uh supporting with his and his family's munificence but with its architecture and its setup and its thinking gives us an opportunity to learn from Howard uh and other leading investors of our times uh in all kinds of investing but focusing on value investing risk uh and so much more. Uh, today's conversation will center on three of Howard's uh foundational memos, or I would argue that most of your memos are foundational. Uh, we've asked you to read them, Fewer Losers uh or more winners, what uh what what really matters and taking the temperature. Uh, these three memos pose enduring questions about the source of investment success, the distinction between process and outcome, and how investors should interpret and respond to changing market environments. Uh, I hope everyone will have uh had a chance to see the memos and read the memos. I would have read all three of them if I were you. Uh, that's my suggestion if you haven't done so already. Uh, we're going to start with a short conversation, then we're going to open it up for your Q&A, uh, as the the the the scene uh evolves. So, uh, one couple of things, uh today's session is being recorded and if any members of the press slipped past uh uh besides the DP, slipped past the front doors, uh this is not for attribution unless you check with uh check with Howard. So, Howard, the last time you The last time you were on campus, uh life was different. Uh, we were not talking about Claude uh or Gemini or AI. Uh, the words private credit were in the air, but not the way they are today. Um, the uh the memos that you asked uh uh us to read, um is striking because taken together, they outline a philosophy, uh and and a really a complete sort of philosophy, but which is still relevant for today, which is really the test of an enduring system. Um, fewer losers or more winners, ask whether the great records are built primarily uh by avoiding disasters or by finding exceptional upside, making money by not losing it. What really matters reminds us that many of the things investors obsess over, which we hear about all the time in mythology and in an expost sense. Short-term forecast, trading activity, uh relying on volatility as a complete measure. Uh, these are distractions from what compounds value across time and finally taken the temperature. Ultimately suggests that rare moments uh that really matter are ones when investor psychology pushes markets to the extreme. So get us started. Uh, help us think about uh how these um, this investment philosophy gives us a good background against which we can think about today's environment. Uh where the Fed is holding policy rates between 350 and 375, CPI is running uh relatively relatively tamely, although we'll see what happens when the numbers get updated. Credit spreads might be pricing some of the stress. Um, what's the temperature of today's market? Well, uh, you know, uh, the market has run into some trouble in the last uh maybe two months. Uh, the uh, you know, here here's what happens. Uh, the market gets a head of steam based on optimism. Uh it gallops ahead on further good news. Uh, one or two negatives come in but the market finds it very easy to reject those and exclude them from their thinking. Uh, a part of it is because the general trend is still positive, but part of it is because of something called uh uh cognitive distance. And and uh, you know, cognitive dissonance is something that you should all familiarize yourself with, and it is basically the human brain's ability to reject information, which is at odds with its predisposition.
[8:00]Uh and uh, you know, the market is riding on optimism, rising continuously. Uh, good news is incorporated and causes price to go higher, bad news is ignored. Uh, and then at some point in time, for some reason or no reason, uh, a kind of a critical mass of negativity uh arises and it overcomes this predisposition to be optimistic. By the way, I believe that there is a predisposition to be optimistic, not pessimistic, optimistic. Why is that? Because you have to be optimistic to be an investor. What is investing? You take your money, you give it to somebody else in the hope you'll get back more later. So if you think about it, it has to be built on optimism. But sometime enough uh kind of critical mass of bad news uh jells, I I use the idea confluence, to to knock this process off stride.
[26:47]And um, so, uh, you know, these things kind of harden, calcify, and growth stock investing came to be identified with uh kind of prosaic companies, which are not attractive on the face because of their potential. They're mundane or slow growing or traditional, but because they're not sexy, they sell at low prices and they're they're better value. So that became the dichotomy. And and uh, you know, these things kind of harden, calcify, and growth stock investing came to be identified with uh kind of prosaic companies, which are not attractive on the face because of their potential. They're mundane or slow growing or traditional, but because they're not sexy, they sell at low prices and they're they're better value. So that became the dichotomy.
