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If you think about the role of randomness in the world, there's so much that's not within your control.
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One thing within your control is the quality of your output. Amen.
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You should have a simple goal to put out a product which is the highest quality you can.
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And if you have done that, you can relax.
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How do you take complicated ideas and make them so simple that people are begging to give you their money?
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Our guest today, Howard Marks, is a master at that, a master at clarity and distillation.
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He's been writing memos for the last three and a half decades.
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In 1990, he had basically no readers, and now he has more than 300,000 people, and he now manages more than $190 billion in assets. So how does he do it?
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How does he write so clearly, so concisely?
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What does he do to distill ideas and make them simple?
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Well, that's the topic of this conversation with Howard Marks. Hey, Howard.
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Hey David, how you doing? Thanks for doing this. Good to be here.
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So the first place I want to begin is you have a line in the introduction to your first book where you say, "Heaven for me would be seven little words: I never thought of it that way." Why that?
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Well, if I'm writing a book and it squares with people's expectations and agrees with what they already know, then I'm not contributing much. Am I?
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And of course, the human brain has a strong confirmation bias.
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It wants to hear support for what it already believes, but it doesn't really accomplish much.
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So if I get a reader who says, "I never thought of it that way," then that means I've told them something they didn't know and I've made them think about and maybe question the things they already thought they knew.
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Well, that's a positive step.
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There's such a simplicity in your writing that I think makes it stand out.
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I get a lot of response nowadays.
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My favorite one, well, there's two.
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One says, "You changed my life because I now think this or that way."
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And the other one is, "You make complex things simple."
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The most flattering one I ever got, I'm not sure about the comparison, said that Einstein said there are four levels of intelligence, is bright, brilliant, genius, simple.
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The person wrote me, the inference is that my writing is simple, and that makes me very happy.
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I've been doing a lot of visits and speaking this week, and I had two occasions when people said, "When you hear Howard, you'll hear that he makes sophisticated concepts clear."
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And that makes me very happy.
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I've been thinking about why or how, and my conclusion is that my brain operates largely on the left side, literal, logical.
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But I think being a logical person lets you break down a process in an orderly fashion that you can then explain to people.
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Obviously the output is very simple.
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How do the ideas get into that simple orderly shape?
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First of all, I have the great advantage that I don't have a requirement to write.
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I know people who write every day, I can't imagine how you do that, or who require themselves to write every week or every month.
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I don't require any regularity of myself.
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I write when I feel like it.
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Now, having said that, I try to write no less than quarterly, and I put in one of my memos that if I don't write for three months, I tend to get emails saying, "Are you dead?"
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But other than that, there is no regularity.
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So I don't feel any pressure.
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I write when I have an idea, and usually it's kind of a matter of gleaning, and I think a lot of it is serendipity.
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You come across this, then you come across this.
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Now, the way my mind works, I make connections.
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So I tend to make connections among ostensibly unconnected things which produce inspirations.
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So I might read an article here and cut it out, then an article from another source on a somewhat different topic that I think is connected and put it on a pile, and then an article from here and a video from here, and that thought from here, which I write down and put it on the pile.
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And when the pile is substantial in terms of content, not height, I might write a memo.
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Well, I think a good example of this is how you wrote your Getting Lucky memo, right?
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There was a confluence of ideas that all came together.
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You saw that tweet and you said, "Hey, now I got to write about this piece." Exactly, exactly. Yeah. I believe in luck.
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Well, maybe a more erudite way to say that is I believe in randomness, and I believe I've been incredibly lucky in my life. I can't believe it.
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So I was in my hotel room in Riyadh, and I picked up the Four Seasons magazine, and there was an article on luck, and it led off with a quote from Jack Dorsey from Twitter.
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He said something like, "Success is never accidental. You make your own luck."
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So that caused me to write the memo, and I wrote, "I couldn't disagree more."
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There are happy accidents, there are unhappy accidents.
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Now, people say luck happens when preparation meets opportunity.
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My point is that sometimes preparation does not meet opportunity. That person is unlucky.
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Most of us know people who are able, well-intentioned, hardworking, and don't get lucky.
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Many of us know people who are none of those things, but got lucky.
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Opportunity, if that's the word you want to use, or luck, is not evenly distributed. Yeah.
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So help me as an outsider.
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I'm going to totally straw man this, but I think it'll lead to an interesting answer.
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Why in the world would you give away your investing secrets in the form of clear memos?
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Why would you consider doing that? That's your edge.
