ExpertsFMHoward Marks & Andrew Marks: Something of Value
Acquired · August 30, 2022
5 Selected Lessons:
heuristic · 2 case · 1 framework · 1 reasoning_pattern · 1
Market inefficiency comes from ignorance and prejudice — and it's being competed away
Source
Acquired — Howard Marks & Andrew Marks: Something of Value (August 30, 2022) · at 29:59 ▸ · at 32:31 ▸ · at 39:13 ▸
When this applies
when deciding whether a market or niche still has room for an information or analytical edge
The takeaway
Identify whether your edge comes from genuinely scarce information/access (ignorance) or from a persistent irrational bias (prejudice) others hold — both erode as markets mature, so edge must migrate toward judgment about the future rather than data about the present.
Why it works
Mispricing requires either lack of accessible information or a categorical bias against an asset class; as information becomes universally available and biases get arbitraged away by more capital and smarter participants, those sources of edge shrink to near zero in public markets.
One level up
In any sufficiently mature, liquid, competitive arena, edge shifts from information advantage to judgment/skill advantage over time.
Where it stops holding
This stops working in markets that remain illiquid, opaque, or hard to transact in (e.g. venture, private credit), where information/access frictions still create room for edge.
Detail
procedure:
- Identify the source of a mispricing: is it ignorance (lack of accessible info) or prejudice (categorical bias)?
- Recognize that human knowledge is cumulative and information is now ubiquitous, closing the ignorance gap
- Shift the search for edge toward qualitative, future-oriented judgment rather than quantitative, present-oriented data
rationale: Readily available quantitative information about the present cannot be a source of edge once everyone has equal access to it — it becomes a zero-sum game decided by relative skill.
In their words
Inefficiencies, which I prefer to say mistakes, things the markets misprices, where do they come from? They come from ignorance and prejudice.
Match your investment strategy to your personal skill set and temperament
Source
Acquired — Howard Marks & Andrew Marks: Something of Value (August 30, 2022) · at 35:19 ▸ · at 39:13 ▸ · at 50:14 ▸
When this applies
when choosing between multiple viable career or strategy paths that differ in risk profile, time horizon, or skill demands
The takeaway
Choose the strategy that fits your psychological makeup (risk tolerance, optimism/pessimism, quantitative vs qualitative strength) rather than the one that is in vogue or seems most lucrative in the abstract.
Why it works
Performance and sustained effort both improve dramatically when a strategy's cognitive and emotional demands match an individual's natural strengths, because forcing an unnatural style produces worse judgment and burnout.
One level up
Durable competitive advantage in any judgment-heavy field comes partly from doing what's natural to you, because that is where you'll sustain effort and develop real skill.
Where it stops holding
This stops working when market conditions eliminate the opportunity set your natural style requires (e.g., a conservative credit investor in a market with no credit dislocations), forcing some adaptation regardless of temperament.
Detail
approach: Before committing to a strategy, honestly assess whether its risk profile and cognitive demands (conservative/quantitative vs optimistic/qualitative) match your own.
signals:
- Admitting you are 'something of a chicken' financially and not a futurist (Howard, re: declining to run a hypothetical venture fund)
- Recognizing you love visualizing 10-year-out outcomes and enjoy probabilistic, high-variance bets (Andrew, re: venture)
rationale: If they'd asked Howard to start a venture fund ready to invest in the next Amazon, he says 'I would have been a disaster.'
In their words
So the point is, so far, Andrew and I have gravitated things that are right for us. And that's a hell of a lot easier than doing something which is wrong for you and trying to put a square pig in a round hole.
Rigidity is the enemy of profitability — go where nobody else will look
Source
Acquired — Howard Marks & Andrew Marks: Something of Value (August 30, 2022) · at 14:09 ▸ · at 18:50 ▸ · at 32:31 ▸
When this applies
when an entire industry has a categorical rule against an asset class or opportunity regardless of price
The takeaway
When a whole class of competitors is barred by rule or prejudice from an area, the absence of other bidders is itself a signal of opportunity.
Why it works
Blanket prohibitions based on category (like credit rating) rather than price create systematic mispricing because capital that could compete for the asset is structurally excluded.
