Why Howard Marks Says You Must Dare to Be Wrong to Succeed | Talks at GS 2022

[Transcript]

KATIE KOCH: I was just going to ask you if you thought it helped that you had each other.

HOWARD MARKS: Well, I think it's very important that we have each other and we buck each other up. And you need that because—well, what I wanted to say is Dave Swenson, who for 35 years ran the endowment at Yale and did a bang-up job—and he wrote a book called Pioneering Portfolio Management. I think it was in '98 or '99.

And he said that successful investing requires the adoption of uncomfortably idiosyncratic positions. Everybody has the same influences. Everybody thinks pretty much the same. Everybody anoints the same winners and criticizes the same losers. And, obviously, tomorrow's winners are usually found on the pile of today's losers, not on today's pile of today's winners.

But to prospect in today's pile of losers—the things that everybody else are junk—you have to be idiosyncratic. And you have to take on idiosyncratic positions. And it's a rare person who can do that and not feel some discomfort. So, I think that those two words, uncomfortably idiosyncratic, tell a huge part of the story. But you have to do it. And you have to—you know, when Lehman goes under, you have to buy. You can't sell.

KATIE KOCH: You originally introduced a philosophy or term like, you need to dare to be great. And then you evolved that over time, which is more nuanced. Can you walk us through that?

HOWARD MARKS: Yeah. Well, I wrote this memo back in '04 called Dare to Be Great. And there was this guy who was really a conman who used to fly around America in a Learjet. And he dropped the stairs and these two vertically challenged people would get off and unroll the red carpet and a big banner that said, "Dare to Be Great." And he would come into some small town and siphon up everybody's money. I forget exactly what the scam was.

But anyway, the point is, in order to be a great investor, you have to dare to be great. But then around 2015, I said to myself, you know, but everybody dares to be great. Everybody's willing to be great. But it had come into another focus for me. So, I wrote Dare to Be Great II, which I would recommend you read, not one. And I said, in order to be a great investor, you have to dare to be different, as I just explained. You have to be willing to do some things that are unpopular, and by definition, will look crazy to others. You have to dare to be wrong because there's nothing you can do—I think the goal in investing, for professionals, is to be above average. Investing is a funny business. It's really easy to be average. Just buy an index fund. It's really hard to be above average.

But if you want to be above average, everything you do in the interest of being above average exposes you to the risk of being below average. You overweight certain stocks. That's a potential error. You avoid certain stocks. That's a potential error. You diversify abroad versus the US. That's a potential error. You buy high beta stocks. Low beta stocks. Et cetera. You hold some cash. There's nothing you can do in the interest of being above average that does not expose you to the risk of being below average. So, if you dare to be different, you have to be willing to be wrong.

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

 

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