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what's the right way to create a market framework to invest in this environment when I go on TV which I do a half a dozen times a year they always want me to say buy or sell in or out risk on risk go up and I think this is too simplistic uh too black superficial right I think so the way I think of it is this you mentioned uh thousands of people in the audience every investor everybody in the audience should have a sense for what their normal risk posture should be it depends on their age their assets their income the relationship between their uh income and their needs the number of dependents they have uh what their aspirations are how how uh how much they can tolerate risk what is their intestinal fortitude there are a lot of things that go into it but I mean from zero which is no risk to 100 which is complete risk I think that everybody should have a sense for what's right for them and that would help them Define their normal stance in terms of aggressiveness and defensiveness and you know what is the right balance for you I always say to people uh you know people come to me for financial advice I say which is more important to you keeping what you have or making more and they say both you can't do both with equal emphasis every attempt to make more introduces the possibility of of not having any more what you have today so you have to decide the balance between aggressiveness and defensiveness and then if you're really bold you can think about varying it over time as the circumstances required as I mentioned before oak tree we don't get in and out of the market we don't defer bargain purchases because we think we know what the future is going to hold in terms of Market action but we do vary our aggressiveness and we've done it a few times in a big way over the course of my career um and and over those times well I mean just to give you some examples um lato4 early 05 we were very worried about the market so we went defensive sold a lot of assets shrunk funds liquidated funds raised the bar for new Investments um uh September 08 Lehman Brothers goes bankrupt um uh everybody thought the world was going to end and the financial system was going to melt down we turned extremely aggressive and we invested uh I think I think 650 million a week on average for the next 15 weeks that's 10 billion dollars in a quarter and and obviously that was a good decision and then uh let's see 2012 you know from from 2000 to 2012 if you invested in the S P 500 you made no money zero return as I recall so I came out with the memo called deja vu all over again I think was called and I said you know back in 79 most of your viewers may not remember but uh there was a business week I ran an article the death of equities and basically what it said is equities have done so badly that nobody will ever buy him which makes absolutely no sense if they've done badly that means they must be cheap and people should buy them and that was the same condition in 2012 and I wrote deja vu all over again um and uh and so forth so the point is we do vary our degree of aggressiveness and depends on this we vary our degree of fundraising how much money we should have under management clearly when the when the opportunities are better we should have more money when the opportunities are less good we should have less and I think that's an important thing that distinguishes oak tree uh is that we're willing to have less uh when it's appropriate today I'm in a fairly normal posture except uh increasing my aggressiveness uh I think that the conditions for The Bargain Hunter for the lender for the asset buyer today uh are better than they have been since the global financial crisis which ended in 20 2008.
so you know we've we've been tough times for The Bargain Hunter for the last 14 years I think we're in a better situation today so uh I would increase my level of aggressiveness I was gonna just ask you about that you had said a few months back that during a period of euphoria it's really difficult for Value investors to find Bargains but then more recently you you felt more positive towards that um so where are you looking for bargains right now again you were playing the long game you're not Market timers but you know sector-wise industry Focus wise where where are you potentially seeing opportunities well uh oak tree is primarily an investor in what we call credit right over the years credit has had other names bonds fixed income debt whatever you want to call it uh but that's that's our Roots high-yield bonds leverage loans and so forth uh and you know the interest rates on all those things were the lowest in history uh over the last 14 years and now they're much more generous so you can accomplish much more in credit uh investing than in the recent past and I think it's very very viable uh I think one of the things we're best known for is investing in distressed credit right and uh uh and also I think that because the conditions are not going to be so just right uh in the in the coming years uh they were so good in the last 14 uh General conditions which means bad for us I think in the coming years they will not be as generally good which means better for us better for The Bargain Hunter so I think credit distress opportunism uh are the ways to go in the coming uh months and years uh U.S sectors and industries we don't really think that way you know in investing there are two basic approaches one is called top down where you say well what's the industry what's the economy going to do what are rates going to do uh uh which uh the sectors of the economy will do best which Industries will do best let's find some companies that's one way to do a top-down or strategic the other way to do it is bottom up what's cheapest today and uh that's more opportunistic less strategic and really that's the way we operate so you know when when we go out into the marketplace we just say what's cheap today uh it's kind of like you know if you're if you're a shopper and you have a Saturday off you just say well where are the sales and and we like to buy the things that are on markdown at our inaugural econoclast Summit with Ray dalio last month we spoke about the changing World Order Howard do you feel like the deglobalization and Market tumult that we're experiing is a result of the war in Ukraine Central Bank policy zero covet in China and it's more of a short-term challenge or do you agree with Ray that what we're witnessing is the formation of a new world order that should change the long-term risk reward profile for investors well as I've said um you know the last 14 years were really quite idyllic um in the in the economy and in the market we had the longest bull market in history the longest economic recovery in history uh we set a lot of Records in many ways living was easy interest rates were low companies can get all the money they wanted there are very few defaults of bankruptcies you know easy times and yeah I don't believe in forecasts especially my own uh oak tree as I mentioned does