The IPO Frenzy Has Begun — ft. Howard Marks

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That's why over thousands of businesses have made the switch. So why not you? Try Odu for free at odu.com. That's O-D-O-O dot com. Support for the show comes from Odu. Running a business is hard enough, so why make it harder with a dozen different apps that don't talk to each other? Introducing Odu. It's the only business software you'll ever need. It's an all-in-one, fully integrated platform that makes your work easier. CRM, accounting, inventory, e-commerce and more. And the best part? Odu replaces multiple expensive platforms for a fraction of the cost. That's why over thousands of businesses have made the switch. So why not you? Try Odu for free at odu.com. That's O-D-O-O dot com. Welcome to ProFG Markets. This could be one of the most consequential weeks for the markets in years. Today, SpaceX is expected to complete the largest IPO in history. And it may be just the beginning. Anthropic and OpenAI have both filed to go public, setting the stage for a wave of blockbuster offerings. Meanwhile, some of the richest companies on the planet are competing for investor capital before the IPO pipeline fully opens. As we've discussed last week, Google announced the biggest stock sale in history and met to signal that it too is exploring a major equity raise. So how should investors think about this moment? What happens when an unprecedented amount of equity hits the market? What are the opportunities and what are the risks? To help us make sense of it all, we're joined by someone who's spent more than 35 years writing some of Wall Street's most influential memos and has earned a reputation as the king of common sense. His memos inform investors across finance, even Warren Buffett himself. This is our conversation with Howard Marks, the co-founder and co-chairman of Oak Tree Capital Management. Howard, thank you so much for joining us. I want to start with a quote that you said in one of your earliest memos. You said, quote, in the late stages of the great bull markets, people become willing to pay prices for stocks that assume the good times will go on ad infinitum. We're about to see the SpaceX IPO. This company is about to be priced at more than 100 times sales. We have a feeling that this is a little bit of investor spirits, animal spirits, people thinking it's the good times. What do you make of this IPO and the other IPOs that we're seeing? Is this a frothy market? There's no question about the fact to use Alan Greenspan's saying from about 30 years ago that we have exuberance. That's the only thing we know for sure. He pioneered the phrase irrational exuberance. The question is, is today's exuberance irrational? Number one, I don't think anybody can definitively say so. The reason I say that is that I don't think, I've never heard anybody tell me exactly what AI will be able to do or when or for whom or how much profit it'll produce and for whom. There's an arms race going on between what you described as some of the greatest companies on the planet. I would describe what we call the hyperscalers as mostly the greatest companies I've ever seen. They're engaged in an arms race. Can only one win? Is it win or take all? Can several win? Nobody can tell me these things. I don't think there's an analytical or what we call a value-based way to decide whether or not to participate in these IPOs. If so, at what price? AI, as far as I think virtually all of us are concerned, is a concept. We can't define its parameters. It's a great concept. It's likely to be the most powerful force any of us have ever seen. I think that's all we know. A decision to participate or not participate and what price to participate at is really what my South African friends call a thumbs-up. You can't put numbers on a pad to figure out what these things are worth, which is what value investors like me historically have done. The question then is, because I agree with you that you ask these questions and investors say, don't worry about it. It's not really about the fundamentals right now. It's about the future. It's about the technology. It's about what's going to happen at some point in the timeline. That sounds a lot like the irrational exuberance that we have seen in previous cycles. You've been around to see many of them and you've invested and made a lot of money trading and figuring out an investment strategy to profit off of those cycles and to time it correctly. Or you could correct me on what your strategy was. But does it not seem like those previous cycles does not feel to you like .com era? It does feel like that. We have a technological innovation. I've seen several. I've read about many more over the last, let's say, 150 years. This may be the greatest. This may be the most powerful. It's also in many ways the least specifiable. So the technological innovations I'm talking about, let's just for a starting point, let's say the railroads back in the 1860s and then radio in the 1920s. The automobile computers in the 1950s and 60s, Internet in 2000. It may be revisionist history, but I think we had a much better view of what all of those could do. They didn't have this unimaginable, unlimitable upside that AI has. Or the, in my opinion, degree of uncertainty. We knew that the railroad would carry goods and people from coast to coast. We knew that radio would carry messages. We may not have known exactly how they would produce profits or how they would become television. But anyway, all the things I mentioned were accompanied by what we call bubbles. People got excited about developments which were unprecedented. They