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Great fortunes are not built by predicting the next passing fad; they are built by avoiding mistakes when everyone else is losing their minds. Howard Marks is not a trend investor; he is not looking for the next revolutionary company, nor is he trying to predict the future. He is the founder of Oaktree Capital Management and has built an empire by managing risk better than almost anyone else.
In this video you'll understand the real strategy behind Oaktree, how it invests in cycles, how it buys when others are forced to sell, and most importantly, we're going to build a portfolio inspired by its method step by step, and you'll be able to follow it from here. If you want to learn to think like one of the world's leading credit experts, this video is for you.
Welcome to Rankia! If you're new, I recommend you subscribe to the channel and turn on notifications so you don't miss any of our content. Okay, so Howard Marks isn't a classic stock investor; he doesn't compete to find the next Apple or try to guess which sector is going to explode next year. He is the founder of Oaktree Capital Management, one of the world's largest asset managers specializing in credit, and his natural habitat is not perfect companies, but imperfect assets.
When I say imperfect assets, I'm talking about debt from companies in trouble, bonds that pay more because they have more risk, or situations where the price already discounts a very, very negative scenario. So, while many investors talk about growth and narratives, Marks talks about cycles and risk.
Their obsession is not to maximize profitability in euphoric markets, it is to avoid permanent losses when that cycle turns. Oaktree has built its size by understanding when the market is being overly optimistic and when it is being irrationally pessimistic, and positioning itself accordingly. And here is the key point that separates him from a traditional investor.
It does not attempt to predict the future, it attempts to calibrate the level of risk based on the moment in the cycle. If you understand this, you begin to see that their advantage lies not in finding the best company, but in managing the price-risk relationship better than anyone else . So, to help you see it better, let's break down exactly that mental system he uses to make decisions.
Most investors start by asking what to buy, but Howard Marks starts by asking where we are in the cycle. This is the first thing, because for him the cycle is everything. When credit flows easily, banks lend without looking too closely and investors accept any return, however small. That's not tranquility, that's a silent accumulation of risk.
And when the system goes to [ __ ], like in 2008, when nobody wanted to touch corporate debt and the credit market practically froze, that's when real opportunities start to appear . That's the first pillar: investing in cycles, not narratives. The second is even more obsessive: avoiding permanent losses.
Marks isn't obsessed with maximizing returns in bull markets, he's obsessed with not destroying capital when the cycle turns. He prefers to fall short on euphoria if it means staying alive in panic. The third pillar, which defines Outry, is to buy when the market is forced to sell, not when it is nervous, but when it is compelled to do so.
Funds liquidating positions through redemptions, banks reducing their balance sheets, companies in restructuring where debt is trading at prices that discount a catastrophic scenario—that's where he comes in, because the price already reflects extreme fear. And the fourth pillar is to be a contrarian, but with discipline, not out of ego.
It's not about always being contrary, it's about doing it when the price compensates for the risk. If everyone is optimistic and risk premiums are ridiculously low, it becomes defensive. If everyone is panicking and assets are trading as if the world is ending, start building positions. He's not trying to predict the future; he's trying to ensure that the price he pays protects him if the future isn't perfect.
And when you put these four pillars together, you understand that Marks doesn't aim to be more accurate than the market, he aims to structure risk better than the market. And now, the logical question is, how does all this translate into an actual investment machine within Oaktree? Well, everything we have seen ceases to be philosophy and becomes a real structure within them.
Because Oaktree didn't grow by buying the world's most admired companies, it grew by specializing in distressed credit, in debt from troubled companies, in bonds that trade at 40% or 50% of their value because the market has already priced in a total disaster. When a company runs into difficulties, many funds cannot maintain that debt by mandate, banks have to reduce their balance sheets, and investors sell because they need liquidity.
They don't sell because they want to, they sell because they have to. And here Oaktree appears, analyzes the capital structure, calculates how much it could recover even in a harsh scenario, and buys when the price already discounts the apocalypse. That's the first block. The second is opportunistic credit, high yield, private loans, special situations where the risk premium is exaggerated compared to the real risk.
They're not looking for perfect assets, they're looking for mismatches. And the third group is opportunistic equity, but a minority stake. Stocks only when the price is so absurd that the symmetry compensates for the risk. They are not competing for business excellence at all- time highs, but for punished assets where the market is emotionally broken.
And here is the phrase that defines it all. Oaktree doesn't look for quality, it looks for price. He's not looking for brilliant stories, he's looking for forced discounts. And now comes the most interesting part. We're going to take this entire institutional structure and bring it down to earth. Of course, we're not Oaktree, we're not Howard Marks, but maybe we can do something similar.
For this, I bring you the My Portfolio tool, which if you didn't already know because I've mentioned it in many videos, here you can create portfolios, you can create your own, you can create a fictitious one, whatever you want. And I'm going to create this one inspired by Howard Marks, who, by the way, during this year we have an open challenge within My Portfolio where you can create your portfolio, compete and more.
I've included a link in the description to both the Howard Marks portfolio I created and the challenge, because you can win up to 1000 euros and it doesn't matter which month you enter, it starts all over again every month . It's a really cool way to learn to invest by playing games and competing against others, creating your own team; I highly recommend it.
