The Best of . . .

To celebrate 35 years of my memos, I’m thrilled to release this collection of the ones I think are the best.

These memos fall primarily into two categories. Some set out what I consider the enduring truths of investing – from the need for second-level thinking to the importance of risk control, the inevitability of cycles, and the futility of macro forecasting. Others chronicle the most impactful financial events of the last three decades: the dot-com bubble, the Global Financial Crisis, and the sea change in interest rate policy that took place in 2022.

Writing the memos is an absolute joy for me. They serve as the vehicle through which I share my thinking with the investment community, allow me to connect with Oaktree’s clients and employees, and serve as my creative outlet. I plan to keep at it.

Howard Marks

October 12, 2025

The Route to Performance is the first memo I wrote. It articulates what would later become a core part of Oaktree’s investment philosophy: that long-term investment success is best achieved through a string of consistently good returns and an absence of poor years, rather than by aiming for brilliant successes, getting there in some years and flopping in others.

In the first quarter of 1991, markets swung from extreme pessimism toward more reasonable sentiment, leading to excellent performance for sub-investment grade credit. The pendulum-like fluctuation between optimism and pessimism, fear and greed, and risk tolerance and risk aversion remains one of the most dependable features of the investment world.

Using sports metaphors to illustrate Oaktree’s investment philosophy, I describe how our “game plan” is directed at avoiding strikeouts and achieving a high batting average over time, not at swinging for the fences on every trip to the plate.

This was the first of my memos to engender any response from readers! It describes the psychology of market bubbles in the context of a dot-com boom that would shortly become a dot-com bust when equity valuations fueled by excessive belief in the “the new, new thing” fell back to earth.

In this memo, I reconcile the investment theory I was taught at the University of Chicago with the reality I encountered in the real world. I provide my take on alpha, beta, risk and return, and, most importantly, market efficiency – and the key implications for investors. If you swallow the efficient market hypothesis, you shouldn’t be an active investor. But if you ignore it, you’re likely to make critical mistakes.

This is my first memo focused on the importance of economic and market cycles and the limits on knowledge of the macro future. It outlines a concept that permeates all Oaktree investment activity: we may never know where we’re going, but we ought to know where we are, and that knowledge of today’s environment should determine our response.

This memo serves as an acknowledgement that “I don’t know” is often the only reasonable refrain. It encourages investors to eschew macro forecasts and instead focus their attention on evaluating fundamentals and developing specialized expertise.

Here I express my view as to where equity returns come from – either growth in earnings or an upgrading of how investors value those earnings – and my belief that relying on the latter might not work in the long run. I also provide my thoughts on a tougher question; how to judge whether a manager truly possesses skill given the presence of significant randomness in the investment world. You can guess what I look for: a long record of consistent but possibly modest outperformance, rather than occasional flashes of brilliance.

This was my second memo dedicated to the parallels between investing and sports, employing anecdotes from tennis and baseball and emphasizing Oaktree’s motto from the beginning: “if we avoid the losers, the winners will take care of themselves.”

This memo highlights the contrast between two styles of investors: the “I know” school – confident, aggressive, and forecast-driven, and the “I don’t know” school – consistent, risk-conscious, and focused on fundamentals. I look closely at personality types, attitudes toward the market, and other aspects of these investment styles.

I set out my thoughts on the hedge fund movement – the hot topic in the investment world at the time – looking at aspects such as scalability and performance. Importantly, I say, nobody should credit any asset class (including hedge funds) with the birthright of a return. It all comes down to whether mispriced investment opportunities are available and whether the investor has the skill required to identify them.

I discuss what risk really means (not volatility!), why it matters, how to think about measuring it, and much more. Ultimately, it’s investors’ job to bear risk in the pursuit of profit. To do so wisely, they must understand risk and, of course, ascertain that they’re well compensated before deciding to bear it. But they can’t simply avoid it and hope for great returns.

One of the first and most fundamental decisions for investors is with regard to the question of how far out on a limb they’ll venture. This memo reflects my thoughts on how investment management clients might best pursue superior results.

In this memo, I discuss what can happen to managers’ motivations when vast sums become available for management in an asset class, with the accompanying ballooning of potential management fees. Looking at developments in buyout funds, the real estate market, and credit investing, I conclude that it’s a good time for increased caution.

A memo about the meltdown of a hedge fund called Amaranth Advisors, in which I parse the events surrounding its collapse. The fund had been making aggressive bets, and its successes were mistaken for long-term skill instead of than the reality: short-term luck. As usual, the prospect of exceptional profit earned with limited risk turned out to be a chimera.

