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How do you make money as an investor? The people who don't know think the way you do it is by buying good assets, a good building, stock in a good company, or something like that. That is not the secret for success. The secret for success in investing is buying things for less than their worth. As you know, I wrote a book in 2011 called The Most Important Thing.
And the reason it has that title is because I would find myself in my client's office and I would say, you know, the most important thing in investing is controlling risk. And then five minutes later, I would say the most important thing is to buy at a low price. And five minutes later, I would say the most important thing is to act as a contrarian.
And so, back in 2003, I believe I wrote a memo called The Most Important Thing. I listed 19 things, each of which was the most important thing. And then I use that. I couldn't think of a better format for my book, so I used the same format in 2011. Interestingly, some of the things are different, and that you want to show you that that one's thinking should still be alive and should still evolve.
And I know that Robin and some of the other fellows went to see Charlie Munger speak in Los Angeles this week at age 91, and I'm sure he's still evolving and getting younger. So I'm going to try to do the same. Now, I should tell you, and I don't know if you know this, but I — oh, I write memos to the clients, and I'll refer to a lot of memos in this session, probably.
And they're all available on Oaktreecapital.com website. And the price is right — they're all free. So, if this content helps you, like the video, subscribe, and turn on notifications so you don't miss what's next. And let us know in the comments which company or topic you'd like us to cover. Your support helps us reach more people who want to understand the markets and invest with confidence.
Every interaction helps is for educational purposes only, not financial or investment advice. Always do your own research before investing. And if you'd like to support the channel further, check out our trusted partners in the description. And so, you know, I've been sending them out now 25 years. I started in 1990, and I got a letter from a guy named Warren Buffett in 2009 or 10, and he said, if you'll write a book, I'll give you a quote for the jacket.
And so, I had been planning on writing a book when I retired from work. But Buffett's promise caused me to accelerate my time frame. And what the book is — is who here has read it? Okay. About half. So what the book is, it's a recitation of my investment philosophy. And as it says in the foreword to the philosophy, which I took the foreword — you know, I never — I don't know about you.
I never read the foreword to books, but I took the foreword to mine very seriously. And what it says in there — it's not designed to tell you how to make money, and it's not designed to tell you how easy investment is or to try to make it easy. And in fact, my highest goal is probably to make it clear how hard it is.
Investing is very difficult because it's — it's kind of counterintuitive, and it kind of turns back on itself all the time. And there are no formulas that work. So what I tried to do in the book is teach people how to think. And now, the thoughts they should hold change from time to time. But how to think, I think, is valid in the long term.
So — and I — it's my investment philosophy, and I wasn't born with an investment philosophy. I was — you know, you'll hear from a lot of people if you're interested in investing who will say, well, I started reading prospectuses at age eight — and I didn't. Or I — you know, at 13, I invested my bar mitzvah money — which I didn't do.
But — and in fact, when I was getting out of graduate school, age 23, in 1969 — so I know you can all do the math — I didn't know what I wanted to do. I had studied finance at Wharton and accounting at Chicago, and I knew I wanted to do something in finance, but I had — I wasn't very specific. So I interviewed in five or six different fields: large consulting firm, small consulting firm, accounting firm, corporate treasury, investment management, investment banking — six.
So, you know, I ended up in the investment business. Why? Because I had had a summer job in '68 at Citi in the investment research firm, and I liked it. Had fun. Right? That's a good reason. So I went there. And by the way, interestingly, there was nothing magical about working in the investment business at that time.
It paid the same as all the rest. All six jobs that I was offered had the same pay — between 12.5 and 14 a year — not a month. And — and — and, you know, and there were no famous investors at the time. Investing was not a household word. There were no investment TV shows. And so I just did it because I liked it.
I liked the people, and I thought that the investing was intellectually interesting. So I wasn't — I didn't have a philosophy then when I started, and I had some things I had learned in school. But I think that your philosophy — your philosophy as opposed to somebody — you know, if you — if you study Descartes or Locke or somebody like that, you learn his philosophy.
If you learn a philosophy by studying a religion. But that's not your philosophy. Your philosophy will come from the combination of what you have been taught by your teachers and parents and your experiences, and what your experiences tell you about the things you were taught and how they have to be modified.