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Well, I really believe that I can tell people what's important, but most of them are still not going to be able to do it.
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So I'm not putting myself at risk, because some people are going to say, "Well, that's what he says. I'm not into that."
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Some people will say, "I'm into it," but they won't be able to do it.
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The secret to success in these areas is not knowing these concepts, but it's being able to implement them.
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And a lot of people who say, "Yeah, that's good.
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I'm going to try to do that," they're just not going to get there.
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So the benefits of writing, in my opinion, in this case, outweigh that risk.
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I'm not giving that much away, and I get so much out of it.
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People say, "Well, when do you write?"
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I said, "Well, if you look at the record of the last 35 years, you'll see there's invariably a memo in September and one in January." What does that mean?
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It means I wrote over the summer and I wrote over Christmas. It's my recreation.
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It's one of the things I like to do the most, and I find it relaxing.
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Since I'm not under the pressure to publish, it's relaxing to do it and it's creative to do it.
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I believe that it's desirable to have a creative outlet that's mine.
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Tell me about that summer incubation period.
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How does a memo come together?
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Do you write things down, draw things out?
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Do you just sort of work through paragraphs?
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Do you start with an outline, move towards prose?
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What does that process look like for you?
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I really start with a pile of scraps of paper.
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I mean, I have a list of topics, a list of thoughts.
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I don't have what you would call an outline, Roman I, this A, B, C, Roman II, blah, blah, blah.
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I just have a bunch of ideas.
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They start off on piles of paper. They come up here.
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Usually what happens is I think about it for a long time.
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And then having thought about it and come to some ideas about organization, I just write them down.
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Do you do a lot of editing? Yeah. Yeah. I love the editing part.
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You do a rapid first draft, you think it's good, then you read it over again and you make changes.
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You move a couple of paragraphs around, you connect a couple sentences with a connector.
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I might do that about five times, let's say.
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Each time it gets a little better, but we have something called the law of diminishing returns.
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It means the first time you do it, you make it 20% better.
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The second time you do it, you make it 10% better than that.
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And the third time, five, and two, and then one, and then you can't really make it any better.
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But the word I use for that process is polishing.
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Hopefully it's a good thing that you enjoy having written and you enjoy writing it, but then you enjoy making it better and you take two sentences and you reverse them, and that's much better.
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So it's a source of satisfaction.
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When I get it to the point where I think it's as good as I can make it, then I have a few people I show it to.
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One of whom, I have one person who finds six things wrong, a person who has four things wrong, one finds 10 things wrong, and I have one person who finds 200 nits, like I used a long hyphen when I should have used the short hyphen.
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My commas are this kind of commas where they should have been that kind of commas.
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So now what I do is I let him read it first and he makes his 200 changes and I incorporate, and the rest is clearer sailing.
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But William Safire, who used to write a column in the Sunday's New York Times Magazine section called On Language, he used to have an expression.
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He said, "I ran it by my irregulars."
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Now, an irregulars, I believe, was a term for a ragtag army out of uniform, what we might call guerrillas today.
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And I am talking about 250 years ago.
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So he said he had his irregulars who were his ragtag, bunch of readers who gave him comments.
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So these four or five people are my support group.
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Obviously the goal is to get it from a B to an A, and then from an A to an A+.
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What you're so good at is the distillation, the ability to explain things in one paragraph and one phrase.
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So does it begin with the one phrase or does it end with the one phrase?
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I find it hard to generalize. I just have this idea.
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As I say, I think I think clearly. That's true.
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Then the goal is merely to get the thought onto the page.
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Of course, that's the hard part for most people.
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I don't find it that hard.
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It just takes a little time. You got to work at it.
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But I don't find it highly challenging.
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I think that having the phrases which clarify and simplify are integral to the process.
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So maybe the answer is I don't write much until I have the phrases.
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One of the most important things that I point out to people about my writing is that it is essentially my goal to write the way I speak.
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I don't want to do any different.
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My speaking hopefully is clear, hopefully my writing is clear, and hopefully it's the same. So I use contractions.
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I use hopefully common language.
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I can think of authors, I can think of one in particular, who seems to have the goal that I'm going to say things that my reader doesn't understand and I'm going to show them how smart I am, and how erudite.
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My goal is not to do that.
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I don't want to create a barrier or a level difference between myself and my writers.
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My goal is to say, "I'm a person. You're a person. We're both people.
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I know about some stuff you don't know about them, but I'd like to share it with you."
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You see this all the time in financial writing.
