"Cognitive dissonance is something that you should all familiarize yourself with, and it is basically the human brain's ability to reject information which is at odds with its predisposition." - Howard Marks [00:07:25]
"In real life things fluctuate between pretty good and not so hot but in the minds of investors they go from flawless to hopeless." - Howard Marks [00:11:48]
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"The bottom is the day before it starts going up... you never know when you're at the bottom because you can only tell the next day." - Howard Marks [00:16:52]
"I think one of the dumbest things you can do in the investment business is to say 'I'm going to wait for the bottom.' Because logically and even logically and practically you'll never know." - Howard Marks [00:17:26]
"In order for the seniormost debt holders to lose money all the equity has to disappear and all the junior classes of debt have to go unpaid." - Howard Marks [00:21:20]
"Good investing doesn't come from buying good things it comes from buying things well." - Howard Marks [00:30:10]
"You should look at the decision to sell as the decision to un-buy and I think that clarifies it." - Howard Marks [00:32:32]
"If I can just hit it back over the net 20 times, my opponent can't, and I'll win the point; I don't have to hit a winner, I just don't have to hit any losers." - Howard Marks [00:39:07]
Speakers & Credentials
Howard Marks: Co-Founder and Co-Chairman of Oaktree Capital Management, a legendary distressed debt investor known for his highly influential market memos, author of "The Most Important Thing," and a major philanthropic contributor to the Wharton School.
Christopher Geczy: Adjunct Professor of Finance at Wharton and Co-Academic Director of the Jacobs Levy Equity Management Center for Quantitative Financial Research, moderating the Wharton School Investor Series.
1. Executive Summary
Oaktree Co-Founder Howard Marks breaks down the psychological pendulum that swings markets from flawless optimism to hopeless pessimism, emphasizing that market bottoms are recognized only in hindsight.
The briefing analyzes how a confluence of negative macro events—including sudden corporate frauds, geopolitical escalations involving Iran, and AI advancements threatening software debt—can instantly shatter prevailing market cognitive dissonance.
Marks details his contrarian investment execution during the 2008 financial crisis, deploying an unprecedented $7 billion in a single quarter by prioritizing the mathematical safety of senior debt over macro forecasting.
The conversation challenges the calcified bifurcation between value and growth investing, arguing that both strategies ultimately hinge on buying assets below their intrinsic value rather than blindly acquiring high-growth or historically cheap companies.
Exploring portfolio management discipline, the session reframes the decision to sell an asset as a decision to "un-buy," cautioning against prematurely trimming compounders like Amazon simply to lock in early gains.
The overarching thesis draws on Simon Ramo’s amateur tennis framework, positing that consistent wealth generation in credit markets relies not on striking brilliant winners, but on meticulously minimizing losers and rigorously underwriting downside protection.
Markets gallop ahead on continuous optimism, frequently ignoring one or two negative data points due to a psychological phenomenon known as cognitive dissonance [00:07:17].
Investors must maintain a baseline of optimism because the fundamental act of investing requires giving capital to someone else with the firm belief that more will be returned later [00:08:37].
A confluence of critical negative events began in mid-year, starting with sudden bankruptcies of companies like First Brands and Tricolor, which legal experts suspected involved fraudulent activities [00:09:15].
Further market shocks occurred when President Trump unexpectedly announced massive tariffs on April 1st, causing the market to plunge 15% in the surrounding days as tariffs were arbitrarily paused and reapplied [00:09:51].
On February 1st, OpenAI and Anthropic introduced advanced coding models, sparking fears that software companies—and the massive institutional debt they accrued during buyout crazes—might fundamentally crash [00:10:58].
Geopolitical instability drastically intensified market panic following the commencement of attacks on Iran, injecting severe uncertainty into global energy markets and macroeconomic stability [00:12:17].
Real-life fundamentals fluctuate moderately, but investor psychology aggressively swings from viewing assets as flawless to hopelessly flawed, creating extreme market dislocations [00:11:48].
Identifying Market Bottoms & The P/E Reality Check [00:15:04]
Following a disastrous 2022 for the standard 60/40 mix, a powerful bull run commenced on October 1, 2022, pushing the S&P 500 up 26% in 2023, 27% in 2024, and 18% in 2025 for a cumulative three-year gain of 87% [00:13:39].
If incorporating the final quarter of 2022, the market rally effectively returned over 100%, driven aggressively by sustained investor optimism [00:14:15].
The current S&P 500 Price-to-Earnings (P/E) ratio sits elevated at 22 to 23 times earnings, notably higher than the historical average range of 16 to 17 times [00:15:30].
