His investment memos are so good that even Warren Buffett hastens to read them. So what can we learn from the world's leading investor in distressed debt?
Distressed debt refers to the securities of corporate and government entities in financial or operational trouble.
The 17 distressed debt funds run by Oaktree Capital Management, the Los Angeles-based asset manager co-founded by Marks in 1995, have generated long-term returns (net of fees) of as much as 19 % per year for its pension-fund, sovereign-wealth, and endowment clients.
The firm claims to be the largest investor in distressed securities worldwide, with a total of 205 billion USD under management, including other asset classes. Marks, who at 78 remains Oaktree's co-chair, has a net personal worth of at least 2.2 billion USD.
Small wonder then, that when Marks speaks, people listen.
Warren Buffett, among many others, is a huge fan of Marks' memos, which are posted on the Oaktree website and offer wise and often witty insights into a wide variety of investment themes and strategies.
"They're the first thing I open and read," enthuses the Sage of Omaha. "I always learn something."
So what can the rest of us pick up from this remarkably shrewd market maven?
Investing, according to Marks, is all about understanding and controlling risk. Hardly a novel idea, you might think. But Marks plainly understands, and controls risk a lot better than most. His Oaktree memos offer clues as to how he does it.
"One decision matters more than - and should set the basis for - all the other decisions in the portfolio management process," Marks declares. That decision is "the selection of a targeted "risk posture", or the desired balance between aggressiveness and defensiveness".
Marks possesses an exceptionally deep understanding of market cycles, investor psychology, and valuations.
What's more, he says, "It's one or the other. You can't simultaneously emphasize both preservation of capital and maximization of growth, or defense and offense. This is the fundamental, inescapable truth in investing."
In short, each individual investor has to decide whether to worry more about losing money or about missing an opportunity. Marks made that decision long ago.
Convinced that losses do more harm than any benefits obtained from gains, he has built his reputation on avoiding "losers". As he told a YouTube channel audience earlier this year, once you've weeded these out, "the winners take care of themselves".
This would seem to make Marks' success with apparently highly risky distressed securities all the more extraordinary - until you realise that Marks is no ordinary contrarian.
Rather than simply bucking market trends, Marks' contrarian approach is rooted in an unusually profound understanding of market cycles, investor psychology, and, crucially, value.
An admirer of Benjamin Graham, a mentor of Warren Buffet, whose "Mr. Market" allegory first described market irrationality and the dangers of groupthink back in the 1940s, Marks accepts that markets are essentially driven by emotion, fluctuating between extremes of optimism and pessimism.
For disciplined investors who can keep their cool this volatility creates opportunities. The question is, how to exploit them?
Thinking deeper and better, what Marks calls "second-level thinking", helps him to develop a more accurate and rational assessment of reality than the average market participant.
Not only does he control his emotions, resisting the cycles of greed and fear that can cloud judgment, he also strives for a degree of intellectual humility; acknowledging what he doesn't know, and still ending up knowing "more than others".
It's not what you buy, but what you pay for it.
Coupled with the rigour with which he applies these concepts to his investment portfolios, Marks' depth of understanding helps to explain how he and Oaktree have managed to distinguish themselves, especially in tumultuous markets.
In the financial crises of 1998, 2001, and 2008, when most investors were panicking, they capitalized on market inefficiencies and focused on distressed assets. As a result, they not only mitigated risks but also realised the stellar returns that cemented Oaktree's reputation for resilience.
The most important pointer to Marks' investment success, however, is the price he pays for assets. In fact, price is key to the way he controls the risk of the distressed securities he specializes in.
Marks credits a 1978 meeting with the legendary "junk bond" investor Michael Milken with helping him to realise that "It's not what you buy, but what you pay for it."
A native New Yorker, Marks was working for Citicorp at the time, having graduated from the University of Chicago Booth School of Business in 1969 with an MBA in accounting and marketing. In 1980 the bank sent him to Los Angeles to manage a high-yield fund.
Subsequent experience of managing high-yield and distressed-debt funds for other financial services providers in California, including Oaktree, convinced him that the potential for gain or loss when buying a security is directly tied to the initial valuation. Indeed, "a great company at an exorbitant price is a poor investment, but a mediocre company bought for a bargain price can be a great investment".
Marks may not be the biggest market player around. His friend and admirer Warren Buffett is, of course, far bigger. But Marks' impact on the investment world has nonetheless been enormous.
His 2011 book "The Most Important Thing: Uncommon Sense for the Thoughtful Investor" was especially influential, offering a framework that has guided countless investors. This was followed by "Mastering the Market Cycle: Getting the Odds on Your Side", first published in 2018, which was a New York Times and Wall Street Journal bestseller.
Buying assets for less than they are worth may be Marks' most significant insight, and it certainly helps to explain the success of his distressed-debt funds. But his focus on price has much wider relevance, too.
"High prices imply high risk, and low prices imply low risk," he observes in another of his famous aphorisms, reminding readers yet again that by focusing on the price of the assets they buy, they can not only manage risk better, but also enhance their chances of achieving favourable returns.
