Howard S. Marks of Oaktree Capital Management is one of the few investment gurus Warren Buffett respects.
“When I see memos from Howard Marks in my mail, they’re the first thing I open and read,” Buffett reportedly said. Many investors consider Marks’ famed Oaktree Memos mandatory reading.
Studying Marks’ reading list could help you understand the thinking of one of the legendary value investors. By reading the books Marks recommends, you can absorb the ideas that inspire the Oaktree Memos.
1. Winning the Loser’s Game by Charles D. Ellis
Timeless Strategies for Successful Investing
Ellis’s thesis is that investors make more money by working with the market than betting against it. For example, Ellis thinks you can make more money by buying popular tech stocks such as Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN) than by avoiding tech.
Ellis’s main lesson is that trying to predict the markets is always a loser’s game. Ellis believes going with the flow is easier and more profitable than working against the markets.
If you want a simple value investing strategy that does not require paying close attention to the markets, Winning the Loser’s Game is the book for you.
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2. A Short History of Financial Euphoria by JK Galbraith
Galbraith, one of the giants of economics, analyzed market bubbles ranging from the 17th Century Dutch Tulip Craze to the 1980s Junk Bond madness for this classic.
A Short History shows how asset bubbles develop and spin out of control by exposing the emotions behind them. Smart investors can use that knowledge to identify bubbles and avoid them. Plus, investors can learn how to tell the difference between value increases and market euphoria.
A Short History is a must-read for anybody who wants to know why Ben Graham and Warren Buffett believe Mr. Market is insane. Galbraith demonstrates that market insanity, financial euphoria, and bubbles have always been part of the investing process.
Investors who fail to understand financial euphoria will lose money. Those who understand financial euphoria could avoid losses.
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3. Fooled by Randomness by Nassim Nicholas Taleb
The Hidden Role of Chance in Life and in the Markets
This classic is part of the trader turned philosopher Taleb’s popular Incerto series. Incerto explores the roles of luck, chance, deception, superstition, randomness, human error, risk, decision making, and the limits of human knowledge.
In Fooled by Randomness, Taleb argues that circumstances can deceive anybody into thinking that random occurrences are logical or systematic. Many investors see imaginary patterns in the markets and charts, for example.
Taleb believes that investors often mistake luck for skill and insight. Others will confuse guesswork with insight or knowledge.
Fooled by Randomness is an informative standalone read for any investor. However, the best way to understand Taleb’s ideas is to read the other Incerto books; The Black Swan, Antifragile, Skin in the Game, and The Bed of Procrustes.
Anybody who wants to know why even veteran traders have false ideas about the markets needs to read Fooled by Randomness.
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4. Principles: Life and Work by Ray Dalio
Dalio is the Co-Chief Investment Officer and Co-Chairman of Bridgewater Associates.
Bridgewater Associates is widely regarded as the world’s largest hedge fund, with $160 billion under management. Dalio has built himself an $18 fortune with his investing prowess.
In Principles, Dalio relates what he considers the most lessons he has learned in a 45-year investing career. Dalio’s most interesting argument is that life, management, economics, and investments can be understood as rules that function like machines.
Dalio explains how he makes decisions, builds teams, hires employees, rewards employees, and invests in Principles. Thus, Principles is both a business book and an investment book. If you want to understand the thinking of one of the world’s greatest investors, Principles is a must-read.
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5. The Warren Buffett Way by Robert G. Hagstrom
The Warren Buffett Way offers investors an in-depth look at the Oracle of Omaha’s business and investment strategies.
Hagstrom argues that Buffett built his fortune and Berkshire Hathaway (NYSE: BRK.B) by looking at stocks and companies as businesses rather than investments. Investors who want to imitate Buffett need to assume a similar mindset.
In the latest edition, Hagstrom argues investors need to think long-term and not obsess on loss aversion. Buffett’s greatest strength is his ability to think rationally about a changing market, Hagstrom writes.