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I mean, my average time looking at some random white papers, maybe a second and a half, because I just scroll and I get out of it.
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And your writing has that simplicity.
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So if you've been successful doing that, if Buffett's been successful doing that, why does the industry still operate in these landmines of jargon?
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I think it was Mark Twain who's defined a profession as a conspiracy against the laity.
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A lot of professions have a jargon, which certain professionals maybe want to say insecure professionals, want to stay with that jargon to reinforce the barrier between themselves and the common man who is not a member of the profession.
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I'm not interested in that.
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I'd rather tell a story that people find interesting and accessible.
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And as I say, that's why my goal is to have a written product that reads like speech.
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How in the world did you stick with it for so many years when no one was reading your stuff?
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You've mentioned that, "Hey, I just really enjoyed this," but you're literally licking the envelope on memos in 1990, 1991, and no one's reading it. Yeah.
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Well, of course, now remember that that was pre-internet.
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So what you would do in those days, and it was largely pre-computer, so you would write it out, run it off on the Xerox machine, fold it, stick it in an envelope, address the envelopes.
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And in those days, I started in, I guess October of '90, they only went to my clients, and maybe there were a hundred. So it was laborious.
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And I always say that it's as if I wrote it out, ran it off, folded it up, put it in the envelope, addressed it, put a stamp on it, and threw them in the sewer, because I never heard back. But I did it for fun.
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I did it because I enjoyed it.
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I wrote the first one because I thought I had an interesting story to tell that I wanted to share.
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By the way, I never said if I write them, I'm going to get more business or make more money or anything like that.
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But then of course, in '95, we started Oak Tree, and so I had my own firm.
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That's when we started to distribute it electronically in addition to in writing.
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And I'll never forget the time in the late '90s when I put out a memo, and within an hour or two, I had a response back from somebody in Russia.
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Oh, that must have been exciting. It was.
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I didn't know anybody in Russia.
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I didn't send it to anybody in Russia, but it got passed around.
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I always say like Playboy Magazine when we were in camp.
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So then I said, "Oh, that's what they call going viral." And that was cool.
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So from probably a hundred or so in 1990, I think now we're up to 300,000 subscribers, and hopefully they pass it around.
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So it is a lot of fun now, and I get great responses and I enjoy it, and it's just a pleasure.
17:15
How did you get into this?
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You had mentioned college.
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That's when it really begins, huh? I went to Wharton.
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I went to public high school in New York.
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One day, one of my buddies said, "Hey, they're giving you a course in accounting. We should take that."
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So I took that course and I loved it.
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And that made me decide to be an accountant, which is what my dad was, and to apply to Wharton, which previously I didn't know what existed.
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And I was lucky I got into Wharton.
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My guidance counselor said I wouldn't, my grades were indifferent, but luckily I got in.
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And that changed my life, obviously.
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Now, when I got to Wharton, Wharton had two requirements that I would describe as enlightened.
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You had to have one semester of the literature of a foreign country in English, and you had to have a non-business minor.
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Now, the geeks, for their non-business minor, took econ or stat or poli sci.
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But for my language literature, I took Japanese, no idea why, except that I think the exoticism appealed to me.
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I loved it so much that I took five courses at the graduate level in Japanese studies, and I made it my non-business minor.
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And what distinguishes Japanese literature as you think about it? How is it different?
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It's highly stylized, and the imagery is highly, highly descriptive but also very elegant.
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Everything that Japanese have done has always been elegant in its word choice, in its imagery, etc.
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And importantly, the five courses I took, four were taught by the same professor, a guy named E. Dale Saunders. He was like an estate.
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He was like an Oxford don.
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He was very demanding of writing.
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And by the way, remember that as a Wharton freshman or a sophomore, you're taking econ courses with 200 students in an auditorium.
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These graduate level courses in Japanese studies were eight people at a table in a room.
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So you would send them in a paper and he would send it back.
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And in the margin, in this really picky little writing, in the margin, he would say WW, wrong word, or REP, repetitive, or RED, redundant.
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And if you wrote something good, he would write AHH. Ah.
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And if you got an ah, you really felt rewarded. That was good.
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So I would say that Professor Saunders, really ...
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First of all these courses turned me ...
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I had just turned 17 when I went to college.
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I was just a kid, boys developed slowly anyway.
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These courses turned me from an indifferent student into a serious student.
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This is the first time other than my accounting course that I was excited about what I was learning.
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But he really helped me to raise my writing.
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And that was 1965, and the first memo came out in 1990.