threw vast amounts of money about building the infrastructure for it. There was a winner take all race. There was excitement. There was exuberance. The capital flowed in like water. In every case, too much capital flowed in. I think it's fair to say too much infrastructure was built and prices were paid that were too high. And a lot of the people who provided the capital for these bubbles lost their money. I think it's fair to say that those comments have been true in every case that I enumerated. So I wrote in a memo recently this year and I think it's true that if this technological innovation with its exuberance doesn't produce a money losing bubble, it'll be the first. It'll be the first. And now it could happen. You can't rule these things out. And maybe this is a good time for me to introduce the rejoinder of the optimist. What do they say? This time it's different. Okay, that was true about the railroads. It was true about radio. It was true about computers and the internet. But this time it's different. And this time we have a development of incalculable, unlimited value. So this time it's really true that there's no price too high. That's what they say. But the problem with that is they always say that this time it's different is never different. And they've said it in each of those bubbles that I mentioned, I think. So nobody, including me, should say definitively that this is a bubble, that the people who invest in these early stages of AI will lose their money, that the people who invest in the companies you named will pay prices that they'll never see again. But you must be alert to the possibility. The way people get into trouble is by not being alert to the possibility. And this all seems incredibly relevant today on the day when SpaceX is said to go public at close to a $2 trillion valuation. We'll see how it trades. But if you're looking for signals of everything you just described, it seems like that's it. My favorite fortune cookie says that the cautious seldom are or write great poetry. So investing in these companies today could be a huge error. But it could be great poetry. And the people who resist because it could be an error could miss out on the greatest thing in history. And that's what makes these decisions so hard. You know, the people who invest today in traditional industries and transportation and distribution in retailing, in real estate, they don't have, for the most part, the risk of creating, of committing greed this error, but they also don't have access to the possibly best thing in history. So you just have, when you sit here with something that's so young and where the future is so unestimable, you just have to deal with it as a concept or not deal. How does an investor deal with it, so to speak? I like the fact that you said, you know, sort of like, you know, what could go right? The upside is sort of unimaginable. I mean, it sounds like you recognize that both scenarios are feasible here. The bulls could be right, the bears could be right. But in terms of how do you actually invest around it? Because I look at these companies and at a $4 trillion valuation, if it is in fact the upside scenario, I don't see how any other company survives. We end up with five companies, if these companies actually become worth $50 or $100 trillion. If they have the same type of returns we're used to getting from Amazon or Apple or Google and they went public, that means there's going to be three or four companies controlling all of the market cap globally, which my mind blows trying to think about what that would mean for society. What if you're a 25 or 35 year old trying to, you know, thinking about building wealth and you got your 401k, how do you invest around the kind of the unknowable here? In dealing with the future, the way most people deal with the future is by coming up with a forecast. I argue sereniously that if you want to deal with the future you need two things, not one. You need a forecast and you need a judgment regarding the probability that your forecast is right. So you can make a forecast about the future of AI, you can make a forecast which is optimistic. But I just think if you say this is my judgment about the future of AI and by the way I'm highly confident that I'm right, I think you're probably making a big mistake. You know, I've never met anybody who thinks they can tell me what this world is going to look like five or 10 years from now. And so why should any, the young person you described who's laying the foundation for his investment portfolio, why should he conclude that he's probably right when all these other people are, we know it could be great. I bet it's probably going to be great. I said in my last memo that it's, that in terms of its basic capabilities, my guess is that it's more likely to be underestimated today than overestimated today. But what we're talking about is how much capital should it receive and what is a piece of a company that engages in this activity worth. And, you know, the value investor, the old fashioned investor like me and my fellow travelers. What we do is we figure out what a company's like, what it, we look at what it makes today and what its, what potential earning power it's building. We try to figure out what its earnings will be in five or 10 years. We put what we think is a reasonable valuation on those earnings. Largely related to the earnings potential in the subsequent decades. And then we look at the price today and we try to figure out whether today's price is fair, relative to that earnings power. And, you know, I don't think I've ever seen an industry or companies where that is less feasible. You