Hagstrom analyzes Buffett’s investing strategies by examining his acquisition of H.J. Heinz, now Kraft Heinz Co (NASDAQ: KHC), and Berkshire Hathaway’s investment in IBM (NYSE: IBM). Those who want an in-depth study of Buffett’s methods need to read The Warren Buffett Way.
[Related Article: Learn to invest like Warren Buffett With Our Buffett Stock Screener Guide]
6. Factfulness by Hans Rosling and Anna Rosling Rönnlund
Ten Reasons We’re Wrong About the World and Why Things Are Better Than You Think
Rosling and Rönnlund reveal ten instincts that distort our perspectives. Investors can learn from Factfulness by understanding that those instincts affect investment decisions. Rosling examines how media consumption and us vs. them thinking distort our views of reality.
Rosling also shows that the condition of the world is getting better, but most people think it is getting worse. Understanding that misconception is one of the key tenets of Warren Buffett’s investment philosophy.
Buffett invests with the assumption the economy will get better, and people will have more money. Buffett makes money because the economy grows when others think it will not expand. Buffett and Marks buy stocks in bear markets with the understanding recovery will occur.
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7. Against the Gods by Peter L. Bernstein
The Remarkable Story of Risk
Bernstein argues that our understanding of risk shapes our worldview and decision-making. A person’s understanding of risk affects their investment decisions because people usually avoid less risky investments.
In Against the Gods, Bernstein uses a history of risk to explore the origins of finance and science. Bernstein argues that risk analysis is the basis of modern finance.
Against the Gods also offers an introduction to modern theories about decision making and behavioral finance. This book is useful for investors because Bernstein has experience in the financial markets.
If you are looking for a good history of financial science, Against the Gods is a good read. Marks recommends Against the Gods because it verifies his beliefs about market irrationality and behavioral investment.
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8. The Most Important Thing Illuminated by Howard S. Marks
Uncommon Sense for the Thoughtful Investor
Marks offers the most important insights he learned in 40 years of investing in this book.
In The Most Important Thing Illuminated, Marks explains his key investing concepts, including second-level thinking, the value and price relationship, and defensive investing.
If you want to learn Marks’ philosophy and investing strategies, The Most Important Thing is a must-read.
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9. Mastering the Market Cycle by Howard S. Marks
Getting the Odds on Your Side
Marks based this investment strategy book on insights from decades of his Oaktree memos. In Mastering the Market Cycle, Marks identifies market cycles as one of the most important concepts investors need to master.
Marks believes that the market cycle determines investment prices and creates demand. Marks writing about Cycles is refreshing because he admits fear and greed distort people’s views of the market and blind them to problems.
Marks believes that accurate information about market outcomes will not guarantee investment success. Instead, Marks thinks making the correct assumptions about price and having the discipline to act on the assumptions is the key to making money in the markets.
Suppose you want to understand the relationship between human psychology and market cycles; Mastering the Market Cycle is a must-read.
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10. Memo to Oaktree Clients, from Howard Marks By Howard S. Marks
Marks offers a selection of his client memos from the years 1990 to 1999 in this book. If you want to examine Marks thinking and investment strategies firsthand, Memo is a must-read.
Suppose you want to see what Marks thinks about hedge funds, irrational exuberance, the margin of safety, distressed debt, strategy, risk in today’s markets, and alternative investments. The Memo to Oaktree Clients is a vital resource.
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Howard Marks Reading List
Howard S. Marks is one of the most exciting investment thinkers active today. Investors such as Warren Buffett admire Marks because of his honest and unique opinions about the markets. Studying Marks’ writings and the books on his reading list can help you understand the markets and the investment process.
Best of all, investment thinkers such as Marks can show you what investment and economics books you need to read and study. Marks shows that reading widely and having an open mind are two of the most attributes for a successful investor.
A good library is one of the most valuable items in any investors’ tool kit. Howard Marks’ recommendations belong in any investors’ library.
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