Source: Intelligent Investor

“Luck is when opportunity comes, and you are just ready.”

This is a thought-provoking sentence from Howard Marks, co-founder of Oak Tree Capital, in a recent interview.

He does not shy away from the role of luck in investing, even boldly stating that he is “the luckiest person in the world.” But he emphasizes that luck is not random; it is based on continuous preparation.

Howard reflected on his career: from entering Citibank in 1969, to unexpectedly being moved to the bond department, and ultimately founding Oak Tree Capital, it has all been a very fortunate process.

He believes that opportunities in the market do not just come to you; rather, you need to position yourself correctly, be prepared, and be ready to seize the opportunity when it arrives.

“You cannot predict the future, but you can prepare for different possibilities.”

This is his understanding of investing: the market is unpredictable, while investors can create a robust investment strategy for various scenarios through discipline, research, and a thinking framework.

Howard has emphasized multiple times that investing is not about finding absolute certainty but about making reasonable decisions amidst uncertainty. The market is always in flux, with emotions swinging between 'perfectly flawless' and 'hopeless,' and smart investors must learn to stay calm in an emotionally driven market.

Howard also shared Buffett's investment philosophy: find a few important things and study them deeply, rather than trying to grasp all the information.

He said, 'It is very important to understand the difference between data, information, wisdom, or insights. But you must accept early on that success does not come from knowing everything but from mastering what is truly important.'

'You cannot control the market, but you can control yourself.' This statement applies to both investing and life.

Sometimes it feels like Howard Marks is a bit verbose; he often repeats certain topics, and he remembers details super clearly. Whether reading his memos or listening to interviews, the expressions are remarkably consistent.

But still cannot help but translate all the content because these simple truths are indeed worth revisiting repeatedly. It reminds me of the saying by Munger, 'The best thing a person can do is help others become more intelligent and knowledgeable.' Howard absolutely fits this.

Especially if it is your first time or you only occasionally see him communicate, it is worthwhile to patiently read this article. Smart investors (ID: Capital-nature) have precisely translated and shared it with everyone.

Important experiences learned in youth.

Bruler, we like to start by reviewing early experiences. I know you were born in the Queens area of New York, and you once told our old friend Nikola Tangen that you are a 'left-brain' thinker, logical and fond of symmetry.

I am curious how this trait manifested during your childhood.

Howard, this was perhaps most evident when I was 16.

At that time, for some unknown reason, I took an elective accounting course in high school. The core of accounting is double-entry bookkeeping, which is the most symmetric system in the world.

I immediately resonated with it, and I could understand all the principles almost instinctively.

This was the first time I truly realized my thinking tendency.

Bruler, if you had to choose between a job candidate with an accounting degree and one with a CFA (Certified Financial Analyst) certificate, which do you think is more valuable?

Howard, accounting for business people is like an excellent English course for someone wanting to write a book. It is the foundational language of the industry, so it is essential, although it is not a sufficient condition by itself.

To truly master the essence of financial investment, further study is required, such as pursuing an MBA, a Master's in Finance, or obtaining CFA certification.

But you can't start writing a book without understanding English, right?

Your career began at Citibank, joining in 1969, initially working in the stock investment department, but a few years later being transferred to the field of convertible bonds and high yield bonds. How did this experience nourish your career?

To be precise, I didn’t actively choose to study convertible bonds; rather, I was asked to leave the stock department.

At that time, the bank was keen on investing in 'Nifty Fifty' stocks, but their performance was dismal, so nearly everyone involved in that strategy was transferred away.

Fortunately, the Chief Investment Officer at that time was very creative. He had good investment experience in convertible bonds from a previous employer, so he had me create a convertible bond fund, which Citibank did not have at the time.

I moved from a large stock research team to a completely blank area in the bond market, starting to study convertible bonds. I quickly realized its uniqueness; it is like both stocks and bonds, combining the characteristics of both.

This transition gradually led me into the fixed income market and ultimately into the world of distressed asset investments.

So, people are skeptical of what we do, but when you do something that others have not done, this skepticism always exists.

What was the saying? "Pioneers always get shot at."