Bullish investors frequently defend elevated valuations by claiming "this time is different," citing the unparalleled quality of the Magnificent Seven tech companies, excluding potentially Tesla [00:15:51].
Attempting to time the exact market bottom is a fundamentally futile exercise because the definition of a bottom is simply the day before prices start rising, a metric visible only in hindsight [00:16:45].
Case Study: Oaktree's $11 Billion Fund During the 2008 Financial Crisis [00:18:03]
By mid-September 2008, the collapse of Lehman Brothers, Bear Stearns, Wachovia, Washington Mutual, and AIG completely shattered global financial confidence [00:18:03].
Oaktree had raised a record-breaking $11 billion distressed debt fund (an upgrade from their previous $2.5 billion fund in 2001) and possessed $10 billion in unspent capital commitments sitting on the shelf as the crisis unfolded [00:18:34].
The strategic mandate was binary: if the financial system permanently collapses, investments are irrelevant, but if it survives and Oaktree holds cash, they have failed their explicit fiduciary duty [00:19:20].
Oaktree focused exclusively on acquiring the senior-most debt of leveraged buyout companies, securing extreme yields of 15% to 20% with massive downside protection [00:21:04].
The structural math guaranteed that a company originally purchased for $4 billion could plummet to a valuation of just $1 billion without senior debt holders losing a single dollar [00:21:57].
Armed with pre-raised capital and immense conviction, Oaktree's Bruce Karsh deployed an average of $450 million per week for 15 consecutive weeks, investing $7 billion in a single quarter [00:22:26].
The Artificial Divide Between Growth and Value Investing [00:24:23]
Prior to the 1960s, market participants were simply termed "investors" without any restrictive sub-categorization based on growth or value parameters [00:24:31].
The modern bifurcation emerged when money-center banks like Citibank aggressively concentrated capital into the "Nifty 50," a basket of dominant growth stocks including Xerox, IBM, and Polaroid [00:25:24].
Investors who purchased the Nifty 50 in late 1969 and held them tenaciously for five years experienced wealth destruction of approximately 95% due to overestimating fundamentals and drastically overpaying [00:29:17].
During the pandemic, Marks lived with his son Andrew, leading to deep intergenerational discussions and the January 2021 memo "Something of Value," which concluded that rigidly separating growth and value is an intellectual trap [00:27:20].
An asset's quality never universally guarantees safety; there is no asset so inherently excellent that it cannot become dangerously overpriced, nor an asset so terrible it cannot become a bargain at the right price [00:30:29].
The "Un-Buy" Framework: When to Sell Assets [00:31:00]
The decision to sell an asset is chronically misunderstood, with retail participants illogically selling assets either because prices rose to lock in profits, or because prices fell due to fear of further losses [00:31:29].
The most mathematically sound approach is to treat the decision to sell as the decision to "un-buy," stripping away emotional attachment to the initial cost basis [00:32:43].
Selling a massive compounder too early destroys portfolio alpha, heavily illustrated by Amazon dropping 93% from $90 to $6 after the 1999 tech bubble burst [00:35:17].
If an investor bought Amazon at $6 and sold at $600 (securing a 100x return), they would have prematurely exited a stock that eventually hit $3,300, needlessly surrendering 85% of the potential monetary value [00:36:18].
Finding generational compounders is exceptionally rare; Warren Buffett admits to generating his immense wealth from roughly 12 ideas, while Charlie Munger attributed his entire success to just 4 core investments [00:36:49].
Winning the Loser's Game: The Tennis Model of Investing [00:37:35]
In 1974, Charlie Ellis authored "Winning the Loser's Game," adapting a highly effective theoretical framework from Simon Ramo regarding competitive tennis strategy [00:37:45].
Professional tennis is an absolute "Winner's Game" where champions win matches by actively hitting aggressive, unreturnable shots [00:38:25].
Conversely, amateur tennis is fundamentally a "Loser's Game" where the victor is simply the player who hits the fewest balls into the net or out of bounds [00:38:47].
Oaktree integrated this exact structural model into its credit investing DNA, aggressively prioritizing risk control and consistency over chasing volatile upside returns [00:40:10].
In credit portfolios, capital preservation reigns supreme; successfully avoiding defaults across a broad loan book guarantees targeted returns without the need to actively hunt for massive equity-style winners [00:39:50].