know, if, if somebody will, will tell me what they think, anthropic net earnings will be in 2036, I'll bet them that they're not within 50% of the truth. Of course, we have to wait 10 years to find out. But if I'm right, how, then you, and you make an investment in an anthropic stock in the IPO, you have to, you have to, you have to, you have to, you have to, you have to, you have to, you have to accept the likelihood that you're, that what you're doing is closer to speculating. And I don't say that word pejoratively, then, then analytical investing. And you have to, there's a, there's a, there's a spectrum, which goes from what I'll call analytical investing in prosaic understandable companies to speculative investing in futuristic companies that can't be described at all. And you have to, you should, you should calibrate your activities based on where you are on that spectrum. That's the whole thing. And it's, it's very hard to do, especially, this is the hardest thing I think I've ever seen in the investment world because of this enormous degree of uncertainty. Are there other sectors where you feel more confident, other asset classes or other business sectors where you think you're more comfortable looking, making a forecast and saying this appears to be overvalued or undervalued? Well, that's what we do for a living. And historically, we have made those judgments and, you know, pretty well. But then, since the internet came along roughly 30 years ago, we have a new concept, which is extremely important today, and that's disruption. You take what I call a prosaic company in a prosaic industry, and you say, well, that it's not so futuristic, we can probably anticipate what it's going to look like in five or 10 years from now. And it's not, it doesn't have these technological things that are going to make it or break it. But then you think a little further and you say, well, let me think about whether that's right. You know, 30 years ago, we have this word in a value investing business or the investment business called a moat. Things that surround a company that are protective, that make it less attackable. And historically, the value investor, the cautious analytical investor, has preferred to invest in companies with moats. So if you go back 30 years ago, what was an example of a company with a great moat? And a great example is a newspaper. And if you own the newspaper in a given city, it would be hard for a competitor to start up from scratch. The newspaper from another city couldn't compete against you because the used car ads and the help wanted ads and the movie times would all be irrelevant in your city. And it cost a quarter, let's say, so anybody could afford it. And if people bought one today, they'd still have to buy it tomorrow because yesterday's newspaper is already obsolete. So it's a small amount of money that people are going to spend regularly and they're never done buying it. And it can't be, you know, there are reasons why radio couldn't compete and why the newspaper from the next town could compete. That was a strong set of moats. And a lot of smart people invested in the newspapers and made a lot of money. Now it's true with the movie industry and other, in particular, communications industries. But now the newspapers are a lot of them are out of business and they're under profit pressure. So what happens to the moat? And the answer is that the internet and digital communications came along and put a lot of them out of business and gave them competition that nobody thought was possible 30 years ago. So I'm sorry for the length of this discussion. But what can't be disrupted now by AI? Who can't lose their job to AI? I used to say, well, how about everybody says plumbers. Well, maybe a robot can come into your house and with a camera and assess your situation and make the needed repairs. Then I said, I'm a masseur. Why can't somebody build a robot that can give you a good massage? And so the world has become a much more uncertain place. The probabilities that can be assigned to the future are much broader today than ever. I think that's an important change. When I was a kid, the world didn't change. A comic book was always a dime. New technologies didn't come along that often. The world, we were pretty confident that the world would look the same 10 years later and for the most part it did. But today, I think you have to accept that much more change is possible. Much more change is possible. So the investor has to recognize that he or she is living in and dealing in a much less predictable world. We'll be right back after the break. And if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify or wherever you get your podcasts. Dell PCs with Intel inside are built for the moments you plan and the ones you don't. For the time you forgot your charger at the gate. Passengers, we are now on our initial ascent. Or when you're bouncing between projects like a ping-pong ball. We build PCs with long lasting battery life so you're not scrambling for a charger. And built in intelligence so you can stay focused on whatever you're doing. Dell Technologies, built for you. Dell.co.uk forward slash Dell PCs. 