But what I've learned is that this is also one of the most important lessons in investing: the main way to achieve extraordinary success in investing is to do those things that others are unwilling to do.

Mathematically speaking, this is indeed difficult. But if you think about it carefully, you will realize that following the crowd makes it hard to achieve unique success.

The real big question is when to sell.

Brewer When you adopt a contrarian investment strategy and establish a favorable position, the market cycle begins to recover and prices restore, it brings a challenge: how to determine how long you should hold? The timing for selling is an extremely difficult question. Do you have any insights on exiting?

Howard After making an unusual investment decision, the biggest challenge is not when to exit, but how long you can stick with it until it starts to work.

Because if you make an investment and it hasn't improved in six months, a year, or even two years, will you doubt yourself? Can you sustain it in business? These are the real first challenges.

In contrast, determining when to exit a successful investment is actually a small issue. The real big question is how long one can persist without wavering in the face of short-term market noise.

The first critical maxim I learned dates back to the early 1970s: "Being ahead of its time too early is almost indistinguishable from being wrong."

Do you remember what I just said? To become an extraordinary investor, one must see what others cannot or interpret the market in a way that differs from the crowd.

You discover an investment opportunity and believe it to be more valuable than the market's common perception, so you buy it. However, this does not mean the market will immediately change its view the next day, supporting you and driving up the price. This process can be very long.

How do you endure this waiting period? That is the most important question.

The answer is that you need a strong mental quality, unwavering willpower, must not be overly emotional, and have the determination to continue.

But if you have persisted for 20 years and it still shows no improvement, then you may be truly wrong, and ultimately you will be eliminated by the market.

There must be a suitable balance in this.

Back to your question: when exactly should one Sell?

Interestingly, in all the books and articles about investing, I would bet that less than 1% discuss Selling. Almost all discussions are about how to Buy—when to invest, what to invest in, and how to choose the investment symbol.

I once specifically wrote a memo about Selling, around 2016 or 2017, titled 'When Do You Sell'.

I jokingly say that most people have two reasons for Selling Stocks: one is because the stock price has gone up, and the other is because the stock price has gone down.

When the stock price rises, they say, 'I better sell some, or if it goes back down again, and I haven't locked in profits, I'll regret it and feel like a fool.'

Or, after buying Stocks, if the stock price drops by half, they will say, 'I've already lost half my money, better sell quickly, otherwise if it drops another half, I'll lose everything, then wouldn't I feel even more like a fool?'

Many decisions to Sell aren’t made to do the right thing, but to avoid feeling like a fool.

You shouldn’t Sell just because the stock price has risen, because if it was initially a good Buying opportunity, then it might still have further upside potential. Similarly, you shouldn’t Sell just because the stock price has dropped, because if it was initially a good Buying opportunity, now it has become cheaper, which might actually represent a better opportunity.

Therefore, selling solely because the stock price rises or falls is not the right action in itself.

Of course, there are personal situations that may prompt you to sell.

For example, you may need Cash, or you plan to retire needing 10 million dollars, and you currently have 15 million (in stocks). If the market drops to 6 million, your retirement plan may be affected.

Thus, some reasons to sell are unrelated to the value of the investment itself, which are reasonable personal considerations.

However, if you do not have these external constraints and are purely considering the value of the investment itself, then there is clearly only one correct reason to sell:

You reanalyze this investment, review your investment logic, check if your original assumptions still hold, and see if it still has potential for appreciation. Or after adjusting your investment logic, determine whether it is still worth holding.

If your conclusion is 'absolutely do not buy this stock', then you probably should not continue to hold it.

But many who stick to established investment principles, even some who are self-righteous, will say that every asset is either a Buy or a Sell. I do not agree with this viewpoint.

Some stocks are indeed suitable for 'Hold'. This means that if you bought in at 10 and it has now risen to 20, after reassessing, you find that your target price was 20, and now you believe it could rise to 25.

You may not consider buying it again just for the increase from 20 to 25, but you still find the potential from 20 to 25 attractive enough to continue holding.

It's like there is still a bit of juice in the orange; you can still squeeze some more out.

The market will always overreact, creating opportunities for investment.