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So it took me a while to do anything about it.
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And when I went to work in the business in '69, from then till '90, I always tried to turn out a well-written product, but it wasn't a stand-alone product in its own right.
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Let me, as a segue, just point out that when my son was preparing to come into the business and when I speak to other people who want to go into business or careers in general, one of the things I say to them, which I think is important, is that if you think about the role of randomness in the world, there's so much that's not within your control.
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You try to be an investor or an entrepreneur or a podcast creator, there's a lot that's not in your control.
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One thing that's within your control is the quality of your output. Amen.
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So you should have a simple goal, which is to put out a product which is the highest quality you can.
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And if you have done that, by definition, it's the best you can do.
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You can't do better than the best you can do, but if you've done that, you can relax.
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So I really think that there's ...
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And the other thing I told my son when he went off to college in '05 was that "With internet and emojis, and you are a great person, everybody else is dumbing it down.
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If you maintain a high standard when they dumb it down, you'll shine. You'll be distinguished.
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So I think writing is a better way than ever to distinguish yourself for the better."
22:42
So if I've just raised half a billion dollars and I'm now running a fund and I want to write memos or an annual letter, and I come to you and I say, "Mr.
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Marks, I would like to adopt the strategy that you adopted, and I'm all in on quality," what parameters should I be thinking about as I write them?
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What makes a good memo or annual letter?
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What I would say is, I appreciate your interest in writing memos.
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Let's hope you're a good writer, but don't waste your time until you have something to say.
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So a guy who's a year out of grad school, or three years or X years, has nothing to say other than to discuss his or her level of ignorance, and that might be endearing, or it might signal that he or she is on some quest, but you don't have wisdom to impart.
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What I'm trying to do, remember I started in 1990, I'd already been working 21 years, and hopefully I had something to say.
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So before that, I would say don't waste your time.
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Write for practice, write to communicate with your clients, but don't expect anybody to read your memo for sage advice when you're 28.
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And then once I am ready, I've been working the business for 20, 30, 40 years, what should I focus on?
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Well, what I would say is think hard before you start about your point of view. What do you believe in? The word I use is creed.
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What is your investment philosophy? What do you believe in?
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What do you think will work? What will not work? What will you do?
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What will you refuse to do?
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What are the rules or principles that govern your activity?
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And try to speak from a principle-based voice.
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So many people say, "Well, this happened yesterday in Washington and this happened in New York and this is what the Fed said and this is what I think is going to happen tomorrow and this is what I think will happen on Thursday."
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That stuff is unimportant and unlikely to make for a very good output.
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Try to think of something significant, lasting principles, important lessons, morals, if you will, up to the story.
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Most of the people who write every day talk about what happened yesterday and what they think is going to happen tomorrow.
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And if they ever kept a scorecard on the things that they wrote about what's going to happen tomorrow, they would see that on average they get it right half the time, which is not very helpful.
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These are fleeting and these are insubstantial.
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So I would say, try to think of things that have substance.
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I like how you phrase it.
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You say, forming a life philosophy has four parts, many ideas from a variety of sources formed over a long period of time that you distill into life lessons.
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So you have to be eclectic in your subject matter and eclectic in your sources so that you can be interesting and have some variety.
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We have an investment philosophy.
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I have a philosophy which is highly formed.
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The day you step out of school, when you start work, you don't have an investment philosophy.
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You may have some ideas from your school, but you have no reason to believe which ones work or that any of them will work.
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Some of the things you learned in school, you should consider and reject.
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You should figure out what's real and what's just theory.
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Yogi Berra said, "In theory, there's no difference between theory and practice.
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But, in practice, there is."
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So just a regurgitation of what you learned in school doesn't do you any good.
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You say, "I was told this and it really works, and I was told this and I think that's hooey."
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That's when you get valuable observations that you can turn into a written product which is valuable to somebody else.
27:27
I like how you say eyes wide open, that sense of awareness. Yes.
27:31
One of the reasons that I got into Wharton when the odds were against was that I had high SATs, and one of the things I did best in the SATs was the section called analogies.
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I've always been good at analogies, and I see connections.
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Every decade I've written a memo about the connections between sports and investing, and in most decades, one about the connection between gambling and investing.
28:01
Just writing a memo about investing, not too interesting.
28:09
A memo about the connection between poker or backgammon and investing I think can be quite interesting.
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So if you go through life, as I naturally do, seeing a lot of things in natural intellectual curiosity and thinking how they relate to your prime subject was investing, I think you can get some interesting stuff. Yeah.