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Try Odoo for free at odoo.com. That's odoo.com. Support for the show comes from Odoo. Running a business is hard enough. So why make it harder with a dozen different apps that don't talk to each other? Introducing Odoo. It's the only business software you'll ever need. It's an all-in-one, fully integrated platform that makes your work easier. CRM, accounting, inventory, e-commerce and more. And the best part? Odoo replaces multiple expensive platforms for a fraction of the cost. That's why over thousands of businesses have made the switch. So why not you? Try Odoo for free at odoo.com. That's odoo.com. We're back with ProfG Markets. Given that you do, you are a fiduciary for other people's capital, you do have to make forecasts and develop theses and invest people's capital. So at some point, I can't imagine... So let's acknowledge that there's more known unknowables or unknown unknowables than ever before, given that you are charged with deploying capital. And developing forecasts and theses, what are some of those forecasts? Where do you find value right now? I still think there is a more predictable part of the economy. It'll probably be a while before the energy business gets disrupted to the point where we use something in lieu of oil and gas. That's probably largely true of the food industry. Probably the tip of the iceberg. Probably the timber industry. And the home building industry. Transportation. It's probably going to be a while before we walk into a station, become dematerialized and show up in another city. Retail has been disrupted, but it looks... Maybe we're at a baseline level of in-person shopping that's not going to go further. I don't know. But so you can identify areas, metals and mining, paper, chemicals. I guess I would say for the most part that things that have less intellectual content are less likely to be disrupted by AI, which is basically an intellectual problem solver and productivity tool. So I think that's... We can make a list of things that we think are less likely to be disrupted by AI. We just shouldn't be too cock-shore about it. But that's what we do for a living, Scott. We're still investing. We're investing according to the same investment philosophy and in many of the same industries. But we have to constantly renew our thinking. The worst... It seems that the most laughable thing to do today would be to say, I found some companies in the industry that will never change. I'm just looking at the Shiller PE ratio, which is currently close to 42, very close to the bubble era where it hit a peak of 44 times earnings. That right there is an example of an indicator that we could draw whatever meaning we want from it. And I could say, OK, here we are. We're at the top. This is the bubble. But I'm not sure how much I should believe that. I guess my question to you, what kinds of indicators do you find to be most informative or most valuable when you're assessing the exuberance and the value of stocks and bonds and everything in the markets today? We start with the traditional indicators of valuation, like the PE ratio, whether it's the Shiller CAPE ratio or the traditional S&P PE ratio. And those things showed the market to be... I used the expression a year ago, lofty but not lotties. The non-Shiller PE ratio is about 23 or so today. The 80-year average is 16. So we're roughly 50% higher today. But in 2000, I think it was 32. When I started in this business as a young man, 1969, in the research department at Citibank, the bank and most of the banks invested in what were called the Nifty 50, which were considered to be the best and fastest growing companies in America, Xerox, IBM, Kodak, Polaroid, Merck, Lilly, Texas, Sinsman, Shuler, Packard, Coca-Cola, Avon, et cetera. And most of those stocks were selling at PE ratios between 60 and 90. So to look at the Mag7 take out Tesla, they're selling at PE ratios in the 30s. It doesn't sound so expensive to me. But that's just PE. But you can't just depend on PE. That's too simplistic. The companies are different. Their capital intensiveness is lower. Their marginal profitability is higher since the product is an intellectual product rather than a piece of metal. It doesn't cost much to make the next one. So they can, their incremental profitability is much higher. And then another thing is we've never, ever seen companies growing at the rates of today. And I don't know the Pacific, so I don't want to go there. But you hear about companies that are growing 50% a month or 100% a year or whatever it might be. You've never seen that before. And you look at AI and the progress that it has made in the last four years. Three years ago, you talk about moats, you talk about impregnability. Three years ago, most people thought software was a great industry to invest in because everybody who used computers, which was everybody, needed software. And if you had a software system that served your company and industry, it would be expensive to change. And for the most part, it was hard to figure out a reason to change. So that's a pretty good moat. More recently, people are wondering whether the whole software industry is going to go out of business because nobody writes software anymore. AI writes its own software for itself. People have to tell it what to write, but it can write it without any help. So now people in that world, there's something called SAS, Software as a Service. And around February 1st, we had something called the SESPocalypse, where the great AI companies announced some coding models. And everybody said, that's it. The whole software industry is going out of business. That's probably an exaggeration. But it's very hard to figure out these things. By the way, I want to come back to something that you asked me a long time ago, and I didn't answer, and I don't want to leave it unanswered. How do you invest in this, given all these uncertainties that I'm talking about? And what history has shown is that one of the greatest mistakes you can make is being not optimistic enough. And another mistake you can make is to say, the future is unclear, so