So, I developed my philosophy over — you know, I — it might seem like I started writing the memos a long time ago — 25 years — but I had been working already over two decades at that time. So I think that the integration of real life into philosophy is essential. Now, I prepared a few slides for today, and basically, the slides are here to illustrate where the philosophy came from.
Talk to you about some of the foundations and roots. So I call it "Origins and Inspirations," and I hope you'll find it interesting. So, first of all — not in order chronologically, but hopefully in order to try to make something intelligible — Fooled by Randomness by Nassim Nicholas Taleb. Now, who here has read that?
All right — more people than have read my book. And I think it's very important. I think it's an excellent book with very, very important ideas. Now, don't tell Nassim I said this, but I tell all the people I speak to that it is easy — it is either the most important badly written book or the worst written very important book that you'll ever read.
I think it's not very clear, and I think it's — not — well, maybe there's no attempt to make it clear. But I think a lot of the ideas are very important and even profound, in my opinion. So, among other things — and this basic theme is that in investing, there's a lot of randomness. And if you look at investing as a field without randomness — where everything — where everything is determinative — you'll get confused, because you will not draw the proper inferences from what you see.
For example — just a brief example — you see somebody and they report a great return for the year. The scientist — the scientist who thinks that the investment world runs like the world of physics — might think, well, great return... That means the guy's a great investor. But in truth, it might be somebody who took a crazy shot and got lucky.
Why? Because there's a lot of randomness in the world. When I went to Wharton — 1963 — the first book I remember learning was called Decision Making Under Uncertainty by C. Jackson Grayson, who became, as I recall, America's first Energy Czar. And I learned a couple of important things from that book.
Number one, that... You can't tell from an outcome whether a decision was good or bad. It's very important. Most people don't understand this — totally, totally counterintuitive. But the truth is, in the real world where there's randomness at work... I mean, if you build a bridge and it falls down, then you must assume that the engineer made a mistake, that it was a bad decision to build the bridge that way.
But in the — in the real world of — where, where, where there's randomness — good decisions fail to work all the time. Bad decisions work all the time. The investment business is full of people who are right for the wrong reason — made this a bad decision, it didn't work out the way they thought, but they got lucky and they were bailed out by events.
So this is very important. And this is the basic theme of — of Fooled by Randomness, Taleb's first book. Since then, he has written the — the Black Swan, which became more famous. But I don't think it's as good a book. And he's written a book called Antifragile. And that one didn't get famous, but I think that this book is something everybody should read.
If you have an interest in numbers, investing, and how the world works. So it's — as I say, the book is all about the role played by luck. And, basically, even if you know what's most likely, many other things can happen instead. This is very, very important. We talked earlier at lunch about what's the most important lesson you can draw?
Well, of course, I would never say “most important” to anything, but one very important lesson for — for you to learn is that you should not act as if the things that should happen are the things that will happen. Again, in the world of the physical sciences, you can probably bet that that's true. And the electrical engineer knows that if he turns on a light switch over here, the light will go on there every time — because it's subject to physics.
Not in the world of investing. And so, for every possible phenomenon, there is — there is a range of things that can happen. There may be one where it's possible to discern which one is the most likely. And if we draw a probability distribution, that may be the highest point on the distribution — the most likely single outcome.
But that doesn't mean it's going to happen. And the reason we — the reason we don't have many probability distributions that look like this, but rather that look like this, is because a range of things can happen. And it's very, very important to notice that, number one, there are lots of things can happen, so you have to allow for them.
And number two, the thing that is most likely to happen is far from sure to happen. And we — and so that's — that's very — that's very key. There's a professor at the London Business School who put it succinctly. He said, “Risk means more things can happen than will happen.” And this is — again, this is profound in my opinion.
In the economic world, people generally make their decisions based on something called expected value — which is to say that you multiply every possible outcome... First of all, of course, you don't think in terms of a single outcome. You think in terms of a range of outcomes. So you take every — if you could, if you could iterate over so many — you take every possible outcome, you multiply it by the likelihood that it will happen, you sum the result, and then you get something called the expected value from that course of action.