One level up
Open-mindedness and willingness to abandon rigid categorical rules is a more durable source of edge than any single analytical technique.
Where it stops holding
This stops working when the categorical exclusion is actually justified by real fundamental risk rather than mere prejudice, or once enough capital discovers the same gap and crowds it away.
Detail
rule: Seek out categories everyone else refuses to touch due to rule-based prejudice, not fundamentals.
threshold: When you sit at an auction and see no other bidders, that's usually a good thing.
rationale: Moody's defined B-rated bonds as 'fails to possess characteristics of a desirable investment' regardless of price; Milken found that lower-rated bonds had higher realized total returns despite higher default rates because the excess yield more than compensated for losses.
In their words
Well, guess what? When you go to an auction and you sit down, take your seat, and you see there are no other bidders. That's usually a good thing.
Don't sell based on price action alone — sell based on why you bought and what you're still playing for
Source
Acquired — Howard Marks & Andrew Marks: Something of Value (August 30, 2022) · at 1:11:31 ▸ · at 1:14:52 ▸
When this applies
when deciding whether to exit any investment, product line, or committed position after it has moved up or down in price
The takeaway
Base sell decisions on reassessing the original investment thesis and comparing current opportunity cost, not on the emotional discomfort of a price move in either direction.
Why it works
Most people sell to manage regret (fear of losses evaporating or growing) rather than reasoning about fundamentals and opportunity cost, which confuses price action with intrinsic value change and causes systematic premature exits from the rare compounding winners that drive most lifetime returns.
One level up
Avoiding regret is a powerful but largely value-destroying motivator in decision-making; decisions should be reframed around the forward-looking 'unbuy' question instead.
Where it stops holding
This stops working when the position has a capped upside (e.g., most bonds/credit, where you can't get more than 100 cents on the dollar) — in capped-upside assets, taking profits on price strength is more rational.
Detail
rule: Reframe the selling decision as a fresh 'unbuy' decision: would I buy this today at this price, given what I now believe about the future and my opportunity cost?
threshold: If a rare asset can genuinely compound value at a high rate for decades (e.g., ~20%/year), its fair value compounds too, so price appreciation alone (even 'looking overvalued') doesn't justify selling — something fundamental has to change.
rationale: Most people sell because they're up (fear profit will evaporate) or because they're down (fear further loss) — neither reason has anything to do with the business itself.
In their words
My view on selling is consistent with the general way that we talked about the value and sort of growth dichotomy, which is that what matters in investing is really deeply understanding what you own and why you are making the investment and what you're playing for.
Newspapers: the 'impregnable moat' that vanished
Source
Acquired — Howard Marks & Andrew Marks: Something of Value (August 30, 2022) · at 22:47 ▸ · at 25:19 ▸
When this applies
when an industry's competitive advantage rests on an entrenched consumer habit and local/physical distribution control
The takeaway
A moat that depends on controlling a particular channel of distribution or attention is only as durable as that channel remains unchallenged by new technology.
Why it works
The moat depended on a specific distribution and attention structure (physical delivery, local ad monopoly) that a new technology (interconnected servers/the internet) could bypass entirely, and no one inside the old paradigm could foresee the specific disruptor.
One level up
The more confidently an entire investing community agrees a moat is permanent, the more carefully you should interrogate what external shift could bypass it.
Where it stops holding
This stops working as a universal warning when the 'moat' is based on something genuinely channel-independent (e.g. a brand, a patent, a network effect that persists across distribution shifts).
Detail
situation: Value investors viewed local newspapers as impregnable: entrenched local ad monopoly, daily repeat purchase, no out-of-town competition.
decision: Investors held/valued newspapers on the assumption these structural advantages would persist indefinitely.
outcome: Twenty years later, most newspaper companies are fighting for their lives because consumer attention shifted en masse to the internet.
lesson: Asserting that mass, fast consumer behavior shift will happen sounds crazy in the moment — but it does happen, repeatedly (TV/print to internet, Facebook to TikTok).
In their words
And 20 years later, most of the companies that are in industry are fighting for their lives.