Howard Marks, chairman of Oaktree Capital, doesn’t mince words. Price is what you pay, and value is what you get. But what is “value” in the eyes of this billionaire investor, famous for outstanding bets on distressed capital?
In his latest memo, “The Calculus of Value”, he strips it down. A company’s value comes from fundamentals – earnings today, earnings tomorrow, balance sheet strength, and the potential to create more. Earning power is the key angle for Marks.
Yet, management is what matters. With the right team in charge, a pile of assets becomes much greater than its parts. He calls this synergy – the alchemy that makes a good business more than just assets. Without it, fundamentals stay flat, and with it, they bend the curve.
Beyond the hype or narrative, the foundation of value is the ability to generate real cash flow under quality management. Everything else is noise.
Price Is A Consensus
Value may be fundamental, but price? That’s a vote. And the market is nothing but a messy election every single day. Optimists and pessimists throw punches, and whatever number flashes on your screen is just the current consensus that should not throw us off the long-term plan.
Marks leans on Benjamin Graham‘s timeless metaphor: in the short run, the market is a voting machine; in the long run, it’s a weighing machine. Psychology rules the near-term, but fundamentals win …