Ultimate Stock Tips

Learn from Funds: Oaktree Capital's 6 Investment Tenets

Publish date: Sat, 01 Jul 2023, 11:59 PM
Unique content created once in a blue moon to increase the quality of articles of klse.i3investor.com. (used to be weekly)

Oaktree Capital was founded by Howard Marks, a great investor who wrote the book "Mastering the Market Cycles". Today's article will be featuring his 6 investment tenets. Here's the website: https://www.oaktreecapital.com/about/investment-philosophy

1. The primacy of risk control.

I especially like this one. Essentially, it's about taking care of the downside, then the upside will take care of itself. 

"Above-average gains in good times are not necessarily proof of a manager's skill; it takes superior performance in bad times to prove that those good-time gains were earned through skill, not simply the acceptance of above average risk."

While some investors on i3investor like to boast about how much they profited in a certain year, it's equally important to see how bad they performed when they underperformed in certain years.

2. Emphasis on consistency.

To illustrate this, it's better to have returns of +5% for years, than getting +30% in one year, and suffering -20% in another year.

In my own interpretation, choosing companies that can constantly produce consistent performance is key.

3. The importance of market inefficiency.

Basically, this tenet tells us to look for stocks which not many people have information about, i.e. the low-profile ones which have potential. In other words, stocks which are highly monitored by analysts and fund managers are "efficient markets" and vice-versa. 

4. The benefits of specialisation.

To me, this sounds a bit like Warren Buffett's ""circle of competence" and Peter Lynch's "buy what you know". I agree that we should have some areas of specialisation of stocks, as we can't possibly know about all companies on KLSE.

5. Macro-forecasting not critical to investing.

Oaktree Capital doesn't bother about the macroeconomy and solely focuses on bottom-up research on companies. Meaning? They don't pick which industry will perform potentially well before selecting the company to invest in. They pick a company that's potentially gonna do well first. 

However, I'm a bit skeptical on this one, as everyone knows that the global interest rate hikes (macro-economic factors) did affect tech companies' valuations since last year.  

6. Disavowal of market timing

Oaktree Capital doesn't time the markets, i.e. try to buy a stock when it's "low" and sell when it's "high". They keep their portfolios fully invested, which runs contrary to our local investing maverick, Dr. Tan Chong Koay of PHEIM Asset Management's motto of "Never Fully Invest At All Times". 

In the local context, I believe Dr. Tan's approach is more prudent and more suitable for the local market. We never know when a new opportunity arises, or when the market will turn very bearish. Having spare cash is important. 


Oaktree Capital has been using these 6 investment tenets for the past 25 years or so. I believe there are merits in some of these investment tenets which we could use in our stock investment process, despite the local stockmarket having different characteristics from the US stockmarket. 

P.S. The number of views of my recent blogposts seem to suggest that the sentiment on the KLSE is still overwhelmingly bearish. 

Disclaimer: This article is not tailored financial advice, but mere general stock sharing / observations. Please do further due diligence. The author may own some abovementioned stocks.

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