I'm going to be there, and I'm going to compete, and you're not going to beat me. But okay, let's open My Portfolio and now, let's build a portfolio with 100,000 euros, for example, inspired by that logic of Howard Marks. And I say inspired because Howard Marks doesn't buy ETFs, he buys dislocations, so to speak, right?
Buy moments when the market is uncomfortable. We're going to make the retail version of that idea, okay? Inspired, I've already told you. And also with products that you can set up yourself through a European broker. By the way, the description also includes several links to different brokers with very competitive commissions that may interest you, and a link to a blog post so you can see the best brokers depending on the country you're viewing from.
But okay, let's see. In the end, you'll see some products here that are only available from Europe, but the logic of the wallet is what you should focus on. That's what's important. We start with the core, about 40,000 euros that will go to bad debt, because if anything defines Marks, it's that he lives on credit, not on the stock market.
Where there is real fear is in debt. We put about 25,000 euros into a Fallen Angels UCITS ETF, that is, bonds that have lost investment grade and the market punishes them almost by inertia. Pay attention here, because in Europe the ticker changes depending on the exchange, so it's best to search for the UCITS ETF by name or ISIN at your broker.
They 're not dead, but they're uncomfortable. Very Marks. And we added 15,000 to the iShares Euro High Yield Corporate Bond. High Yield means bonds that pay higher returns because there is a higher risk of default, and therefore they often offer attractive premiums when fear rises, thus increasing our exposure to credit with a high risk premium.
We're not buying glamour, we're buying well-paid discomfort, okay? Now we move on to something closer to real private credit. 25,000 euros in BDC. Marks doesn't invest thinking about multiples, he invests thinking about capital structure. He likes to be at the top of the choir tail, that is, in positions that get paid first if something goes wrong.
Since we cannot lend directly to companies, we use vehicles that already do so. We divided 12,500 euros in Oaktree Specialty Lending Corporation, ticker OCSL, which is a listed vehicle managed by Oaktree. It's not all Oaktree, but it does reflect their approach to lending to medium-sized companies with a senior structure, and the other 12,500 euros in Ares Capital Corporation, which plays in the same league of corporate loans with considerable structural protection.
Here we are buying privately quoted credit, okay? The closest thing to Oaktree's natural terrain, but accessible to us. We raise the level to 15,000 euros in special situations. What is the most difficult thing to replicate about Marks in retail? Marks has always made money when the market is wrong due to discomfort, not lack of information, dislocations, okay?
Where nobody wants to look. We can't buy bankrupt debt with lawyers, but we can go to listed stories where the market has thrown in the towel too soon. That's why we turned this block into Claro, think of it as inspired, okay? So, what I'm going to do is create a sort of fixed basket of three very different cases, but you'll recognize them and understand them.
First, Intel. A heavy industrial turnaround, impacted margins, brutal investment in factories, and a market that doesn't believe in the recovery. Here we don't buy growth, we buy survival with optionality, something very typical in contrarian investments based on the cycle. If the performance improves, there is re-rating.
Otherwise, much of the pessimism is already priced in. Second, Warner Bros. Discovery. Lots of debt, a broken narrative, and complicated years of integration after the merger. But underneath there are assets that are very difficult to replicate. Marks always insists that price can move much more than value in the short term, and when a company has good assets and a bad history, interesting dislocations often appear.
And the third, Paramount. This is already a textbook special situation : constant sales noise, strategic uncertainty, and possible corporate moves. This is not a pure business thesis, it is an event thesis. And Marks loves those moments when the market trades headlines instead of fundamentals. Okay, so now we're putting 10,000 euros into penalized Real Estate, another very Marks-like area, because real estate tends to suffer a lot when interest rates rise and forced sales appear, but that's where interesting discounts appear .
For example, we have this IShares Developed Markets Property Yield index, which groups listed real estate companies heavily penalized by the economic cycle. It's not 100% Oaktree, but it follows the same logic: real assets that the market punishes indiscriminately when there is macroeconomic fear. Obviously, this part of the portfolio has real risks; high yield can suffer if defaults increase, and BDCs depend heavily on the credit cycle and special situations, as they can take years to work or even go wrong.
That's precisely why they fit with the Marks philosophy: discomfort today in exchange for price. And we left 10,000 euros in cash, this is key. Marks always insists that liquidity is not a passive position, it is optionality, having capital when nobody else has it. You can even use a Seon-type monetary system if you want to optimize, not because we don't know what to do, but because when real panic hits, we want to be able to buy without having to sell anything.
This is dry gunpowder and probably the part most true to Marks' DNA. You can also have it in a high-yield savings account. One of the brokers I mentioned has it . So, this portfolio doesn't replicate Oaktree, it replicates its principles; it doesn't seek to be the most profitable in euphoria, it's designed so that when the cycle breaks and there are dislocations, we 're already in.
Here's a broker that I'm sure you'll find interesting for buying stocks or ETFs, and it also has very good commissions. Here's how to create a wallet like Munispa Brain. I bet you don't know how to create it, well go to this video, see you there.
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