And you choose your course of action based on the highest expected value. And that sounds like a totally rational thing. But what if the course of action that you're considering has some outcomes that you absolutely can't withstand? Then you may not do it. You may not do the highest expected value course of action because it has some you can't live with.
You know, who here is willing to be, you know, the skydiver who was right 98% of the time, you know, for example? So you may elect to do bike riding on the Google campus rather than skydiving, even though skydiving is more exhilarating 98% of the time. Anyway, so the point is, as I lived my life — from talking to, learning about Dimson, and learning about Taleb, from learning from my own experience — I realized that “should” does not equal “will.” Lots of things that should happen fail to happen.
And even if they don't fail to happen, they fail to happen on schedule. So the thing that the — that the economist or the financier thinks should happen this year may happen in three years. You've got to live three years to see it happen. One of my favorite sayings is: Never forget the six-foot-tall man who drowned crossing the stream that was five feet deep on average.
We can't live by the averages. We can't say, well, I'm happy to survive on average. We’ve got to survive on the bad days. You’ve got to survive. And if you're a decision-maker, you have to survive long enough for the correctness of your decision to become evident. And you can't count on it happening right away.
I always remind people: Overpriced is not the same as going down tomorrow. And if you bear that simple truth in mind, I think it helps. So — so Taleb and the role of luck — very important. Then John Kenneth Galbraith. John Kenneth Galbraith. For those of you who are not familiar with ancient history, was an economist.
American economist. Died around oh five, I think, maybe a little after, and at the age of about 98. And he was one of my favorites. He was — he was, little on the — on the left side. He was, you know, somewhere between free enterprise and socialism. But he was what we call the liberal in the days when — when that word — when it was okay to say that word.
But he was — he was very, very smart. And he was not a — he was not famous as an economist, but he was a — he played a lot of roles in government and he was a diplomat. But he wrote some very good books. And one of them is called A Short History of Financial Euphoria. And I like thin books, so — and his thin, especially the ones he wrote in the last decade or two of his life, were very thin.
So I enjoyed those. But — but The Short History is very good, and I recommend that to you. And one of the things he says is we have two classes of forecasters: the ones who don't know, and the ones who don't know they don't know. Now, I don't believe in forecasts — macro forecasts — people who forecast interest rates, performance of economies, performance of stock markets.
And I don't think that my efforts to be a superior investor, and most other people's, are aided by macro forecasts. So am I saying that the forecaster is never right? No, I'm not saying that. The forecasters are often right. Last year, GDP growth: 2%. Many forecasters forecast that GDP will grow this year at 2%.
That's called extrapolation. And usually, in economics, extrapolation works. Usually the future looks like the recent past. So usually the people who forecast a continuation of the current... All right. The only problem is they don't make any money. Because — let's take — let's take the economy. Most people forecast two-something for this year — a growth rate of two-something — is cooked into the prices of securities today.
If the growth rate turns out to be two-something, everybody who forecasted that will be right, but the security — but security prices will not change much because that two-something growth was anticipated and discounted a year or two ago. So, all those people who are right won't make any money. So Forecasts that are extrapolations work all the time, but they don't make any money, logically.
Am I saying that forecasting — that forecasts never make any money? No. The forecasts that make money are the forecasts of radical change. If — if I predict — if everybody's predicting 2.4% growth for this year, and if it turns out — if I predict minus two and it turns out to be minus two, or I predict six and it turns out to be six — I'll make a lot of money.
So forecasts which are not extrapolations — forecasts which are radically different from the recent past — are potentially very valuable if they're correct. Of course, they're not of any value if they're incorrect. And then, if they're incorrect, they'll — they'll cost you a lot of money. If everybody else thinks it's going to be two-four and you predict six, and it turns out two-four, you're probably going to have taken the wrong investments and lost a lot of money.
So deviant forecasts, which turn out to be right, are potentially very valuable. Both. But it's very hard to make them. It's very hard to make them correctly. It's very hard to make them correctly consistently. And somebody at lunch mentioned an early memo I wrote called The Value of Forecasts. And in one of — I — there was The Value of Forecasts, and then there was Value of Forecasts Two, I think, right?