28:36
Two things on the topic of reasoning by analogy.
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The first thing is how often in your interviews you say you got to be careful about reasoning by analogy.
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So it's funny how often you preface your analogies with that.
28:49
And my favorite analogy that you have is, to me, such a visual one, it's so vivid, of the economy like a ball, and then there's water spewing up under it.
29:01
That is one of the benefits of reasoning by analogy, is that all of a sudden an abstract concept can be vivid, you can see it, and then it becomes alive in a way it wasn't before. Yeah.
29:12
Well, I think visually and graphically, and I think of these images which help me to distill my thoughts, and then I think they're very helpful in explaining it to people.
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So in the ocean, there's a water spout and it's holding a ball up, and the water spout is a stimulative policy from the Fed.
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The ball is only going to stay aloft as long as the fed stimulates, so it is not permanent.
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Another thing is, you have somebody who, for some reason or other, is buying a certain stock, and that lifts the price, and people say, "Oh, I'm going to get in on that."
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But you have to realize that when the person stops buying, the stock is going to subside.
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So then the water spout stops.
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And it helps you think about influences that are temporal versus permanent. It's just a picture.
30:13
But I mean, I think in graphs, I draw a lot of graphs.
30:13
When I was writing the Mastering the Market Cycle, there's a discussion in there about the fact that I was lying in bed in Jaipur, India and something made me think back to a discussion that I had in Shanghai a year or two earlier.
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When I'm meeting with clients, I like to have a whiteboard there, and I drew things on the whiteboard, and this time I was 21st century enough to actually take a picture.
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I had the picture on my phone, I pulled up my phone, looked at it, and that became a chapter, or at least an idea, in Mastering the Market Cycle.
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I was meeting yesterday with somebody who happens to be a friend of the person I was meeting with in Shanghai six years ago, and I whipped it out and I showed her the pictures of the charts I put on the wall in Shanghai in 2016.
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By the way, the old sayings don't get to be old sayings for nothing.
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And there's an old saying which says that one picture tells a thousand words. It's really true.
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And I tend to think in pictures and graphical relationships, which makes life easy, and I think it makes it easy for people to understand what I'm saying.
31:46
What does Buffett do in his writing that you admire and struggle to emulate?
31:49
I admire and strive to emulate his turn of phrase, things like, back in '09, when the wheels were coming off the economy and the financial sector in the global financial crisis, I think that's when he said it for the first time, he said, "It's only when the tide goes out that we find out who's been swimming naked." What a great image.
32:17
In other words, this goes back to the luck thing, there are lots of people who appear to have been skillful, but until they're tested by adverse circumstances, we don't know if was really skill or just a bunch of good luck.
32:41
But look how many words it takes me to say that, and he said it in 15. Yeah.
32:50
The other thing is he's funny, and I like to be funny.
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I like to make people laugh.
32:54
My dad told a lot of jokes when I was little, and it's a habit I got into.
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So I like to be funny, and I think that his writing is folksy and accessible, and I try to make mine accessible rather than standoffish.
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And that's why I'll use a simple word instead of a sophisticated word if I can without diminishing the communication value, and especially I'll use conjunctions.
33:26
One of the things I like about your letters, Buffett's, Bezos', is these little lessons that are crystallized.
33:35
There's a great one from, I want to say it's 2017 through 2019 in Bezos letter, where he talks about handstands and how if you're going to learn how to do a handstand, you have to just commit to doing it for multiple months.
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You can't expect that you're going to learn how to do it in 48 hours.
33:52
And that that's a really good analogy for building a business, for how we're thinking about things at Amazon.
34:01
Sometimes it's just going to take some time and you got to sign up at the beginning and say, "I'm going to be patient here."
34:05
And those lessons, I think, really inspire a lot of the credibility, a lot of the connection that readers have. Yeah.
34:10
Well, if your real goal is to do something for your readers, then the test of what you have, whether you've accomplished a goal, is what you've helped them with, and clearly they're going to be more helped if what you say embodies sophisticated concepts delivered to them in an accessible way.
34:37
How do you feel that your writing has improved over the years?
34:40
It has improved by getting better.
34:40
I mean, I can't be more specific than that.
34:40
I think I'm clearer about what I want to do.
34:48
But if I go back and read the first memo in 1990, I'm okay with it.
34:55
I may think I could have done better.
34:55
By the way, I think it was only a page and a half. It was. Yeah. Yeah.
35:03
Now they're consistently about 12 pages.