Bruer, you mentioned a quote from Alphonse Karr: 'History does not repeat itself, but humans always repeat their mistakes.' Do you think that the market fluctuations driven by alternating greed and fear will continue? Does this mean that the market will always overreact, thus creating opportunities for investors?

Howard, you are right.

In my book 'Cycles', I concluded that there will always be cycles in the market because they stem from excessive behaviors that ultimately get corrected.

These excess behaviors in the market are often driven by emotional and psychological factors—you can call it greed, fear, or any other psychological term.

In fact, the fluctuations in the economy itself are not severe; GDP may grow by 1% or 2% one year, then drop by 1% the next year, and then grow by 3%. The fluctuations in company profits may be slightly larger, possibly around 5% or 10%, because companies are affected by the economy, and they typically have operational leverage and financial leverage.

However, stock market price fluctuations far exceed the economic fundamentals. They can surge by 50% and then plummet by 50%; they can also double and then cut in half again. Therefore, the volatility in the stock market is much greater than that of the economy and corporate profits.

Why is market volatility so large? Because emotions play a role.

People are always overly excited and then overly pessimistic. I once wrote a memo titled 'On the Couch,' because I believe the market occasionally needs to see a psychologist.

In the real world, situations usually fluctuate between 'quite good' and 'not so good.' However, in investors' perceptions, situations often switch between 'flawless' and 'hopeless.'

When people believe the market is 'flawless,' it is a form of excessive emotion, and the market will correct this because such extreme views should not exist. However, people's behavioral patterns often shift from 'rational' to 'despair,' and 'hopeless' is also an extreme emotion.

But the reality often lies somewhere in between.

As long as humans are deciding security prices, we will continue to experience extremes of optimism and pessimism, creating market fluctuations, and those who remain calm can profit from it.

It is important to maintain 'intellectual humility'.

Breuer, you once said that if possible, you would ban the following words in the investment committee: 'never', 'always', 'forever', 'impossible', 'will not', 'must', and 'should'. Why are these words the 'culprits'?

Howard, because they are absolutes, exhibiting a sense of certainty. And I firmly believe that in our industry, there is no space for certainty because we live in a world full of uncertainties.

I might have a little concept of what will happen tomorrow. I may have some guesses about the situation a year from now. But I would never think I know for certain one hundred percent.

So how could anyone dare to say 'must' or 'impossible'? Or 'always' or 'forever'?

I believe that anyone who holds such ideas will eventually get into trouble.

Mark Twain once said something extremely important: 'What gets you into trouble isn't what you don't know; it's what you know for sure that just ain't so.'

There is nothing wrong with not understanding certain things. In fact, I just discussed with a colleague over lunch today that there are many things I do not understand.

I believe that one of the keys to success is to be extremely honest and straightforward about things you do not know, so that you do not get into trouble.

If I were to drive from London to Leeds, what would I do? I would take a map, open the GPS, ask for directions, and then drive slowly to ensure I do not miss the exit. But if I think I know the way, I would not take the map, would not open the GPS, nor would I ask for directions; instead, I would drive confidently and at high speed.

If it turns out that I was wrong, I might end up in Devon.

Bruer, you just described my situation almost perfectly. Unfortunately, I am that kind of person. I really wish that someone had given me one of your memos when I first joined Citibank a long time ago.

I remember there is a saying that there are two kinds of people who are most likely to get into trouble: one who knows nothing and another who thinks they know everything.

Howard, that's right. Assuming that 'I know nothing' is also not a good strategy. If you think you know nothing, you obviously cannot succeed in this forward-looking industry.

Taleb once said in his book 'Fooled by Randomness' that if you are not good at dealing with uncertainty, you might as well become a dentist.

In his view, there is very little uncertainty in dentistry.

Therefore, if you know nothing, you will not succeed. But if you think you know everything, that also won't work.

This type of person will not listen to advice, nor will they hedge risks, but rather go all in, betting all their chips on one choice, which usually leads to being eliminated by the market.

I firmly believe in a concept called 'intellectual humility'. In simple terms, intellectual humility means acknowledging that the other party might be right.

You cannot predict, but you can prepare.

Bruhl, this also leads into your other very insightful article - 'The Illusion of Knowledge'. I'm curious, what types of predictions, scenario simulations, or strategic planning do you think are valuable?