And in one of those, I reviewed the history — the recent history — of the Wall Street Journal poll. Every six months, The Wall Street Journal publishes the results of a poll of economists on, you know, GDP growth, CPI, value of a dollar, the price of oil — whatever it might be, a bunch of phenomena.
They do it consistently, and they — they ask like 30 people consistently over time. And so it shows, basically, that most of the time when people get it right, it's because they predicted extrapolation, and nothing changed. Once in a while, something changes radically, and invariably somebody predicted it.
But the problem is, if you look at that person's other forecasts over the years, you see that that person always made radical forecasts and never was right any other time. So, of course, if you're getting your information from a forecaster, the fact that he was right once doesn't tell you anything. You — you wouldn't — the — the views of that forecaster would not be of any value to you unless he was right consistently.
And nobody's right consistently in making deviant forecasts. So — so the bottom line for me is that forecasting is not a variable. And that's something that my experience has told me. So we — we don't know what's going to happen. And randomness will play a big role in what happens. And randomness is, by definition, unpredictable.
Number three: The Loser's Game by Charlie Ellis. This is very interesting. Anybody here know the name of the company TRW? Few people. TRW used to be a big conglomerate. And now it's known primarily for credit scores. And there was a guy named Sy Ramo. He was the — it was — it was Thompson Ramo Woolridge, and he was the “R” in TRW.
And very smart. And Sy Ramo wrote a book, and it was about winning at tennis. Who here plays tennis? Okay, this is good, because as I go around the world now, very few people play tennis anymore. But what Ramo said is that there are two kinds of winning tennis players. If you look at Pete Sampras or Nadal or Djokovic — how do they win?
The winning champion tennis player wins by hitting winning shots — hits, shots that the opponent can't return. They're either so well placed or so strategic or so fast and hard that the opponent can't return them. And if Nadal hits a shot which is not a potential winner, then his opponent can probably put it away because it doesn't have enough difficulty on the ball.
So the — the championship tennis player wins by hitting winners. You play tennis, right? How do you win? Do you win? How do you win? If I win, it's by not getting outs... It's — that's right. The amateur tennis player, like him and me — we win not by hitting winners, but by avoiding hitting losers. And we believe that if we can just push it back 20 times and just get it over the net 20 times, our opponent can only do it 19.
We believe that that will outsteady him, outlast him, and eventually he'll hit it into the net or off... ...the court. We'll win the point, but we'll win the point without having hit a winner. So there are obviously two styles of tennis. And so, same is true for investing. And so, Charlie Ellis wrote an article called The Loser's Game, and he said he thought that investing — so, championship tennis is a winner's game.
It's won by winners. He thought it. Amateur tennis is a loser's game. It's won by the people who avoid being losers. He thought that Charlie thinks, or thought, that investing is a loser's game. And so, the best way to win at tennis is — by investing — is by not hitting losers. Now, I believe also that it's a loser's game.
Not as much as Charlie believes, and not for the same reason. Charlie believes that investing is a loser's game because the market is efficient and securities are priced right. I believe there are inefficiencies. I just think it's hard to consistently take advantage of them. And you have to be an exceptional person to take advantage of them on a consistent basis.
And, you know, the reason that the pro can go for winners is because he is so well-schooled and practiced and steady and talented that he knows that if he does this with this foot, and this with his hip, and this with his elbow, and this with his wrist, that the ball will go where he wants. He doesn't worry about miscues.
Wind, sun in his eyes, distraction — he's so well-schooled. And, in fact, you know, in — in — in scoring tennis matches, they keep track of something called unforced errors. And the reason they keep track of them is because there are so few. The pro doesn't make a lot of unforced errors. We make unforced errors all the time.
And so, we have — in order to survive — we have to avoid them. So the point is, if you're going to be an investor, you have to decide: am I good enough to go for winners, or should I emphasize the avoidance of losers in my approach? And then the fourth input. Oh. So I say here that the difficulty of getting it right is what makes defensive investing so important, because it's — just for us in investing, especially — because there's randomness.
If we do the right thing with our foot and hip and arm and elbow, we're not going to get a winner every time. And then the fourth origin that I wanted to talk to you about today was my meeting with Mike Milken in November 1978. So, in ’78, I got a call from my boss at Citibank, and he said, there's some guy in California named Mike Milken, and he deals with something called high yield bonds.