35:03
By the way, I don't aim for a certain length.
35:03
They all seem to come out 12, 13, 14 pages.
35:08
Beyond that, I think they become laborious, and I don't think you can deliver much shorter than that.
35:16
You know what your first sentence was in your first annual letter?
35:21
I think it's interesting how you've been exploring this sentence, I think, for the last 24 years.
35:29
We all seek investment performance, which is above average, but how to achieve it remains a major question.
35:34
And that's one of the things that, having gone through your archive, there is such a consistency in the questions that you're asking year in and year out, year in and year out.
35:46
And I've really come to appreciate the depths with which you can explore such a simple question about risk.
35:52
What does it mean to have something be mispriced, underpriced year in and year out?
35:56
These questions are actually endless once you get into them. Thank you.
36:02
I'm going to show this podcast to my wife, she says they're all the same. But I'm really pleased.
36:13
Sometimes I'll go back and read an old one, not just for entertainment, but because I have a reason to research something.
36:18
And I'm really pleased to say, "This is the idea I have today.
36:25
I had it 25 years ago or 30 years ago."
36:25
And what that convinces me is that it's solid.
36:33
If you had an idea 30 years ago, but then you never wrote about it again or wrote something different in 25 and 20, and you would say, "Well, this is something that comes and goes."
36:39
But I think I've thought these things out in depth, and I think that they stand the test of time.
36:53
One of the tests of time is that I forget about having written them and I write them again because I still believe them and because they still hold up.
36:58
And the beauteous thing about writing, as opposed to speaking, is that in writing, you can't BS because the reader is going to go back and read it again and say, "Hold it. Wait a minute. Oh, that sounds good.
37:11
Oh, I'm going to read that again."
37:18
Then he reads through it. No, that doesn't follow. Rigor. Rigor.
37:23
The foundation has not been laid or the foundation isn't solid.
37:28
And that's where the logic comes in.
37:28
What I do is not creative writing.
37:28
It's not fine literature.
37:34
I'm trying to convey a point, and for have somebody say, "Yeah, that makes sense," it has to hook up, it has to connect.
37:41
The logic has to be established, the foundation has to be solid, and the explanation has to be clear.
37:48
There's a line from Oliver Wendell Holmes, the Supreme Court Justice early 20th century, he says, "For the simplicity on this side of complexity, I wouldn't give you a fig.
38:00
For the simplicity on the far side of complexity, I'd give you the entire world."
38:06
Well, I think that makes a lot of sense, and that's one of these topics that a lot has been written about because it deserves to be written.
38:20
If you can make things clear, I think you've done something good, and I think the reader will get something out of it.
38:31
It's not just the depth of your production, but also the depth of your consumption.
38:36
The most important thing, a lot of your memos, I see so many patterns, repeat in terms of what writers you're really coming to deeply understand: Taleb with the influence of randomness; Galbraith with the futility of forecasting; Ellis, better to avoid losers than try for winners; Milken, hold survivors, but avoid defaults and bond investing.
39:02
And that's the other thing.
39:02
It's just plumbing the depths of a good idea and almost the power law of ideas themselves.
39:10
When you find one that's worthy of pursuing, to really study it and to let that idea become a part of you in a way that you don't come to appreciate if you're just skipping between books and different writers.
39:22
Well, look, it's an unacceptable conceit to think that nobody who went before you knew it better.
39:31
Quotes and adages and books wouldn't remain popular over time if they weren't substantial.
39:42
So I use a lot of quotes and adages and stories and that kind of thing because there were smarter people than me in the past who said things in a more substantial or maybe a clearer way than I can.
40:01
So why reinvent the wheel in an inferior way?
40:08
Why not just go with the greats?
40:08
One of the ones that you don't mention, perhaps my greatest hero in terms of investment philosophy, I consider him to have been an investment philosopher, was Peter Bernstein, not a well-known person, not a household name, but a really smart person, much older than me. Against the Gods. Against the Gods.
40:36
Against the Gods was a really great book on the history of probability. He wrote other books.
40:43
But for a long term, long time, he wrote his own memos.
40:43
He was really profound, extremely well-read, a little more erudite than me. I have a great story.
40:52
And as you mentioned that I returned to certain themes over time, in '06, I wrote a memo called Risk.
41:04
I think risk is the most important thing.
41:15
There are three chapters on risk in The Most Important Thing. At the beginning too.
41:20
At the beginning, I wanted to write down everything I thought about risk.
