Howard Marks Portfolio: Analyzing His Risk Management Strategies

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Jacob Wolinsky
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Howard Marks is a figure in the investment world who reminds us that going against the herd mentality is often a challenge, but by doing so, you can find your true self. His long and productive career in Citi where he worked between 1969 and 1985. From there he moved to TCW group until in 1995 he co-founded Oaktree Capital Management. Howard Marks Portfolio is valued at $6.3 billion and has 73 holdings.

The largest holding is Torm Plc, a Danish shipping company, followed by Chesapeake Energy Corporation a manufacturer of oil, natural gas, and petroleum. Other major holdings include Vistra Corp and Garrett Motion Inc.

Howard Marks is a unique individual in the investment world, both in his investment approach and philosophy. We will go into detail regarding his current portfolio, and we will try to bring his investment strategy closer to regular readers who are interested in different investment strategies.

Howard Marks Portfolio & Oaktree Stock Holdings

  • Torm Plc Class A (CPH:TRMD-A) with 29.13% of the portfolio

Howard Marks is the biggest stakeholder in this Danish shipping company owning a total of 53.8 million shares. He bought the entire share between 2018 and 2020 when the stock price was between $6 and $8. In Q4 2022 the stock price skyrocketed and now its price is $34. Marks invested in this holding $361 million, while his stake is now worth $1.83 billion resulting in a gain of 408%. Marks hasn’t conducted trades in this holding since 2020, and he is reaping gains.

  • Chesapeake Energy Corp (NASDAQ:CHK) with 8.38% of the portfolio

Marks bought a massive 12 million shares in this oil manufacturer company in 2021 when the stock prices were at $44. He began trimming this holding in 2022 and he currently holds 7 million stocks. He made solid returns by selling some of his shares at prices between $73 and $100. The current value of Chesapeake stocks is $75.35. Marks invested $309 million and he currently owns $527 million in shares, resulting in a gain of 71%.

  • Vistra Corp (NYSE:VST) with 6.37% of the portfolio

Oaktree Capital Management started this holding in 2017 when the stock price was around $15. The price fluctuated during the years, and they sold and bought stocks on several occasions. They managed to make the timing right, netting the gain of 80%. They invested $222 million and their stake is now valued at $401 million.

  • Garrett Motion Inc (NASDAQ:GTX) with 6.17% of the portfolio

This is one of Mark’s trademark investments when he buys a major stake in the company at a low price and waits it out for capital returns. In Q2 2021 he bought 3.6 million shares, and in Q2 2023 further increased his stake by additional 40.5 million shares. He owns 77% of all outstanding company shares which are valued at $389 million. Marks invested $354 million, resulting in a gain of 10% so far.

  • Star Bulk Carriers Corp (NASDAQ:SBLK) with 5.64% of the portfolio

Marks trimmed down this holding in Q3 2023 by selling 10 million shares or 38% of his stake in the company. He now owns 16.1 million shares valued at $355 million. When we look at how he invested $129 million, that leaves him with a gain of 175%.

  • Runway Growth Finance Corp (NASDAQ:RWAY) with 4.52% of the portfolio

Marks piled up this holding in Q4 2021 and Q1 2022 when he bought a total of 21.1 million stocks. He owns 52% of all the company’s stocks, and their price had major ups and downs during 2022 and 2023. Marks invested $273 million, while the value raised to $285 million, resulting in a small gain of 4.2%.

  • Sitio Royalties Corp Class A (NYSE:STR) with 4.11% of the portfolio

In Q4 2022 Marks bought 12.9 million shares at an average of $29, and since then the price has fallen to a current $20. So far this investment resulted in a loss of 27%. He invested $355 million, and the value dropped to $259 million.

  • NMI Holdings Class A (NASDAQ:NMIH) with 2.43% of the portfolio

The first NMI trade Marks conducted in Q3 2014 when he bought 600 thousand shares at an average of $9.76. In 2019 he increased his stake, and after that, he made several buys and sells. He now owns 4.9 million shares that are valued at $153 million. His investment in this holding is $70.1 million, making a gain of 119%.

Howard Marks Investment Strategy and Philosophy

To understand Howard Marks’s investment strategy and philosophy we went through his interviews, reports, and his book “The Most Important Thing: Uncommon Sense for the Thoughtful Investor”. Through his long and productive career, he made several major impacts, and we managed to pull out the 10 most important investment advice.

  • You cannot predict how the market will act in the future

No one can know everything, and the first lesson is to know that you cannot master every skill. Once you understand humility and your limitations, it can lower the chance of an investment mistake that usually comes from being cocky.

From Marks’ words, we can avoid losing time and energy on analyzing things that we cannot have an impact on, and focus on those that we can influence. We cannot predict when a major market shift will happen, but we can make a judgment on how we will act when it happens.

  • Do not be afraid to go against the crowd

One of the biggest mistakes that usually comes from lack of experience, is to follow the herd. You see what everyone else is doing and you think that you should do it too. But, in reality, the biggest returns from a new trend get the first few who discover it. The rest will most likely get nothing.

What Marks recommends is to separate from the herd. To do so look for companies or investments that are controversial, or for some other reason rarely who choose to invest in. Look for stocks that are not followed by masses of analysts. Do a deep analysis of securities that are out of favor, or undervalued. Do not be afraid to invest in a distressed sector.

But, once you decide to become the contrarian, it is not enough to just go against the crowd. You still need to find good and viable opportunities that can generate returns. That requires time, experience, and hard work.

  • Shield your investment with a high margin of safety

Marks uses this cornerstone of value investing principles because he needs a way to lower the risk of his often very risky operations. A margin of safety is defined by Benjamin Graham, and it represents the difference between the real price of a business and the market price.