Can you figure out what that means? Because one of our clients had asked for a high yield bond portfolio, and that day, nobody knew about it. It was — it was unknown. And so, I met with Mike in November of 1978. He came to see me at Citi in New York. He was looking for clients. He was just starting off then in the high yield bond industry.
And it was a great meeting. And he explained to me that, if you buy Triple-A bonds, there's only one way to go. Triple-A bonds are bonds that everybody thinks are great. Their companies are making a lot of money. They have prudent balance sheets. The outlook is good. Everything's perfect. So if everything's perfect, that means you can't get better.
And if it can't get better, that means it can only get worse. It doesn't have to get worse. But if there is a change, it's going to be for the worse. And if you've bought a bond on the assumption that it's perfect and it gets worse, then you lose money. So, that's important. On the other hand, he said, if you buy single B bonds and they survive, there's only one way for them to go — which is upgrade.
No, that's not exactly true, because they can default and go bankrupt. But the ones that survive will go up, will be upgraded, and the surprises are likely to be on the upside. So this is very important. Again, this is about trying to hit winners — avoid losers. And if you're buying bonds that most people don't think much of, it's hard to have a big loser because such low expectations are incorporated.
Now let me digress for a minute, because this is really important. How do you make money as an investor? The people who don't know think the way you do it is by buying good assets — a good building, stock in a good company, or something like that. That is not the secret for success. The secret for success in investing is buying things for less than they're worth.
So if you buy a high quality asset — you know, there's a — I — and I say in the book — there's a guy on the radio. I used to — when I lived in LA — I listened to NPR on the way to work. And there was a guy who — and I heard him say it. He said, “Well, if you go into a store and you like the product, buy the stock.” It couldn't be more wrong.
Because what determines the success of an investor is not what he buys, but what he pays for it. And if you buy a high quality asset but you overpay for it, you're in big trouble. And you can buy a very low quality asset, but if you pay less than it's worth, chances are you're going to make money. So — so the book says, chapter three says the most important thing is value — figuring out what the value of an asset is.
But chapter four says the most important thing is the relationship between price and value. So let's assume that you're able to figure out the value. If you pay more than that, you're in trouble. If you get it for less, the wind is at your back. So, it was very, very important then to be in an area where the surprises were likely to be on the upside.
And if you buy the bonds of B-rated companies, of which there are such low expectations, maybe it's easy for there to be a favorable surprise. Now, how can I — how can I prove to you that the expectations were low? The answer is that, if you look in the Moody's Guide to Bonds in those years, what was the definition of a B-rated bond?
Quote: “Fails to possess the characteristics of a desirable investment.” In other words, it's a bad investment. Now, I drove here from the airport in my car, and if I take you outside to look at my car and I offer it to you for sale — because I don't need that car anymore when I'm done here, I'm not coming back...
If I say to you, “Would you like to buy my car?” What is the one question you must ask me before saying yes or no? Price? You get an A — you get an A. So, in other words, it's a good buy at a certain price. It's a bad buy at another price. Moody is now saying that B-rated bonds are a bad buy without any reference to price.
So, in other words, there's no price at which a company that has some credit risk is worth investing in. And, by the way, before I turn to high yield bonds in ’78, I was part of the bank's machinery to buy the bonds of the stocks of America's best companies. And I explained at lunch how if you bought the bonds of Hewlett-Packard, PerkinElmer, Texas Instruments, Merck, Lilly, Xerox, IBM, Kodak, Polaroid, AIG, Coca-Cola, and Procter & Gamble...
And if you bought them all in ’68 and you held them to ’73, you lost 90% of money. Why? Because they were overpriced. The average stock since the post-war has traded at 16 times its next year's earnings. These were trading at 80 and 90 times. Why? Because they were so good. And these are just great companies.
Nothing can go wrong. So it doesn't matter what price you pay. And if you pay 80 or 90 times, that's fine. And so, here we are — in my experience again, experience as a teacher — if you invest in the best companies in America, you lose a lot of money. Then you go to the high yield bond business. You buy — you invest in the worst companies in America.