Howard, I wrote a memo around 2002 titled 'You Can’t Predict, You Can Prepare'.

This is actually borrowed from an advertisement by Massachusetts Mutual Life Insurance Company, one of the very excellent Insurance companies in the USA.

I find this statement very enlightening.

People often say, "If you can't predict, how can you prepare?" Prediction is about understanding what will happen in the future, while preparation is about making arrangements for the events that are about to occur. If you can't predict the future, how should you prepare?

The answer is: if you think you know what will happen in the future, you are a fool.

Therefore, "preparation" does not mean preparing for a specific outcome, but rather building a portfolio or adopting a lifestyle that allows one to cope with a range of possible outcomes.

This is the key to success.

However, in the investment industry, too many people like to say: I think the economy will develop this way, interest rates will change like this, the market will move in this direction, this industry will develop like that, this company will experience what...

If you can accurately predict all five of these things, you could be as wealthy as King Croesus of Lydia. But may I ask, how likely is it that you will be right about all five?

I call this strategy "single scenario investing."

If you invest based on a single scenario and are confident you are right, but the outcomes of several aspects exceed your expectations, then the portfolio you built is likely to be completely wrong, even entirely deviating from the market trend, ultimately resulting in disaster.

Therefore, in a world full of uncertainty, preparing for a singular outcome is a mistake. As investors, the only thing we can do is to prepare for multiple possible outcomes.

We want to build a portfolio that performs well under the circumstances we believe are most likely to occur; in other scenarios that we believe may happen, it should not perform too poorly; and even in those scenarios that we think are unlikely, it should not suffer a catastrophic blow.

But this is not easy, as no investment strategy can prepare you optimally for all possible situations.

You must ask yourself: What situations should I prepare for? What situations do I think are most likely to occur? If I prepare for these situations, can I make a decent profit? And which situations can I ignore and not specifically prepare for?

By definition, you cannot prepare for all situations.

The "silver bullet" era of Private Equity is over.

Brüel, let’s look at the current market situation from this perspective. I recently had a conversation with Colin Kelleher, the Chairman of UBS. He mentioned that, given the drop in valuations in the private equity market and the expiration of funds, perhaps 30,000 companies will need to find buyers.

The reality is, when can investors get their money back? What will the valuation multiples be?

Howard, this is a very good question. When I was a child, there was a television show called 'The Lone Ranger.' The main character wore a white hat and black mask, riding a horse to punish evil and promote good. His gun was loaded with silver bullets, and because the bullets were silver, he never missed his shot.

Investors are always looking for such 'silver bullets' — a way to become wealthy without risk and never fail.

Essentially, such a thing cannot exist. But as my mother always said, 'Hope never dies.'

From 2004 to 2021, private equity was crowned as the 'silver bullet' of the investment world.

In December 2022, I wrote a memo titled 'Sea Change.' In it, I mentioned that in 1980, I had a personal bank loan, and the bank sent me a notice stating, 'Your loan interest rate is now 22.25%.'

By 2020, 40 years later, I could borrow from the bank at an interest rate of 2.25%. This means that the interest rate had dropped by 20 percentage points over 40 years, and it was almost a one-way decline.

The decline in interest rates is a huge benefit for asset holders, as the value of assets is the present value of future cash flows. When the discount rate decreases, the value of assets increases.

The decrease in interest rates is also a significant benefit for borrowers, as their cost of capital decreases.

So, what happens to investors who use leverage to Buy assets? When interest rates decline, they enjoy a "double dividend." This is the golden era that the Private Equity industry has experienced.

The profit model of Private Equity mainly has four types: buying assets at a price lower than intrinsic value; amplifying equity ROI through leverage; enhancing asset value through operational optimization; and selling assets at a non-cheap price, even at a premium.

For a long time, Private Equity has successfully done this.

But think about it, the strategy of investing in assets relying on leverage is precisely the optimal strategy in a low-interest-rate environment.

Did those engaged in Private Equity investment during this period foresee that interest rates would decline all the way, or did they simply choose an investment model that happened to align with the era best suited for it?

I tend to favor the latter.