To fully use the perks of margin of safety you need to “get your hands dirty” and do a deep analysis of the company’s fundamentals. This means that you need to go into detail and understand how the company works. This includes checking for any debt, cash flow, management team, competition, and potential competitive edge.

Once you determine that there is a margin of safety, you should look for companies that have it higher. That way you are minimizing the potential losses, and increasing gains in case of success.

  • Understand the company’s fundamentals

We are living in the era of information and it is easy to find a wide array of information on almost every business. That has its ups and downs. A good thing is that it is easy to get most of the important information. A downside is that everyone who is looking for the same thing can find them.

But, finding information is not enough. You need to know how to perceive them and get the most out of them. Find out what intangible assets the company has. Get a hold of information regarding employees and their potential. Check if the company is susceptible to technological disruptions.

To stay in front of the competition you must have all the necessary information always prepared. Sometimes you will need to act fast, and if you do not have all the needed information you can either make a bad call or miss out on a great opportunity.

  • Understand the risk that always comes with the investment

By Howard Mark a risk for an investor to lose all the principal capital he invested. So his philosophy is to avoid or to minimize the chance of losing. The first way to do it is to choose investments with minimal risks. But, that comes with very low returns.

The second best thing is to control the risk. Marks do it by following several principles:

  1. Diversify the portfolio across divergent industries and asset classes
  2. From time to time invest some time and thought into rebalancing the portfolio
  3. Know what your risk tolerance is and maintain it
  4. Prefer investing for the long-term
  5. Connect the investment with specific goals you have in mind.
  • Know that at some point you will need to handle the losses

Most investors are well aware of this fact. Even if you do everything by the book, and you are sure that nothing can come between you and a major win, something can come up. To detect the way you should go, Marks recommends considering the negative outcome of the investment.

Every investment has its risk-reward ratio, so the investor needs to know it before deciding to invest. Once you know what you can gain from a specific level of risk can help you in making investment decisions.

  • Be aware of market cycles

In his other book “Mastering The Market Cycle” Marks points to two crucial rules about market cycles. The first is that most things in the market happen in a cycle. The second is that the best investment opportunities arise when everybody else forgets the first rule.

Take a Look at Mastering the Market Cycle (by Howard Marks):

  • Characters, biases, and behavior have a major impact on the investment strategy

The sheer amount of information about stocks, and detailed analysis can make it even more difficult to make an unbiased investment decision. These sources of information can offer valuable insights, but can also point you in a bad direction.

It is difficult to know if the commentator or an analyst has made a biased remark. If so, you can end up in a wrong investment over someone else’s convictions. Learn from your mistakes and do not let your biases lead you down the same road more than once.

  • It may be crazy, but sometimes you can just have luck

In some situations, everything else was rooting against you and your investment, but somehow you pulled it off. Someone may think that he did something extraordinary to get that result, but often it was because you were lucky.

Marks pointed out that you can test your luck by investing in businesses that are fundamentally good but are currently out of favor. The other scenario can be betting in a bankruptcy situation, or other special occasion that may seem like a pitfall.

  • Howard Marks pointed out three crucial rules if you want to be a successful investor

Although he thinks that investing is simple, there are still rules that you need to follow.

  1. Work hard to understand the business you plan to invest in. That includes a fundamental analysis if the first place. From there you can see if the company worth investing
  2. Do not make decisions under emotional distress. Markets are hard to figure out. You may find yourself in a losing battle, and decide to exit, but wait. If the company is good, you still have a good chance in the long run. Brace yourself and develop patience
  3. Go against the herd. Markets have their cycles. Go against them. Do not follow what everybody else is doing. Follow the first two steps, and find good businesses. Stick with them. Do not try to find shortcuts to big fortunes.

FAQs

What Is Howard Marks’ Net Worth?

Howard Marks’ net worth is $2.2 billion according to the information from 2022. Forbes placed him in 1365 place on their billionaires list.

How Much of Oaktree Does Howard Marks Own?

Howard Marks owns 7.5% of Oaktree Capital Management. Since 2019 the majority of stakes (61%) have been sold to Brookfield Asset Management. Although they do own the controlling stake, they still allow Marks’ and his team to use their strategies since they deliver solid returns.

Is Howard Marks a CFA?

Yes, Howard Marks is a CFA charter holder. We can see this from his bio page on the Oaktree Capital Management website.

Final Thoughts

Looking for inspiration in an investing world is not a small thing. Looking up to someone successful, which shares the same values and convictions can propel someone’s career. In the instance of Howard Marks, numerous investors found his strategy based on combining value investing principles, with betting on distressed assets an uncharted territory for the majority of investors.

There they can find their place, and hone their skills. But, if you decide to do it, be ready to learn a lot. And to work on your character. It is important to take emotions out of the equation and stick to the hard facts.

Marks’ current portfolio is well diversified among different industry sectors. What instantly pops out is that he is following his strategy to the end, and avoids investing in tech giants that most gurus prefer to bet on. When we see that the top 20 weighted holdings accumulated almost 82% returns in the past three years, we can see that Marks is doing something good.

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Jacob Wolinsky is the founder of HedgeFundAlpha (formerly ValueWalk Premium), a popular value investing and hedge fund focused intelligence service. Prior to founding the company, Jacob worked as an equity analyst focused on small caps. Jacob lives with his wife and five kids in Passaic NJ. - Email: jacob(at)hedgefundalpha.com FD: I do not purchase any equities to avoid conflict of interest and any insider information. I only purchase broad-based ETFs and mutual funds.