You make the most money. So it's an instructive lesson, if you have your eyes open and — and you learn from experience, which — which I did. But the key words were "and they survive," right? There's a little trap there, because you have to — you have to catch those three words. If you buy single B bonds that don't survive, then you're in big trouble.
So — but it's obviously — it's tautologically true that if — if a company, of which the expectations are low, survives, it'll probably — at minimum — it'll pay off at maturity. And maybe in the meantime it'll be upgraded or taken over, if they survive. So what? That convinced me, when I was starting the high yield bond business.
And in this conversation, Kay made a great point in time: that my analysts should spend all of their time trying to weed out the ones that don't survive — not finding the ones that will have favorable events, but just excluding the ones that have unfavorable events. And that's what we did. So now, I'll tell you an interesting story.
Around ’05 or ’06, the Bible of investing is a book called Security Analysis, written by Graham and Dodd. And they — they wrote the first edition in 1934. Ben Graham was Warren Buffett's teacher at Columbia, and, in many ways, the father of value investing. And he and David Dodd wrote this book in ’34, and they updated it in ’40, and then several times after.
And the ’40 edition is — is — is considered to be a great edition. And so, in ’05, McGraw-Hill, which owned the book, said they wanted to update the book, and they turned it over to Seth Klarman — who's a great value investor in Boston, at the Baupost — and to a professor — can't remember his name right now.
That's right — Bruce Greenwald at Columbia. So, you should be up here. I'll sit down. And they turned it over to Seth and Bruce to — to bring out this — this revision, and they, in turn, asked people to revise the sections. And they asked me to revise the section on debt. And so, that meant I had to go and read the 1940 edition in order to update it.
And I came across something fascinating, and it was — and it verified what I had always thought. It said that bond investing is a negative art. What does that mean? What it means is — I don't know how many of you know how bonds work — but a bond is a promise to pay. You give me $100, and I promise to give you a 5% interest every year, and then to give you your money back in 20 years.
Fixed income — it's called because all the events are fixed. The contract is fixed. The return is fixed, assuming the promise is kept. So all 5% bonds that pay will pay 5%. None will pay six. None will pay four. All the ones that pay will pay 5%. What does that mean? It means it doesn't — of the ones that pay, it doesn't matter which ones you buy.
"I'm gonna like this one. I like that one a lot. That pays five. I like that one that pays five." That doesn't make any difference. You're not going to be a hero by choosing among the bonds that pay. The only thing that matters is to exclude the ones that don't pay. So if there are 100 bonds, 90 will pay.
They all pay the same thing. It doesn't matter which of the 90 that you choose. The only thing that matters is excluding the 10 that don't pay. Negative, okay? The greatness of your performance comes not from what you buy, but from what you exclude. So I thought that was very useful. I should have that up here too.
But anyway — so that's that. Milken was my fourth input. So Taleb says that the future consists of a range of possibilities, with the outcome significantly influenced by randomness. And Galbraith says that forecasting is futile. And Ellis says that if the game is uncontrollable, it's better to work to avoid losers than to try for winners.
And Milken says that holding survivors and avoiding defaults is the key in bond investing. So if you put them all together, that's how you get the philosophy that's in the book. These were my origins. So when we started Oak Tree, April the 10th of 1995 — almost exactly 20 years ago — we wrote down our investment philosophy, and here it is.
We published it. We were a bunch of guys who had been working together for most of the previous ten years at a different employer. And we left there as a group, and we started Oak Tree. And so for a philosophy, I believe in writing things down — and like Learning at the Loom says today — write them down, right?
So, we wrote down our philosophy. We published it. We'd never changed a word since. And the clients like knowing what our roadmap is. So these were the six tenets of the invest philosophy. So the first one says that the most important thing is risk control. And we tell the clients we think that for excellence in investing, the most important thing is not be making a lot of money.
It's not beating the market. It's not being in the top quartile. The most important thing is controlling risk. That's our job. That's what we'll do for you. And the clients come to us who want to invest in our asset classes with the risks under control. There are other people who put less emphasis on controlling risk, and they have better results in the good times and worse results in the bad times.