I believe the performance of the portfolio ultimately depends on what it encounters in the future environment, and this encounter is more like a "chance encounter."

The success of Private Equity in that special environment is almost a "pleasant surprise."

This industry was born during this period. If an investment mechanism is invented and happens to encounter the most suitable environment for it, it is not surprising that it achieves great success.

As Einstein once said, "The definition of madness is doing the same thing over and over again and expecting different results.”

Another form of "madness" is doing the same thing in different environments and expecting to achieve the same results.

If you entered the market after 1980, you have almost only experienced declining interest rates, ultra-low rates, or both, until 2022.

This trend is an ideal environment for Private Equity and other leveraged investment strategies, not just for Private Equity.

However, I wrote in a memorandum in December 2022 that this situation has come to an end. In the next ten years, interest rates can no longer be described as "overall decline" or "sustained ultra-low."

From the beginning of 2009, when the Federal Reserve lowered interest rates to zero in response to the global financial crisis, to the end of 2021 when they decided to raise interest rates to combat inflation, the federal funds rate was almost zero during these 13 years, averaging about 0.5%.

In my view, this situation will not return.

If this is the case, then Private Equity will still benefit those investors who can Buy assets at Low Stock Price and enhance their value, but the benefits brought by declining interest rates and ultra-low rates will no longer exist. It will not achieve tremendous success as it did in the past and will be proven not to be a "Silver Bullet."

Three decisive factors of excellent investors.

Bruegel, I remember you also wrote, "Successful investment relies more on making superior judgments about the unquantifiable, qualitative factors, and predicting possible future directions for development."

I understand this also reflects your more general observations about Assets, but could you explain in detail?

Howard, in March 2020, when the pandemic first began, my son and his family moved into my wife and my home, and we spent several months together.

This kind of three-generation living situation is rare today, but that time was very pleasant.

My son is an investor, and we spent most of our time discussing value investing. So, in January 2021, I wrote this memo titled "Something of Value."

The title is a pun, I admit (laughs). On one hand, we are discussing "value investing," and on the other hand, the time spent living together is also full of value.

He is very smart and has profound insights. But relying solely on these, from a mathematical perspective, does not make one an extraordinary successful investor.

By the way, if you look at the regulatory direction of the SEC in the USA today, one of their main tasks is to ensure that all investors receive the same information at the same time.

For example, the fair disclosure regulation requires publicly listed companies to disclose important information to all investors simultaneously. Therefore, the available quantitative information about the current market cannot be a decisive advantage among investors.

If you want to become a great investor, what would be the decisive factor? I think this is the core of your question, right?

I think there are three possible approaches:

First, you can interpret the same information at a higher level and extract its significance more accurately.

Of course, now everyone has the same Computers, uses the same Software, and can perform the same data screening, so this won't be a secret weapon.

But back to my son's experience of studying investment in college, he often told me when he came home for vacation, 'We should Buy Ford’s Stocks because they are launching a very cool new Mustang.'

My answer is always the same (mainly for educational purposes), I would ask him: "Andrew, who doesn’t know this news?"

If you know something and everyone else knows it too, then it might have already been fully reflected in the stock price. You cannot profit from investing because the market has already priced this fact into the stock price.

So, you must know something that others do not, or you must be better at interpreting the same information and correctly extracting its core value.

The second point is that perhaps you are better than others at understanding qualitative factors. Not everyone understands qualitative information, and by definition, qualitative factors are harder to assess.

For example, which company has the best R&D capabilities? Which company has the strongest product pipeline? Which company's management is the best and most creative?

I wrote a memo around 2016 about automated investment, discussing indexed investment, passive investment, algorithmic investment, and even the eventual AI and machine learning.

I mentioned in it that I do not believe that a computer can take five venture capital firms' business plans and then judge in advance which one will become Amazon.

I believe that requires unique human insight.

Of course, most people cannot do this. Just removing the Computer from the equation and giving decision-making power to humans does not automatically solve the problem. But at least, when a person takes on such a qualitative analysis task, he has the potential to make decisions that surpass ordinary people.

This is the second point - Qualitative Analysis.

The third point is to look towards the future.

If all information regarding the current situation is public and all investors have access to it, then obviously, the best investors are those who have a better understanding of the future than others.