not invest according to forecasts but it in general we think that the living will be a little less easy in the uh in the months and years to come so I I think you know for us the big question is is it going to be easy times like the last 14 years or more back to normal I'm not calling for a cataclysm but I'm just calling for a more normal world where where uh where interest rates are higher it costs more money to borrow you CA it's not so easy to borrow bad companies can't borrow bad companies can default bad companies can go bankrupt uh it's a little more of a struggle uh and uh This Is Not Unusual this is the norm the last 14 years have been the unusual time and uh so you know our our uh long-term look is based on uh that kind of normalcy uh the FED has been highly stimulative for the last 14 years kept rates low to keep the economy going I think it I think it's going to be less energy motive in the period ahead I don't think it can can do it forever so looking to another area where you've been after years of high-level discussions with authorities and assurances that the rule of law would Prevail some might argue that you know looking at China's leadership structure today it's very different than even a decade ago has the investment case for China changed in your opinion um we've been investing in what are called non-performing loans uh loans that the banks want to sell off for the last uh seven years since 2015 we do a little more every year we have very good results and the process as you say the rule of law uh goes as we would hope um all of our investments in China so far have have shown that pattern and I believe that the leaders understand uh that that if they want to have foreign investment which I believe they do they have to have the rule of law people have to feel that outcomes are Dependable now the recent events have suggested maybe they're less so uh you know starting with a year or so ago they they made it life tough on the for-profit education sector they made life a little tough for some some tech entrepreneurs uh and Business Leaders more recently of course uh more saber rattling seemingly a hard line out of the out of the party Congress um I like to believe that that the Chinese Miracle by the way China's GDP is up a hundred times in the last 42 years that's a miracle it's gone from 178 billion to 17.7 trillion and I have to believe that they're not going to Desert that and they want to keep the economy growing they want to keep the people happy among other things China's economic Miracle has come from number one the involvement of the private enterprise system and most people are not aware of the extent to which China uh has the private enterprise system and number two involvement in the world community and trade and I believe that they're not going to give that up wholesale so uh you know people describe China and have been for the last year as uninvestable and uh I don't consider it uninvestable I think we're going to continue to invest in China but carefully because we don't we're not sure we know what the future holds but you know uh we we will continue to keep a high bar uh but I my whole career has been built on doing things that were uninvestable as you said high yield bonds in 1978 to stress debt in 1988 emerging market equities 1998 these are all things that are under a cloud at the time we started and and they've been successful that doesn't mean you should buy everything that everybody else considers uninvestable but that is the place where you should start your search for bargains if you if you want Bargains you shouldn't look on the pile of things that everybody uh knows about loves and is happy with uh those things are likely to have been bid up so we're just about out of time but I have action that's really looking for investors right now and a little bit later today and that's alternative Investments have become much more accessible for individual investors how do you think that this trend may change the market overall right now it looks like you know between zero to five percent of allocations are for individual investors and Alternatives but between you know pensions and institutions it's between 20 to 30 percent do you see that you know Paradigm shifts changing a bit and more of the scales tipping in the direction of individual investors jumping into this democratization of Alternatives that we've been seeing well you know and like everything else in investing there's two there's the on the one hand and on the other hand it's never uh cut and dried so on the one hand uh number one whereas alternative Investments were Innovative uh 40 years ago uh they're nothing new today and in fact the world has gotten happy with them as you indicate and and capital has piled in so they're not as as uh as virginal as they used to be uh some of the opportunities have been picked over some of the markets have become crowded number two in this in the low investment uh low interest rate environment of the last 14 years that I've been talking about people couldn't make the targeted returns they had in mind in in just plain stocks and bonds so they had to go out and do some Innovative things to try to get some more return things uh um and I don't think that requirement is as high anymore given that interest rates are Fuller uh and uh you know alternative Investments are supposed to have higher returns uh so some people want higher returns but on the other hand what you have to realize and everybody should should incorporate this in their thinking is that when you are investing in stocks and bonds you're mostly putting yourself at the mercy of the market right most most investors efforts to improve on the on the results of the market don't work short-term trading Market timing uh all these things and that's you know more that's why most mutual funds historically have not outperformed the s p but if so as I say these are what we we call in the trade beta markets most of your return comes from the market alternative Investments are much more an alpha Market which is that your return comes from the skill of the manager so the answer is if you can make it find an alternative investment with a very skilled manager that's probably a good idea but if you make an alternative investment with an unskilled manager that's probably a really bad idea and you probably would have been better off with stocks and bonds so there's no free lunch in the in the in the economic or investment world uh I think alternatives are a very good idea but they don't give you money just for doing it you have to do it well so if people are going to invest in these things they have to do it well I think that over time as you say there will be democratization uh it's been hard for individuals to invest in Alternatives until now I imagine that that the that wall Street's going to innovate and maybe regulation will change and and individuals will have a way to invest in Alternatives but it's not a free lunch they still have to do it carefully thank you
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