Howard Marks on Why Buying Good Companies Isn’t Enough | Talks at GS 2022

[Transcript]

KATIE KOCH: You went on to do a career where you lent money to bad companies, people thought were bad, and you made a lot of money doing that.

HOWARD MARKS: Yes.

KATIE KOCH: So, tell us what that experience was like.

HOWARD MARKS: Well, I was asked to start a high yield bond fund in 1978, which was really the beginning of that world. And Mike Milken had this idea that even a crappy company should be able to raise money. 

And you see, prior to '77/'78, it was impossible to do a bond financing for a company rated below investment grade. Mike's idea was that, and it wasn't unique to Mike, that even a crap company should be able to raise money in the bond market if it's willing to pay enough interest to compensate for the risk. And that's what happened. 

So now, as you say, now I'm investing in the worst public companies in America, according to the ratings. And making money steadily and safely. 

So, I reached two important conclusions. It's not what you buy, it's what you pay. And success in investing doesn't come from buying good things, but from buying things well. And if you don't know the difference, you're in the wrong business. Literally. 

So, everything you buy should offer some combination of excellence of quality and/or attractive price. You don't want to buy a great company at a terrible price. You don't want to buy—probably don't want to buy something which is horrible fundamentals at a really low seeming price. It's the trade-off that you're looking for.

Source: https://www.youtube.com/watch?v=wkJXQ46ma8I&ab_channel=GoldmanSachs

 

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