But the greatest paradox of investing, or rather the biggest problem is - what exactly is investing? The essence of investing is to allocate capital in order to profit from future events. And I firmly believe that the future is unknowable.

So how should we invest? The answer is, no one can achieve perfection.

No one can know the future entirely, but some people have more insight than others. I am willing to believe that even the most advanced computers in the world are not smarter than the most insightful individuals.

Overall in the investment industry, the smartest computers may have more insight than 80%, or even 90%, of human investors.

So the answer is, if you are not at the top of the Investment Industry, it is better not to enter this industry.

The likelihood of the USA maintaining its advantage is not very high.

Elroy Dimson, a professor of finance at the Judge Business School of the University of Cambridge, once told me: "In the long-term financial market history of several countries we studied, the USA performed the best. At the time, we did not think this situation would continue, but it has indeed continued."

He wants to ask you: "Does Mr. Marx believe that this American 'exceptionalism' will continue?"

Howard: First of all, I am not a futurist, and my way of thinking is not like that. Therefore, such questions are not the main focus of my daily thoughts.

If you ask me if I would bet 10 cents on it, my answer is no.

I have written that the value of macro forecasts is very limited. But I also think that having opinions and betting based on them are two different things. I can have my own opinions, but that does not mean I will bet on them.

I believe the USA has a very excellent system, and its success comes from a combination of several factors: a free enterprise system, private ownership, capitalism, economic incentives, the rule of law (a legal environment we can trust), an innovative spirit, and perhaps the relatively short history of the USA—we have only 250 years of founding history, not 900 years.

Along with our education system and the admiration for pioneers and adventurous spirit, these factors together shape the remarkable achievements of the USA.

Starting from zero 250 years ago, the USA has maintained a leading position in the world over the past 100 years—since the end of World War I. This is reflected not only in economic aspects but also in outstanding achievements in various fields, including art, science, technology, and more.

I will not hastily say that America's greatness will inevitably continue, nor will I pessimistically believe that it must end.

From a probabilistic standpoint, the likelihood of maintaining an advantage is not high—after all, trees do not grow infinitely high into the sky.

But for now, the situation in the USA is still quite good. Also, please help me convey to Elroy that I have great respect for him. If the USA is to lose its position of excellence, not only must our own advantages weaken, but another country or region must also rise up to take its place.

So, who will it be? Which society can simultaneously possess the elements I previously mentioned—free enterprise, innovative spirit, incentive mechanisms, pioneering spirit, education system, and so on?

Perhaps we will not shine as brightly as we did in the past 100 years. The 20th century is referred to as the 'American Century,' but I will not insist that the 21st century must also be the 'American Century.'

The question is, who will replace us?

The importance of luck and how to make oneself luckier.

Bruer This also brings up another topic I want to discuss—luck. In our Industry, there are not many people who admit that luck plays an important role in success. I have two questions to ask you.

First, what role has luck played in your career? Second, how do you think people can 'help themselves become lucky'?

Howard I am a firm 'believer in luck.' I believe I am the luckiest person in the world.

In January 2014, I wrote a memo titled 'Getting Lucky.' The first half of this article is entirely about my belief in luck and how lucky I have been.

I listed a dozen examples of good luck I have experienced, such as: the time and place I was born.

My parents conceived me during World War II, and if you've read Malcolm Gladwell's 'Outliers,' he discusses 'demographic luck' in his book. I call it 'the right time, the right place.' Simply being born at the right time and place can provide a tremendous advantage.

If you were born during World War II, then you were in the most favorable position amid the post-war economic boom.

I studied at a public school in Queens, New York, received a top-notch education, and it was free. Later, I applied to Wharton Business School, and although people told me I wouldn’t get in, I eventually did.

For example, I was once 'kicked out' of the stock department at Citibank and asked to take charge of the high yield bond business. At that time, it felt like being exiled to 'Siberia', but it turned out to be one of the greatest stroke of luck I encountered.

Subsequently, I met outstanding partners throughout my career. Thirty years ago, we founded Oak Tree Capital together.

In the past two decades, global investors have shifted their interest away from stocks and bonds and turned to 'alternative investments'. Coincidentally, we were already there.