The Un-Buy Heuristic: Humans possess an innate neurological defect when it comes to liquidating assets: we sell out of sheer terror when prices plunge, and we sell out of a desperate urge to secure dopamine hits when prices spike. Marks obliterates this paradox by shifting the mental model entirely from "selling" to "un-buying." By assessing a current holding exactly as if it were a fresh, unowned asset sitting in the open market, the investor successfully removes the emotional baggage of past cost basis. If the asset still justifies a purchase today, it absolutely cannot logically be sold. [00:32:43]
Winning the Loser's Game (The Tennis Paradigm): Adapting Simon Ramo’s theory on amateur versus professional tennis, Marks bifurcates investing into two distinct games based on an entity's inherent structural capability. In a "Winner's Game" like venture capital or elite equity selection, success dictates aggressively hunting for massive, un-replicable compounders. However, Oaktree engineered a massive empire by consciously deciding to play the "Loser's Game" in credit markets, where simply refusing to hit the ball into the net—by methodically underwriting senior debt that mathematically avoids default—guarantees compounding victory without ever needing a stroke of idiosyncratic genius. [00:39:07]
The Myth of the Flawless Asset (Good Things vs. Things Well): The graveyard of Wall Street is filled to the brim with capital incinerated by investors who dangerously conflated fundamental corporate excellence with forward-looking investment returns. Marks warns that any company, regardless of how impossibly wide its economic moat or revolutionary its technology is, transforms into a toxic liability the exact moment its price decouples from its cash-flow reality. Conversely, mathematically distressed and highly flawed corporations can provide extraordinary, market-beating alpha if the purchase price embeds a catastrophic margin of safety. [00:30:10]
Cognitive Dissonance in Macro Trends: During extended, multi-year bull runs, the market develops an impenetrable shield of cognitive dissonance, actively filtering out lethal data points—such as the rise of autonomous AI coding obsoleting entire software tranches, or chaotic geopolitical tariff shifts—that threaten the prevailing euphoric narrative. This psychological rigidity flawlessly explains why market collapses occur violently rather than gradually; the mass hallucination is suddenly shattered when a critical confluence of negative variables finally breaches the psychological dam, shifting systemic sentiment instantly from "flawless" to "hopeless." [00:07:25]
6. Anecdotes
Deploying $7 Billion into the Abyss: During the bloodiest weeks of September 2008, as Lehman Brothers collapsed and fear paralyzed the globe's premier financial institutions, Oaktree found themselves holding an unprecedented $10 billion in dry powder. Marks told this story to illustrate the absolute necessity of predetermined capital structuring and ironclad psychological fortitude. They realized that if the financial system melted down entirely, hoarding cash wouldn't matter anyway; but if society survived and they failed to invest, they would have failed their fiduciary mandate. Consequently, Bruce Karsh executed an aggressive $450 million-a-week buying program, locking in massive yields simply because they had the nerve to act while the rest of the market froze. [00:18:34]
The Great Amazon Shakeout of 2001: Marks invoked the savage volatility of Amazon's early equity history—crashing from a peak of $90 straight down to $6 before eventually skyrocketing to $3,300—to completely destroy the traditional Wall Street adage of "taking chips off the table." He shared this extreme narrative to prove that conservative, risk-averse selling behaviors systematically punish long-term returns. By selling a compounding asset just because it went up 10x or even 100x, investors mathematically forfeit the ultimate asymmetric tail-winds that build true generational wealth. [00:35:17]
The Decimation of the "Nifty Fifty": Marks recounted his early career experience starting at Citibank in September 1969, arriving precisely amidst the absolute peak of the "Nifty Fifty" growth-stock mania. He used this historical anecdote as a brutal cautionary tale to demonstrate that paying extreme valuation premiums for "perfect" companies like IBM or Polaroid guarantees catastrophic failure regardless of the business's quality. Those who bought into the narrative of unstoppable growth lost 95% of their capital, serving as the foundational trauma that hardwired Marks’ lifelong dedication to uncompromising price discipline. [00:26:05]
Living with Andrew Marks During the Pandemic: Confined to a multi-generational living arrangement during the 2020 lockdowns, Marks engaged in deep, sustained debates with his son Andrew, leading to the crystallization of the famous "Something of Value" memo. He shared this deeply personal anecdote to illustrate the necessity of intellectual humility and the evolutionary nature of his own rigid thinking. It highlighted his crucial realization that the tribal borders dividing "Value" and "Growth" investors were entirely obsolete, and that paying a premium for a fast-growing asset can still constitute strict value investing if priced accurately against its future. [00:27:31]
7. References & Recommendations
Books
