Three Longs & Three Shorts

Something of Value

Author: Howard Marks
Source: Oaktree Capital(

Despite being an investment house, we wouldn’t want to make the 3L&3S all about investing as we believe as investors we can learn from multiple disciplines. However, if Jeremy Grantham and Howard Marks have something to say, we can make an exception. For the uninitiated, Warren Buffet is known to have said this about Howard Marks’ memos: “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something”. So, to us the biggest learning from this memo is the humility that the septuagenarian Marks brings, perhaps ‘The Most Important thing’ in investing – the intent and ability to continuously learn and evolve your thinking and beliefs. In this memo, Marks brings out what is likely to go down in history as the biggest transition in investing styles or rather like Marks puts it, the acknowledgement that value investing and growth investing aren’t mutually exclusive. This is already being deemed as Howard Marks’ best ever memo and hence worth the whole long read for the nuances around how the world we live in is driving this realisation but here’s Marks’ conclusion passage:
  • Value investing doesn’t have to be about low valuation metrics. Value can be found in many forms.The fact that a company grows rapidly, relies on intangibles such as technology for its success and/or has a high p/e ratio shouldn’t mean it can’t be invested in on the basis of intrinsic value.
  • Many sources of potential value can’t be reduced to a number. As Albert Einstein purportedly said, “Not everything that counts can be counted, and not everything that can be counted counts.”  The fact that something can’t be predicted with precision doesn’t mean it isn’t real.
  • Since quantitative information regarding the present is so readily available, success in the highly competitive field of investing is more likely to be the result of superior judgments about qualitative factors and future events.
  • The fact that a company is expected to grow rapidly doesn’t mean it’s unpredictable, and the fact that another has a history of steady growth doesn’t mean it can’t run into trouble.
  • The fact that a security carries high valuation metrics doesn’t mean it’s overpriced, and the fact that another has low valuation metrics doesn’t mean it’s a bargain.
  • Not all companies that are expected to grow rapidly will do so.  But it’s very hard to fully appreciate and fully value the ones that will.
  • If you find a company with the proverbial license to print money, don’t start selling its shares simply because they’ve shown some appreciation.  You won’t find many such winners in your lifetime, and you should get the most out of those you do find.
I once asked a well-known value investor how he could hold the stocks of fast-growing companies like Amazon – not today, when they’re acknowledged winners, but rather two decades ago.  His answer was simple: “They looked like value to me.”  I guess the answer is “value is where you find it.””