Bruer, does this mean that you anticipated in 2005 that investors would turn to alternative assets?

Howard, certainly not.

I just mentioned 15 minutes ago that the rise of Private Equity was not due to investors anticipating a low-interest-rate environment.

Similarly, we did not say at that time, 'The world will grow tired of stocks and bonds, but will embrace alternative investments, so we should lay the groundwork and provide them with this product in 2005.'

In fact, we simply discovered some things we are good at and believed we could make money in those areas, so we pursued them. Later, the market told us, "Now, we need what you can offer."

So the second question is, how can people "help themselves become lucky"?

Howard, there are many classic sayings about luck. One of them is: "Luck is when opportunity comes, and you are just prepared for it."

Just like Private Equity, just like High Yield Bonds, and just like the alternative investments of Oak Tree Capital, our experiences are similar.

We are not intentionally preparing for a specific future, but rather to be ready to seize opportunities when market conditions change. Then, when the opportunity arises, we are already in the right position.

I prefer to view success as a process, rather than attributing it to some kind of "genius."

I once talked about this story in the "Getting Lucky" memo:

A man walked into a bar, passing by a dart game area. At that moment, a dart player missed, and the dart went off the target. But just then, the passerby accidentally knocked over the target, and as the target fell, the dart hit the bullseye perfectly.

This is luck.

But it is believed that life is often like this, rather than relying on deep thought and meticulously planning a perfect path. One needs to give their all and work hard to get things done. How the future develops will determine whether one can benefit from it.

Success comes from knowing what is truly important.

Bruel In every field of our lives today, especially in the investment world, we are bombarded with various information every day. This reminds me of a poem by T.S. Eliot, which states: "The more information, the less knowledge."

How do you handle such a large amount of information?

Howard It is crucial to understand the difference between data, information, wisdom, and insights. One must accept an early fact - success does not come from knowing everything, but from mastering what is truly important.

I have been reading The Wall Street Journal since I was young, and I read it every day. Especially during Earnings Reports season, when you flip open the newspaper, you find a whole page of data listing the revenues, profits, and EPS of many companies, with 10, 20, 30, 40, or 50 companies' data each Earnings Reports season.

I used to look closely at this data, but soon, I no longer did.

Because it was realized that if market expectations are not known, then this data is meaningless.

For example, if a company earned 20 dollars last year and 30 dollars this year, is that good or bad? If the market originally expected it to earn 20 dollars again this year, and it earned 30 dollars, then it means a huge surprise. But if the market expected 40 dollars and it only earned 30 dollars, then that is a significant disappointment.

Just knowing that the company earned 30 dollars does not provide any valuable information. So why waste time looking at this?

You must give up the pursuit of trivial details and not think that mastering all facts means being "well-informed."

You need to learn, for instance, from Buffett and Munger, especially Charlie Munger. I was fortunate to spend a lot of time with him because we both live in Los Angeles.

He once said: "Wisdom does not come from memorizing a bunch of facts."

There is a book called The Warren Buffett Way, and I was invited to write a preface for one of its editions. I wrote an article titled The Exception: What Makes Warren Buffett, Warren Buffett?.

In the article, I discussed what makes him different, one key point being: he can find the few most important things and delve deeply into them, rather than trying to master all the facts.

Returning to Andrew Marks and the topic of "quantitative information accessible to everyone", usually the most important thing is not the current data, but the forces that determine a company's future success or failure.

Therefore, the key to success is: you need extraordinary wisdom to identify the few most important things, and then predict their development direction with excellent insight.

This is the path to success, rather than becoming a "walking encyclopedia".

Financial issues are the biggest hidden danger in the USA.

Brule, you have experienced so many market changes, there must be surprising things, such as the explosive growth of global government debt, especially the debt of the USA. People can't help but ask, will the government solve this by monetization? How do they plan to handle this issue?

In your view, how would a strong country deal with debt issues when it cannot achieve a budget surplus?

Howard, the last time the USA achieved a budget surplus was when Clinton left office, around 2000.

But since then, for the next 25 years, fiscal deficits became the norm, and in recent years, the scale of deficits has become extremely large.