This memo describes what happens when investors have too much money to invest and they’re too eager to put it to work. It represents a timely warning about the capital market behavior that ultimately led to the subprime mortgage meltdown of 2007 and the ensuing Global Financial Crisis.

The “all-good trilogy” offers a reminder that good times are unlikely to last forever. In It’s All Good, I highlight a few worrisome developments I’d spotted in the market: excessive use of leverage, untested securitization structures, and too-easy access to capital. We all know what happened next.

In this sequel, I describe how the events of July 2007 exemplify the elements that usually serve to initiate the swing back of the market pendulum. It’s important to study the way it happened, because while it’s folly to think we can know in advance what will cause the market to stop swinging in one direction and start in the other, it’s even more unwise to think that time-honored pattern won’t repeat.

Just six weeks later, I discussed how rapidly market sentiment had shifted. In this case, a cascade of negative events – coming on top of too much leverage and not enough liquidity – led to a complete reversal of investor psychology. Before the collapse, some market participants believed they’d tamed risk. Well, risk bit back.

This record of the fickleness of investor psychology was written very close to the absolute bottom in the investor sentiment. It describes the violent collapse of investor psychology that followed the bankruptcy of Lehman Brothers, bringing on the Global Financial Crisis. The environment from 2003-07 had been one of excessive positivity, but in 2008 I found it impossible to make assumptions negative enough to satisfy some onlookers. This excessive negativity signaled to me that there were vast opportunities for the stalwart contrarian.

It was levered mortgage-backed securities that were mostly responsible for the Global Financial Crisis, and I wrote this memo to explain that the amount of leverage it’s prudent to use is largely a function of the riskiness and volatility of the assets it’s used to purchase and the staying power of the asset holder. The combination of risky assets and excessive leverage under the wrong circumstances can prove fatal.

This memo incorporated all my thoughts about investing in gold. I outlined its pros and cons but ended up expressing the view that there’s no way to quantify the intrinsic value of assets like gold that don’t produce cash flow, and thus no way to invest in them analytically. Gold has worked as a store of value solely because people agreed it would. That’s not much of a foundation for a prudent investment.

An exploration of the importance of historical awareness in prudent investing. The lessons of history are regularly forgotten when market sentiment becomes excessively optimistic or pessimistic. As these are the best times for applying a contrarian approach, ignoring historical patterns can be dangerous.

It’s rarely understood that for a buyer to make a bargain purchase, the seller has to sell too cheap. This memo explains that buying at a fair price doesn’t generate alpha – it’s buying at an unreasonably low one that does. Thus, accessing a bargain requires cooperation from someone who’ll sell at a price that’s irrationally low . . . but don’t despair; sometimes they do. We must try to be the one who profits from these mistakes rather than the one who commits them!

The defining difference between bonds and stocks is that you can’t compute prospective returns for the latter. One of the few reliable indicators I find for prospective equity returns is that the better returns have been in the recent past, the less good they’re likely to be in the near future.

In this memo, the most popular through that time, I emphasize how big a part luck plays in both life and investing. This challenges the idea that success is always the result of hard work and skill and highlights the importance of acknowledging factors beyond one’s control.

Building on Dare to Be Great, written eight years earlier, this memo reiterates that unconventional behavior is the only route to superior investment results, although it’s far from sure to work. To engage in it, you have to dare to be different, dare to be wrong, and dare to look wrong for a while even when you’re right. This isn’t easy, and that’s why not everyone can take the steps needed for investment superiority.

A treatise on the essence of investment risk, this memo stresses that whereas in our world risk is often defined as volatility, it really ensues from the fact that there is a range of possible outcomes from every investment, and it can include some that might be unpleasant. Importantly, risk can’t be reduced to a number and managed by algorithm. Doing a superior job of it requires superior insight.

In 2011, Charlie Munger told me, “none of this is easy.” I used that phrase as the title for a memo stressing that superior investing requires superior insight, plus the willingness to deviate from the herd, the ability to control one’s emotions, and an unrelenting emphasis on the defining role of price in investment decisions.

This memo was my attempt to send the markets for a visit to the physiatrist and explore what might be learned there, analyzing investors’ irrationality and discussing why many of the things that seem obvious to most investors so often turn out to be wrong.