I can't invest. Those two things don't necessarily go together. The future is always unclear. Maybe it's more unclear than ever. But that's not a reason not to invest. You just have to invest carefully, knowingly. You have to be aware of the risks you're taking. So how to invest in AI? Like anything else, there's a spectrum. And at one end of the spectrum, we have ultra-high possible returns with great uncertainty. And at the other end of the spectrum, maybe we have somewhat lower possible returns with less uncertainty. Now, all of this is more uncertain than ever. But that spectrum still exists, and so you can choose a point on that spectrum. Let me give you a couple of examples. You can invest in what we call the hyperscalers, Amazon, Google, Meta, Microsoft, for example. They have established businesses with moats, enormous operating cash flow. They want to get into AI. They maybe feel that they have to compete vigorously in this winter take-all battle. But still, with established businesses and cash flow and some diversity of business, these are, as I said before, without naming names, some of the greatest companies I've ever seen. So you would think that investing in them would be maybe the low-risk way to invest in AI. But if AI boons and takes off and tuffles in the next three years, since they have other businesses holding back their growth rate, they're not going to be the maximum profit winners. Then you have established companies, as you said before, we don't know their profitability, their finances, and maybe, and their one-product companies in the sense that they're all AI. So maybe it's harder to specify their future. But anthropic and open AI, for example, Nvidia, have a very high probability, I think, not being an expert, a high probability of still being successful five or 10 years from now. They may not be the number one they are today, but they're unlikely, I think, to be absolutely. So they're, depending on the price you pay and its fairness, they may be riskier than the hyperscalers, but they're not making a break. They're already up and running. And then you have startups. You have startups where you don't know, they may not have revenues. They may have revenues, but no profits. You may not even know what the product will be. But if you can get in at something called ground level, and one of them turns into being a big winner, you can make an incalculable amount of money. And I described this in a recent memo as a lottery ticket. And so at the riskiest end of the spectrum, you have lottery behavior. And if you think about the lottery, most people who buy lottery tickets lose all their money. A few people become incredibly rich. So that's probably the profile of performance at the riskiest end of the spectrum. You can pick where to play on the spectrum. You can mix positions on the spectrum. And then you can decide how much should all of these companies on the spectrum be of your total portfolio. I guess the problem just on that point is that it seems that we are muddying what the spectrum actually is. And we're almost rebranding lottery tickets as certain safe investments. And I think the best example would probably be SpaceX, whose losses grew 700% year over year. It's an incredibly unprofitable business, especially the AI business. Anthropic is also unprofitable, though maybe we're starting to see although we haven't seen the financials, if that's starting to change. Open AI is certainly very unprofitable. But a lot of times when you say this, people will say, but the revenue is growing spectacularly. It grew as you say, like 50% month over month, crazy revenue growth. And that's sort of the justification as to why it isn't a lottery ticket. Don't worry about the profitability. The top line is growing really fast. And I'm actually not sure what to make of that argument. Part of me wants to say, no, it's still losing a ton of money, still a lottery ticket. But as someone who's looked at so many companies over the years, what do you make of that argument? What do you make of subsidizing these losses to the tune of literally hundreds of billions of dollars? This seems like we're entering a new era. It seems as though profitability isn't really a thing anymore. At least, I guess it's not a problem. And they can come on these valuations. And so I guess I asked that to you knowing that you're not a VC, but you're someone who's seen so many cycles, you've experienced investments work and not work conceptually. What do you make of it? In the heat of the moment, in the exuberance, people say things like, profits don't matter. What matters is in the future. We used to value stocks on earnings. Then when we started investing in companies with no earnings, we talked about investing on the basis of sales, ratio of sales. Then when we talked about companies that had no sales, people back in 1999, 2000, people said, well, how much per eyeball, how much per click? And people put values on internet stocks based on how many people were going to their site, even though they were going there free. But I believe ultimately, it always comes down to value. Ultimately, at some time in the future, profitability will matter. And if you find a company that's a great tech leader today, and it looks like it has an unlimited technological franchise and great expertise, and if you tell me that 20 years from now, it still won't be making money, my guess is that the price paid today by an exuberant investor will produce disappointment. When exuberance is replaced by sobriety, people say, well, of course profits matter. We invest in companies which we think will make money, and their profits will make money