The response to the COVID-19 pandemic has led to huge fiscal expenditures, and after the pandemic ended, the government seems to continue large-scale spending. Perhaps they did not explicitly decide to keep doing this, but in any case, the fact is that they cannot stop.

Last year, the fiscal deficit in the USA was nearly 2 trillion dollars, while the economy was still in a period of prosperity.

Keynes, known as the 'father of fiscal deficit theory', proposed the idea that during an economic downturn, the government can moderately increase spending to stimulate economic growth and create jobs. But during a period of economic prosperity, the government should reduce spending to achieve fiscal surplus and repay debt.

So, it’s a cycle—increase spending during economic downturns and cut spending to repay debts during economic prosperity.

But the reality is, everyone likes the 'increasing spending' part, and everyone forgets the 'cutting spending' part.

Because cutting spending is not fun, and unpopular things are not something people are willing to do.

Unfortunately, politicians have realized that their popularity is proportional to 'how much welfare they give to voters.'

And those politicians advocating for fiscal tightening, who stand up and say 'we should maintain fiscal discipline, spending cannot exceed income, and even use surpluses to repay debt' are unlikely to be re-elected, because they will be portrayed as 'stereotypical, conservative moral preachers.'

This is truly unfortunate; it reflects a failure in our leadership and is also a manifestation of people's mindset of immediate gratification in the 21st century.

The current mindset is: "I want this, and I want that too." This way of choosing and living within one's means seems to have become outdated. So, when will this situation actually change?

Trump may be changing this. He is making significant cuts to government spending. Of course, he also hopes to reduce taxes. The 'Fiscal Blueprint for America' just passed by the House on February 25 plans to reduce spending by $2 trillion over the next decade while cutting taxes by $4.5 trillion.

I am not a futurist. Let me reinforce this: I do not predict the future, and I will not bet on this topic, whether with clients' money or my own.

But in my view, the worst problem in America today is our lack of restraint, impatience, and the long-term fiscal deficit spending.

I listed many advantages of the USA earlier, which make us a global dominant power. However, at the same time, these fiscal issues are our greatest hidden dangers.

However, Trump may become a turning point. Perhaps in the future, politicians will no longer win votes by promising 'more free benefits' but by committing to reasonable fiscal discipline.

Lastly, questions related to life.

Bruhl: Finally, there are three brief questions. First, who is the most interesting person you have ever met in your life?

Howard: Jacob Rothschild. He is an outstanding investor, skilled in finance, but he is also a 'Renaissance man' with deep insights into art, social service, and national affairs.

I have learned a lot from him and have enjoyed our conversations in many areas.

I was lucky that from 2006 to 2018, I spent one-third of my time living in London each year, and we spent a lot of time together during that period.

Bruhl: Second, if you were to recommend your favorite book to a close friend, which one would you recommend?

Howard: I would recommend 'A Short History of Financial Euphoria' by John Kenneth Galbraith.

It is a very thin book, and I like thin books because I am a slow reader (laughs).

It is probably only about 100 pages, but it gave me a profound understanding of the psychological fluctuations in the market.

This book greatly influenced me, leading me to focus on studying the impact of market sentiment on investments, which has been one of the core investment principles I've adhered to for the past 30 years.

Bruer, the third question, if you could give just one piece of advice to young people entering the finance industry, what would it be?

Howard, honestly, I would probably first suggest to them, 'Think about whether you really want to enter the finance industry.' But if they decide to go in, I would tell them:

There is a writer named Christopher Morley who once said something I love to quote: 'There is only one success - to be able to spend your life in your own way.'

This statement sounds simple, but its true meaning is: when choosing a career path, one should not be influenced by societal expectations, friends, classmates, or parental expectations, nor should one enter a field purely for the sake of making money.

You should seek out what genuinely brings you satisfaction. I don't mean sensory pleasures, but rather things that can provide you with a profound sense of achievement and happiness.

Of course, this is difficult.

After all, at the age of 20, it is challenging to accurately know what will make you feel fulfilled at 60. But I believe that trying to find this path is far more meaningful than blindly following societal trends or choosing a path driven solely by money that you do not genuinely love.

Editor/rice