41:23
I think that the writing of the memo in '06 was really occasioned by a way I developed of thinking about risk, which was different from the conventional way of thinking about risk that I had learned at Chicago back in the '60s.
41:35
I finally cracked the puzzle in '06 about what was wrong with what I had learned and how to improve upon it.
41:46
You may recall, there's a graph in here of my approach.
41:46
I won't describe it, I'll let people buy the book.
41:53
So I wrote this memo Risk, and then by 2014 I had some more thoughts and I wrote a memo called Risk Revisited.
42:02
And now I said, "Now this includes everything that I know about risk."
42:09
And then one day in my office, I got down finally to the bottom of a stack of papers, which I rarely do.
42:16
And there at the bottom was a memo from Peter Bernstein, and the title was, Can We Reduce Risk to a Number?
42:25
Because the idea of quantifying risk and using it as a numerical input to a formula, which people like to do because they like to get answers to questions, I don't think you can do, he didn't think you could do.
42:43
So he's got this whole memo about the nature of risk, which A, is brilliant, and B, agrees with me.
42:48
Those are the two important criteria.
42:53
So I put out another memo, this was now '15 or '16, entitled Risk Revisited Again.
42:53
And this was the first time I had ever done this, but I wrote it in the preface, I think I said, "In betting on horses, there's something called past posting, which means trying to get a bet down after the race is over." Past posting.
43:17
I said, so I'm not going to try to do that in a hidden way.
43:25
I'm going to reissue Risk Revisited.
43:25
I'm going to add stuff from Peter Bernstein's memo and other sources, but I'm going to put them in italics, so you know which is the new content.
43:37
And I added a lot of stuff from Bernstein.
43:37
Anyway, it's brilliant stuff.
43:37
He really had a great influence on my thinking.
43:43
Because risk, everybody knows what it means to make money. Most people can do it.
43:50
It's not that hard to do.
43:50
It's especially easy to make money when the market goes up, and the market goes up roughly eight years out of 10, though it's not a miracle.
43:55
To me, the real accomplishment is making money with the risk under control.
44:02
And that's what thinking about risk I think helps you do.
44:07
So Bernstein's writing is very important.
44:15
Now, in October, November, I was thinking about a Peter Bernstein quote, which I use in presentations sometime.
44:20
And all my important papers are at home in East Hampton, New York.
44:26
So I had to wait until I got there to look for the source.
44:26
I get there on Thanksgiving, I run to my boxes full of papers.
44:33
I find the memo Can Risk Be Reduced to a Number? It's not there.
44:40
I was crestfallen all night.
44:40
I got up the next morning, I thought of some more places to look. There it was.
44:47
And it was not from a memo, it was from a video that he did for McKinsey where I wrote out some of the key concepts and stuck it in that box.
44:54
And then I looked a little further in the box and I found another memo on risk from '01.
44:59
So this is a gradual accretion of wisdom by somebody that I've learned a great deal from.
45:07
And he wrote beautifully.
45:14
I always say that conversations are like an algorithm for randomness.
45:18
They get you out of the maze of your mind. Yeah.
45:18
But I think it's desirable to record what you said.
45:24
Now, some people probably go around with videographers, recording everything they say.
45:31
That's going- We can do this every day.
45:33
We can do this every day.
45:33
That's going a little too far. Sorry, Jeff.
45:36
But if your mind is engaged and you have the benefit of experience, and I got a great education from the combination of Wharton and Chicago and then 55 years of experience, maybe the things you say include valuable elements that you never said before or thought of before.
46:00
And it's great to memorialize those and use them when the time comes.
46:07
I get so many questions about what should I write about, what should I write about?
46:07
People think it is so complicated, and one way that I see it in your work, it's actually incredibly simple.
46:10
It's trying to reconcile what you learned at Wharton that is qualitative, then what you've learned at University of Chicago which is quantitative, and actually it's just in the reconciliation of two things that don't perfectly align that you're then trying to apply, akin to the Yogi Berra quote that you were saying earlier, and actually it's just when you find a one incongruency amongst two things, trying to work that out, go like that.
46:38
That's so much of what writing can be. Yeah.
46:43
Well, writing about things that naturally go together, is not that interesting.
46:43
Reconciling two things that seem to be at odds that exist in the same marketplace.
46:49
That's really challenging.
46:58
But if you can do it in a satisfactory way that adds to the knowledge, that's really rewarding.
47:07
Why do you think that you're the guy who figured this out, who figured out how to write these memos that really went viral?