for us. So it's silly to disregard completely the possibility of profits. And by the way, Warren Buffett said in connection with the internet in, I think, 2000, he said there's no doubt about the fact that the internet will add to efficiency, but that's not the same as adding to profitability. And that's relevant today also. AI is going to change the world. I have no doubt about that. Who will it make money for? I mean, if all the hyperscalers plus the anthropics and open eyes of the world and Tesla and some of these startups, if they all engage in battle and compete against each other at enormous costs, how profitable will they be? Who will make the money? And if AI is primarily a labor saving device, which I think might be an accurate description, who gets the benefit of the labor savings? Maybe the customer, the shipping company, or the retail company, or the warehouse company, benefits from a price war among AI providers such that the user adds to his or her profits, but the purveyor of AI services doesn't do that great. These things can't be specified now. We'll be right back. And for even more markets content, sign up for our newsletter at ProfGMarkets.com. ProfG and enter code, ProfG, and you'll get 20% off DeleteMe. DeleteMe removes your personal information that's being sold on hundreds of data broker sites. 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This and other information can be found in the funds prospectus at getvcx.com. This is a paid sponsorship. We're back with ProfG Markets. I want to ask a question about your business. I would say I'm in your business nearly as long as you, but I've been around it. And I remember when I first moved to New York, I was in San Francisco in the 90s in New York from 2000 on, I just knew a ton of people making a great living in your business. Now I know a small number of people making an astronomical living and the rest are gone. The rest, it feels like there's been just an incredible consolidation in your business where you're either a Leviathan or you're a no man's land. I would just love to get your take on your business as a business and how you've seen it change and where you think it's headed. How long do you have? That's a pretty broad question. First of all, I'm pretty sure I'd predate you. When I attended the University of Chicago in 1968, the professor pointed out that the average mutual fund did worse than the S&P before fees and then charged a high fee. And so he says, why don't they just buy one share of each stock in the S&P? There were no index funds or no concept of indexation, but it came along and today, the majority of mutual fund equity capital is managed by indexation or passive investment. That's one reason why a lot of people have disappeared. The consumer was not well informed and paid a high fee for a defective product, which is not a great business model. On the other hand, in the last, let's say 40 years, which is maybe a little more or less, there have been all these innovations. We lived 40 plus years in a period of declining interest rates, which made a lot of things very successful and a lot of people cashed in and built very, very profitable businesses investing in what are called alternative investments, private equity, private credit, and things like that. And they found an environment which was perfect for them. Especially since March of 19, which was the low point of the global financial crisis, things have been rosy for over 17 years. And so a lot of people have made a lot of money. This tends to get sorted out in the bad times. In the good times, the great investors do great, the bad investors do good. In the bad times, it gets sorted out. There may be rougher times ahead for some of these new, new things in the investment business and some of it may get sorted out. By the way, let me just close this to home for Oak Tree. In the last 15 years, they've developed a business called Private Credit, which is really just the term. It's a broader term for what we call direct lending, which is private loans for mid-sized buyouts. And I'm informed on good authority that this didn't exist in 2010, and it's $1.7 trillion today. And I'm told that there are roughly 700 direct lending managers. And so the availability of that $1.7 trillion put a lot of people into business and made a lot of people extremely successful, along with a very favorable economy, and with low or generally low or generally declining interest rates, which are salutary. So this has been an ideal environment. And we have 700 managers making money in this industry today. What'll it look like five or 10 years from now? We'll find out, but I'm told that up to 700, roughly 3%, were in business before the global financial crisis. So we don't know how many of them had what it takes to deal with a harsh environment. Making money in a salutary environment proves almost nothing. To make money in a salutary investment environment, you can do it on the basis of good judgment and hard work and skill, or you can do it on aggressiveness and getting lucky. It doesn't get sorted in the good times. As Buffett says, it's only when the tide goes out that we find out who's been swimming naked. So this period that you described, and particularly the period 09 to date, this has been salad days, housey in days. And nobody should look at those 17 years and say, oh, that's a long period. So that's probably normalcy. This was the greatest period imaginable for the investment industry, and especially for the alternative investment industry. And one day, I think the tide will go out, and one day some of this will be sorted. Just a quick question to wrap up here. We