When people responded to On the Couch by asking whether I was sure the market wasn’t sending a sell signal, I addressed the error of taking advice from the market. Most of the time, the market’s short-term behavior stems from irrational swings of investor perception “from hopeless to flawless,” rather than a dispassionate weighing of merit.

In good times, the notion that “this time it’s different” often works its way into the marketplace as investors use it to justify soaring prices for popular assets. This sentiment can be expressed in contexts ranging from questioning the possibility of a recession to supporting the high valuations of unproven companies dealing in the latest miracle. This memo discusses the outlook for nine such theories and how things would truly have to be different for them to prove out.

Here I build on the counterintuitive principle that you can’t tell the quality of a decision from its outcome, and that the presence of randomness means well-thought-out decisions may fail and poor decisions may succeed. In investing, superior skill will overcome the impact of luck in the long run, but in the short run, luck can swamp skill, and the two can be indistinguishable.

Against the confounding backdrop of the Covid-19 pandemic, a reminder that forecasting is futile and we must admit the limitations on our knowledge. The things we know about the macro environment generally are of no use in gaining an edge – because everyone else knows them too!

This memo builds on Uncertainty as the pandemic continues to rage, but with an important addition: not only do most people lack sufficient expertise to achieve superiority, but they also lack the expertise needed to identify which “experts” do possess it. While individuals often seek comfort in the output of reputable forecasters, they usually end up disappointed but rarely acknowledge the core problem: that macro forecasts are seldom helpful.

In Something of Value, I say how valuable it was to have my son Andrew and his family move in with us during the pandemic, and I highlight the seeming divide between “value” and “growth” investing as a potentially false dichotomy. In an investment environment marked by fewer bargains and greater efficiency than the one I grew up in, value investors shouldn’t limit themselves to bottom-fishing and instead should expand their toolbox and think about ‘‘winners” too.

This memo returns to the idea that investors seeking superior performance must have the courage to depart from the pack. Thinking differently and better than others is essential, because to outperform in investing, it’s not enough to be right. You have to be more right than most.

A huge number of factors must be correctly predicted in order for a macro forecast to be accurate. As no forecast can be better than the ability of its algorithm to capture the workings of an incredibly complex world, why would anyone expect their forecast to be more accurate than the rest?

This memo argues that short-term performance, hyperactivity, and volatility don’t matter; instead, what I call “asymmetry” is the cornerstone of investing excellence. Superior investors achieve success by delivering returns that are more than commensurate with the risk they bear. This requires superior skill and insight, attributes that only the best possess.

Hopefully a seminal memo, Sea Change reviews the impact of 40 years of declining interest rates, brought to a halt by the need to fight post-pandemic inflation. This leads to an important observation: when the investing environment undergoes fundamental change, one’s strategy must undergo a thorough review.

A look back at my five main market calls. Making such calls isn’t common practice for me, but I made each of the five because I found the market crazily elevated or depressed. They weren’t based on crunching financial data or on expertise regarding the specific investments in question, but on the clear-eyed assessment of investor psychology. Having identified these extremes, I felt comfortable calling for an adjustment of Oaktree’s risk posture.

In the pursuit of superior risk-adjusted returns (or winning tennis), a participant’s game plan requires choosing between the two main paths: either experiencing fewer losers or finding more winners. I argue that in credit, having fewer losers will generally serve best, but smart credit investing should be based on risk control, not risk avoidance.

With investors facing intelligent competitors, as we do every day, no one should expect to achieve significant returns without bearing risk. But they also shouldn’t expect to achieve them simply for bearing risk. It has to be done consciously and skillfully.

This memo offers my articulation of the fundamental difference between equity and debt: a generous but uncertain expected return with both upside and downside potential from the former, versus a more modest contractual return accompanied by much less uncertainty from the latter. This difference is the essential consideration in portfolio construction, in which investors must determine their appropriate risk posture and combine ownership and lending assets in a portfolio that gets them there.

An assessment of the essence of value and price and the critical relationship between the two. I argue that in the long run, increases in value – usually stemming from growth in earnings – provide most of the impetus for investment returns, and value exerts a magnetic influence on price. That means the current relationship of price to value should be expected to strongly influence future investment performance, with high valuations presaging low subsequent returns, and vice versa.

Legal Information and Disclosures

This memorandum expresses the views of the author as of the date indicated and such views are subject to change without notice. Oaktree has no duty or obligation to update the information contained herein. Further, Oaktree makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.

This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Oaktree Capital Management, L.P. (“Oaktree”) believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.

This memorandum, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part, in any form without the prior written consent of Oaktree.

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