Behind the Memo: The Indispensability of Risk with Howard Marks, Bruce Karsh, and Maurice Ashley
The Memo by Howard Marks Podcast Recap
Published:
Guests: Bruce Karsh, Maurice Ashley
Summary
The episode explores the parallels between strategic decision-making in chess and risk-taking in investing, emphasizing the importance of making calculated sacrifices for potential future gains. Howard Marks, Bruce Karsh, and Maurice Ashley discuss how successful investing requires comfort with...
What Happened
Maurice Ashley, a chess grandmaster, draws parallels between the strategic sacrifices in chess and risk-taking in investing. In both fields, giving up something of value can lead to a greater advantage, even when the outcomes are uncertain. This concept was central to Howard Marks' recent memo, 'The Indispensability of Risk,' which was inspired by Ashley's Wall Street Journal article, 'Chess Teaches the Power of Sacrifice.'
Howard Marks elaborates on the idea that risk-bearing in investing is akin to a chess sacrifice. Investors often face the decision of investing in complex or shunned companies, which involves higher risk but also the potential for significant returns, compared to safer, more widely accepted investments. Marks emphasizes that successful investing requires comfort with the potential for some losses, as not all risks will pay off.
Bruce Karsh, Oaktree's CIO, shares his insights on the importance of patience and forward-thinking, both in chess and investing. Learning chess from his father, Karsh applies these lessons to his investment strategies, focusing on thinking several moves ahead and maintaining situational awareness. He highlights that success in investing, much like in competitive chess, is a journey filled with challenges that foster personal growth.
Maurice Ashley recounts his mother's significant sacrifice of moving from Jamaica to the United States, a decision that ultimately led to success for her children. This personal story underscores the broader theme of taking risks for future gains, resonating with Howard Marks' views on investing. Ashley also mentions the unpredictability of chess, where after the first four moves, there are over 3 billion possibilities, drawing a parallel to the complex and often unpredictable nature of financial markets.
The episode cites Roger Federer's career, noting that he won only 54% of his points but remains one of the greatest tennis players, illustrating that success doesn't require winning every time. This reinforces the notion that in both chess and investing, the quality of decisions is more important than their outcomes, which can be influenced by randomness. Magnus Carlsen's quote, 'It's risky to not take enough risk,' further encapsulates the episode's theme.
Howard Marks references David Swensen's book, 'Pioneering Portfolio Management,' to support his argument that successful investment management often requires taking 'uncomfortably idiosyncratic positions.' This means diverging from the crowd to achieve superior results, a sentiment echoed throughout the discussion. The episode concludes with a reminder that the journey in competitive fields like investing is valuable due to the reliance on personal characteristics and the learning process involved.
Key Insights
- Maurice Ashley connects chess strategies to investment risk, emphasizing the power of sacrifice for potential gains. He illustrates this with his article that inspired Howard Marks' memo.
- Howard Marks describes investing in less popular or complex companies as a higher risk but potentially more rewarding strategy compared to safer investments. This approach requires acceptance of possible losses.
- Bruce Karsh applies chess lessons of patience and strategic foresight to investing, underscoring the importance of thinking several moves ahead in financial decision-making.
- Roger Federer's career highlights that success does not require winning every time. In both investing and sports, decision quality matters more than outcomes, which can be affected by randomness.