didn't touch on private credit. There's a lot of fear and a lot of concern around private credit right now. Do you think those fears are overblown, underblown? What is your view on the private credit market right now? And I realize that's an awfully big market, but it's getting a lot of attention right now. I think it's overblown. These were managers who collected money from clients and gave loans for mid-sized buyouts. And some of them will be unsuccessful, but probably not a large percentage. I mean, this activity has been around under different guises since 78 or 77. I was lucky to be asked to start Citibank's Hayyuban activity in 78. And we've been making loans to companies of moderate creditworthiness. And doing well for 48 years, people who don't do it as well will not have great results, but most of the loans will pay. And the people who are throwing up their hands are probably exaggerating the difficulty and extrapolating the fears in software, which are probably overblown. Having said that, retail investors or individual investors bought these products. And these are private loans. There's no market for them. You can't get out of them at the drop of a hat. And so, a lot of the, I think most of the unease concerning what you call private credit, what I call direct lending, is around the fact that people have said, okay, you know what, I'm not that happy. I'd like to get my money back. And if you went into a non-traded BDC, which is what we call these things you're talking about, people said, we can only let out 5% of the investors per quarter. And other people said, you know what I mean? I put money in. I can't get it out. Well, that was always the terms. If you read the prospectus, which admittedly, there are a few people do, it was there. None of this is a surprise. But people do things in the good times when they're feeling no pain, sometimes without adequate care or research or prudence, and they turn, they tend to regret them in the bad times. Some of that is going on. But I don't think there was the misrepresentation. People should not be surprised that they can't get all their money out every quarter. But one of the most powerful forces in the investment business is disillusionment. And people went from being unworried to now thinking that this ship is sinking, and that's very painful. The unworried feeling was mistaken. And now the feeling that the ship is hopelessly sinking is also probably mistaken. Howard, you've been incredibly successful on Wall Street. You started one of the most successful asset management firms in the world. A lot of young people listen to this podcast, starting their careers, who want to build economic security, who want to be successful. What advice would you give to those people who are just starting out in their careers right now? I've enjoyed a great career, and I don't consider it over. Investing is a fascinating field. Let me just think about this podcast and think about the number of times I said I don't know, or something's unpredictable, or inestimable, or incalculable. So what we do every day is we peel an onion, and we deal with uncertainty, and we make judgments, we make the best judgments we can in an uncertain world. In his book Fooled by Randomness, Nassim Taleb talked about made comparison between investing in dentistry. And he said, if you go to dental school and you learn how to fill the cavity, and you fill the cavity that way every time, you'll be successful every time. That's not true of investing. So if you're the kind of person who wants to be successful every time, don't become an investor, become a dentist, or an engineer, or something where you have physical rules in play that are reliable. There are no physical rules in investing that will make you successful all the time. Warren Buffett, the most successful investor of all times, attributes his success to 12 investments over the last 60, 70 years. Now, he didn't have that many abject failures, but many, many, many investments that he made were only moderately successful. He did 12 great ones. So do you like dealing with uncertainty and ambiguity? Can you live with a batting average, which was far from a thousand? The only thing I would emphasize is that investing has been enormously profitable industry for those of us participating in it in the last 50 years. You shouldn't become an investor just because it's a high-paid industry. But if you meet the description that I just laid out, I think it's a great thing to do. It's exciting. It's intellectually challenging. You never reach a point where you say, well, I got this figured out, and I find that to be a wonderful attribute. I wish we could keep going for hours, but alas, we cannot. Howard Marks is the co-founder and co-chairman of Oak Tree Capital Management. Prior to co-founder Oak Tree, Marks led the groups at the TCW group that were responsible for investments in distressed debt, high-yield bonds, and convertible securities. He was also chief investment officer for domestic fixed income at TCW. Previously, Marks was with City Corp Investment Management for 16 years. Howard has published three books on investing, including The Most Important Thing, Uncommon Sense for the Thoughtful Investor, and Mastering the Market Cycle, Getting the Odds on Your Side. Howard, we really appreciate your time. Thank you so much. Thank you, Howard. Thank you, fellas, for your great questions. It's been a pleasure. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carti. Our research team is Dan Jalan, Isabella Kinsle, Chris Nodonohue, and Mia Silverio. Jake McPherson is our social producer. 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