Mistakes Were Made (But Not by Me) by Carol Tavris: Recommended by Andrew Marks to Howard; brought up to rigorously explain the psychological mechanisms of cognitive dissonance and how the human brain automatically rejects contradictory negative information. [00:07:40]
Extraordinary Tennis for Ordinary Tennis Players by Simon Ramo: Referenced as the foundational inspiration for understanding how to win competitive games by minimizing unforced errors rather than chasing spectacular, low-probability winners. [00:38:00]
The Most Important Thing by Howard Marks: Mentioned during the introduction by Vice Dean Gomez as the seminal book detailing his complete philosophy on market cycle mastery and risk mitigation. [00:01:36]
Memos & Publications
Winning the Loser's Game by Charles Ellis (1974 Article): Cited as the critical piece of financial literature that adapted Simon Ramo's tennis thesis directly into capital markets, heavily influencing Oaktree's entire risk-control philosophy. [00:37:45]
Fewer Losers or More Winners: Oaktree memo introduced by Geczy, posing enduring questions about the source of investment success. [00:04:11]
What Really Matters: Oaktree memo introduced by Geczy, serving as a reminder that short-term obsessions distract from compounding value. [00:04:11]
Taking the Temperature: Oaktree memo introduced by Geczy, exploring how investors should interpret and react to extreme market psychology. [00:04:11]
Something of Value: The January 2021 memo Marks wrote after pandemic discussions with his son, dissolving the hard divide between value and growth investing. [00:27:31]
Selling Out: The 2017 memo written to dissect the illogical psychology of selling assets just because their nominal price has risen or fallen. [00:31:21]
People
Bruce Karsh: Oaktree Co-Founder; referenced as the elite operator who physically pulled the trigger on deploying $7 billion into distressed assets during the darkest, most terrifying weeks of the 2008 financial crisis. [00:20:34]
Warren Buffett: Invoked to prove that monumental wealth is concentrated in an extreme minority of highly asymmetric decisions, having made essentially all his money from just 12 ideas over 70 years. [00:36:49]
Charlie Munger: Mentioned alongside Buffett to reinforce the extreme scarcity of generational investments, citing that Munger relied on a mere 4 core ideas for his total wealth generation. [00:36:49]
Jamie Dimon: Quoted regarding systemic risk contagion ("when you see one cockroach there are probably more") specifically in the context of recent, potentially fraudulent credit market bankruptcies. [00:10:21]
President Donald Trump: Referenced as the direct catalyst for acute market volatility following his chaotic, massive tariff announcements in early April 2026. [00:09:51]
Andrew Marks: Howard's son (Penn Class of '09); recommended the book on cognitive dissonance and pushed his father to evolve his thinking on value versus growth investing during the pandemic. [00:07:40]
Steve Schwarzman: Referenced by Chris Geczy regarding a previous Wharton interview where Schwarzman similarly emphasized that the price at which you buy an asset is critical. [00:28:26]
Companies & Institutions
OpenAI & Anthropic: Identified as the core drivers of modern artificial intelligence disruption, whose new autonomous coding models actively threaten the foundational solvency of highly leveraged software engineering companies. [00:10:58]
Lehman Brothers, Bear Stearns, Wachovia, Washington Mutual, AIG: Listed as the pantheon of catastrophic structural failures during the 2008 financial crisis that provided Oaktree's ultimate, once-in-a-generation distressed buying opportunity. [00:18:03]
First Brands & Tricolor: Cited as early warning indicators of modern credit decay, representing sudden, potentially fraudulent bankruptcies that violently shattered market complacency. [00:09:15]
Amazon: Used as the ultimate mathematical proof against premature selling, showcasing its journey from an overvalued bubble casualty to a trillion-dollar compounder. [00:35:17]
The Nifty Fifty (IBM, Xerox, Polaroid, etc.): Highlighted as the definitive historical example of how buying fundamentally flawless companies at extreme 1969 valuations led to 95% total capital destruction. [00:26:05]
Geopolitical Entities
Iran: Discussed as the epicenter of emerging geopolitical conflict, severely threatening global energy supply chains and disrupting macroeconomic stability. [00:12:17]
Concepts & Theories
Compounder: Modern financial terminology used to describe incredibly rare businesses capable of massive, sustained, long-term capital appreciation, highlighting the extreme mistake of selling them too soon. [00:37:07]
8. The Bottomline (by AI)
The current market environment is precariously balanced on elevated price-to-earnings multiples and sustained systemic optimism, heavily masking underlying vulnerabilities in high-yield credit and software debt sectors. Capital allocators must rigorously stress-test their portfolios against sudden psychological pivots, aggressively prioritizing strict downside protection ("hitting fewer losers") over chasing speculative, high-growth assets at dangerous valuations. Moving forward, closely monitor the direct intersection of geopolitical energy shocks and corporate refinancing capabilities, acting decisively to accumulate senior-secured assets the moment broader market cognitive dissonance inevitably shatters.
Jul 16, 2026
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