Our clients want what we give them. Number two, we have an emphasis on consistency. So we say we don't try for the moon at the danger of crashing. You know, the first memo that I wrote in 1990 — I'm sure you remember that, Rob — talked about a guy who was head of an asset manager that had a terrible year.
And he said, "Well, it's very simple. If you want to be in the top 5% of money managers, you have to be willing to be in the bottom." I have no interest in being in the bottom 5%. I don't care about being in the top 5%. I want to be above the middle on a consistent basis over the long term. And there's a funny bit of math — this will confound the, what you call yourselves, data scientists — and this will confound the data scientists in the room.
So in that first memo, I contrasted the comments from that money manager with a comment from one of my clients who told me, right about the same time — that was the juxtaposition that caused me to write that first memo. He told me that for the previous 14 years, his pension fund had never been above the 27th percentile or below the 47th percentile.
So it was solidly in the second quartile every year for 14 years. So let's see, 27–47 — the average of that is 37, right? What percentile do you think that fund was in for the whole 14 years? 4th: And if you think about it, it's really almost mysterious. Why the 4th, not the 37th? And the answer is that when people blow up, they really blow up.
And so, we said we want consistency. We want to be a little bit above the middle all the time. Maybe we'll pop up to the top in the years when the markets are terrible and our risk control is rewarded. But we think that over a long period of time, we'll be very respectable that way. And our clients will have an absence of bad experiences, which I think for them is very important.
So then, macro forecasting is not critical to investing. We do not make our decisions based on macro forecasts. As I explained to you, we all have opinions. Our official dictum is that it's okay to have an opinion — you just shouldn't act as if it's right. And I think this is very important. You know, Mark Twain said, "It's not what you don't know that gets you into trouble.
It's what you know for certain that just ain't true." And so, we try to avoid holding strongly to those macro opinions. And finally, we don't do a lot of market timing, which is very, very hard to do. We do long-term investing in assets that we think are underpriced. So that's the Oak Tree philosophy.
You can see how the origins and inspirations that I went through fit into that. And in fact, it's all distilled in our motto, which says that if we avoid the losers, the winners take care of themselves. And if we can make a large number of investments and just weed out the problems, then we'll have — just think of the bell-shaped curve — we'll have a lot to do, okay?
And an occasional one which is exceptional, if we can weed these out. So a lot of money managers go into the clients and say, "We will get you in the top quartile, into the great right-hand tail." I think it's hard to do on a consistent basis. And if you aim for the right-hand tail and you miss, you end up in the left-hand tail.
What we say is: we'll just lop off the left-hand tail. And if we can do that successfully — and we pretty much have — then what would you have? Okay, good. Very good. Great. Terrific. But no terrible. The average will be very good. And that's basically what we had. So lastly, I'll just leave you with what I consider my three greatest adages — not mine, but the ones I've encountered over my career and that have been the most helpful.
And they're all used in the book. First of all: what the wise man does in the beginning, the fool does in the end. In every trend in investing, eventually it becomes overdone. If you find an asset which is cheap and buy it, that's great. If everybody else figures out that it is cheap, then it will go up.
Then people see that it's rising, and more people jump on. The bandwagon goes up, up, up. And the last person to buy it is a fool. And the first person to buy it is a wise man. So — same asset, just at different prices. And as people say: first the innovator, then the imitator, then the idiot. So that's another way to look at this adage.
Number two: never forget the six-foot-tall man who drowned crossing the stream that was five feet deep on average. Kind of like that skydiver who's right 98% of the time. It's not sufficient — depending on how you want to live your life — to survive on average. We have to survive on the bad days. So we have to be able to survive the low spots in the stream.
Your portfolio has to be set up to survive on the bad days, so you won't be shaken out of your investments. And then finally: being too far ahead of your time is indistinguishable from being wrong. And yet, that's a great challenge, because as I said before, the things that are supposed to happen will not necessarily happen — and they absolutely will not happen on time.
So you have to be able to live until the wisdom of your decisions is proved. If at all. So all of these things, I think, say something about modesty and humility of belief rather than cocksureness, which I think is the greatest risk. So with that, Saurabh, I'll stop talking, and we have a little time left.
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