For more than thirty years, Howard Marks has sent the clients of Oaktree Capital a series of memos on markets — letters so widely read that Warren Buffett has said he opens them first. Marks built his career in distressed debt, the corner of investing where being wrong is expensive and being early can feel the same as being wrong. So it's worth asking, as a thought experiment built on his public writing: how might Marks look at a day like today?
He wouldn't try to predict it. Marks's most quoted line is four words: "You can't predict. You can prepare." He has spent decades arguing that forecasting the market's next move is a fool's errand — not because forecasters aren't smart, but because the future genuinely isn't knowable. What you can do, he says, is understand where you are and position accordingly. On a day like this, he wouldn't be asking "what happens tomorrow?" He'd be asking "where does today sit?"
He'd locate the pendulum. The central image in Marks's work is a pendulum swinging between greed and fear, between risk tolerance and risk aversion. It rarely rests at the sensible middle; it spends most of its time traveling from one extreme toward the other. The investor's job, he argues, is not to time the swing but simply to know where the pendulum is right now — are people euphoric and paying up for risk, or frightened and giving it away? That single read shapes how much risk is worth taking today, before any question of what to buy.
He'd redefine what risk even means. For Marks, risk is not volatility — not the size of the day-to-day wiggles. Risk is the probability of a permanent loss of capital. And his most unsettling observation is that risk is highest exactly when everyone believes there is none: when confidence is universal, prices leave no margin for error, and a single disappointment has nowhere soft to land. The calm days, in other words, are the ones to watch.
He'd think one level deeper. Marks's other signature idea is second-level thinking. First-level thinking says "this is a good company, so I'll buy it." Second-level thinking asks "everyone already knows it's a good company — so is that in the price, and what do I see that they don't?" It isn't about being smarter; it's about being more thorough and more willing to differ than the consensus, because you can only beat the crowd by departing from it.
Why any of this connects to us. We don't invest the way Marks does, and none of this is a prediction or a recommendation. But his framework maps cleanly onto something we do every morning: before deciding what to hold, we read the market's posture — is the environment leaning risk-on or risk-off? That "where is the pendulum" question is the first thing our engine answers each day, sealed before the open, where you can watch it be right and wrong over time. Marks's whole career is an argument that this humbler question — where are we now? — tends to matter more than the flashier one everyone else is asking: where are we going?
This is a thought experiment based on Howard Marks's publicly stated principles, not his current views or advice. Educational content only. Not investment advice.