47:12
I mean, there's a lot of people who tried to do this.
47:18
Why did you succeed so much? Why you?
47:18
Well, first of all, I had a great education.
47:18
And as you say, if you read Outliers by Malcolm Gladwell, you learn about demographic luck, right time, right place.
47:31
So I went to Wharton from '63 to '67, and at the time, Wharton was practical and qualitative.
47:42
And then I went straight from there to University of Chicago for an MBA.
47:42
The so-called Chicago School of Investment Thought had been created mostly in the period '62 to '64, or published then, which means I was among the very first classes to be exposed to it.
47:56
And this was entirely quantitative and theoretical.
48:03
And how do you reconcile the two?
48:03
And then, of course, to quote Yogi, "How do you reconcile both of those with practice?" Right.
48:20
Very few people were exposed to both at the time I was.
48:22
Maybe not too many of them thought about the juxtaposition.
48:22
They said, "I just want to go out and get a job and start making money.
48:30
I don't care about that thought crap."
48:30
But I am attracted to intellectual puzzles.
48:36
I have intellectual curiosity, and I can't ...
48:36
If Wharton says that the way you make money is by thinking about something and deciding whether to buy it and then it goes up, and Chicago says you can't beat the market because everybody already knows everything you know and it's already reflected in the price of security so there's no such thing as finding a bargain.
49:05
And then there are a hundred thousand people working in the investment management business trying to make money for themselves, hopefully by making money for their clients.
49:19
How do you reconcile those three things?
49:19
And only the challenging reconciliations are interesting.
49:26
The easy reconciliations are not interesting.
49:26
So I give a presentation called The Human Side of Investing, the difference between theory and practice based on Yogi's quote, which I introduced with Yogi's quote.
49:43
But the question is, you learn ABC in school and you get out in the real world and you find that what's important is D and E.
49:50
Does that mean ABC is irrelevant?
49:56
Does that mean only D and E counts?
49:56
How do you connect the two?
50:02
One comment then last question.
50:02
I think that you've presented a great writing prompt, which is what doesn't make sense, what just doesn't make sense?
50:08
And how do you reconcile two opposing worldviews that both, on their own, seem like they're coherent in total?
50:21
How do you square the two of those?
50:21
Well, I think that all of your viewers who are interested in writing should realize that if they write what everybody always already knows, they're not going to have much of a career.
50:37
If they reconcile things that are easily reconciled, it's not going to be that interesting.
50:46
If it's dull and humorless and high-flown in terms of its verbiage, it's not going to be fun to read.
50:53
So you have to make it interesting.
50:53
But as you know, writing is incredibly rewarding.
51:02
You don't need sophisticated equipment.
51:02
There aren't expensive entry fees.
51:12
I've been doing this for 35 years, I've been working for 55 years, I still think of new things and I say to myself, "I never thought of that before."
51:18
To me, that's what it's all about.
51:28
You can stay young and alive if you're still growing, but if you say, "You know what?
51:37
I know everything there is to be known," you'll ossify and you won't be that interesting.
51:47
My final question, pretend I'm the chancellor at Wharton and I say, "Howard, I'd like for you to teach a writing class, and it's going to be called The Most Important Thing," what is the most important thing about writing? It's like the book.
52:01
The book is called The Most Important Thing.
52:08
It has 21 chapters, and each chapter says the most important thing is ...
52:08
and it's a different thing.
52:13
There's no one important thing.
52:13
And the reason I wrote the book and gave it that title is that I would find myself sitting in a client's office and I would say the most important thing is to control risk.
52:24
And then 10 minutes later, I would say the most important thing is to not lose money.
52:30
And then I would say the most important thing is to know something that not everybody else knows.
52:38
So what's that for writing?
52:42
What are the chapter titles?
52:42
Clarity, humor, interesting topics, challenging the reader to learn something they didn't think of before.
52:54
If somebody reads a book, not a novel, but a nonfiction book, and at the end says, "Well, that was well-written and convincing, but I knew all that stuff before I started," or, "That really agrees with everything I already thought.
53:16
This is how we started the interview," then they're not going to buy your next one.
53:16
And you haven't accomplished anything. So what is your goal?
53:23
What are your means to accomplish it?
53:31
And I think those chapter headings, and I'm sure I could think of some others, those are the means to successful writing.
53:37
Well, thanks for doing this.
53:37
I really admire the career that you've built, the writing that you've done, and really cool to meet you today.
53:48
The only thing I can tell you is, it's been fun. Good. Thank you.