Value vs Growth: How Howard and Andrew Marks Bridge Two Investment Philosophies

A father-son conversation revealing how legendary value investor Howard Marks and growth-focused tech investor Andrew Marks reconcile seemingly opposing investment approaches in their most popular memo collaboration.

Key Takeaways

• The traditional dichotomy between value and growth investing creates false limitations, as successful investing requires understanding both approaches and applying them contextually
• Market efficiency has increased dramatically over decades, making readily available quantitative information less valuable while elevating the importance of qualitative future judgments
• Investment success depends more on matching strategy to personal temperament and skills rather than copying successful approaches that don't fit your nature
• The selling decision should mirror the buying decision in reverse, focusing on fundamental business evolution rather than price action or profit-taking psychology
• Firm building requires complementary skills among partners, with shared values being more important than identical approaches or backgrounds
• Exceptional founders and businesses are identified through unconventional thinking and willingness to diverge from consensus in "uncomfortably idiosyncratic" ways
• Technology has accelerated both opportunity creation and competitive threats, making long-term success depend on avoiding negative effects of success while maintaining adaptability
• Superior investment returns come from developing edge through better qualitative judgment about future prospects rather than superior analysis of current financial metrics

Timeline Overview

• 00:00–18:30 — The Genesis of "Something of Value": How Howard and Andrew's pandemic cohabitation led to spirited debates about investing philosophies, creating the most popular memo in Howard's 160-memo career spanning over three decades
• 18:30–35:45 — Andrew's Investment Evolution: The journey from parroting his father's value approach to becoming a growth investor, using examples like Amazon to illustrate how founder quality and optionality create value beyond traditional metrics
• 35:45–52:20 — Market Efficiency and Information Advantage: How the evolution from Moody's manuals and library research to ubiquitous online information has eliminated simple arbitrage opportunities while creating new requirements for competitive advantage
• 52:20–68:40 — Howard's High-Yield Bond Discovery: The origin story of distressed debt investing in 1978, when bonds rated below investment grade were considered "not appropriate for investment regardless of price" and how contrarian positioning created extraordinary returns
• 68:40–85:15 — The Art of Judgment and Founder Evaluation: Discussion of second-level thinking, the importance of backing exceptional founders, and how to identify unconventional people capable of building category-defining companies
• 85:15–102:30 — Selling Philosophy and Compound Growth: The debate over when to take profits versus holding exceptional compounding businesses, with Amazon as the quintessential example of why price action shouldn't drive selling decisions
• 102:30–118:45 — Firm Building and Partnership Dynamics: Howard's approach to building Oaktree with complementary skills and shared values, contrasted with Andrew's focus on maintaining investment primacy at TQ Ventures
• 118:45–135:00 — Investment Memo Legacy and Market Timing: The story of Howard's memo-writing evolution from zero feedback for a decade to becoming essential reading, plus Oaktree's contrarian approach to fund sizing based on market conditions

The Foundation: When Value and Growth Investing Converge

The collaboration between Howard and Andrew Marks on "Something of Value" challenged fundamental assumptions about investment categorization by demonstrating how traditional value and growth approaches share more commonalities than differences. Their pandemic-era cohabitation created intensive discussions about investment philosophy that revealed how seemingly opposing strategies both depend on understanding business fundamentals and making informed judgments about future prospects.

• Traditional value investing focuses on buying assets below intrinsic value based on current cash flows, while growth investing emphasizes future potential, but both approaches ultimately depend on discounting future cash flows from current point to eternity.
• Amazon exemplified how rigid adherence to either approach could miss exceptional opportunities, as the company required betting on management capability and optionality rather than traditional financial metrics during its early development phases.
• Ben Graham's greatest returns came from GEICO, which was decidedly not a traditional value investment, illustrating how successful investors must remain flexible and open to opportunities outside their established frameworks.
• The concept of "optional profitability" distinguishes growth companies that strategically accept losses for future positioning from businesses that lose money due to poor unit economics or competitive disadvantage.
• Market disruption has accelerated dramatically since the 1950s-70s era when businesses operated against relatively stable backdrops, making long-term competitive advantage predictions more challenging but also creating larger opportunities for exceptional companies.
• The newspaper industry's destruction demonstrated how businesses with seemingly impregnable moats could be completely undermined by technological change, requiring investors to constantly evaluate durability of competitive advantages.
• Modern technology companies can achieve global scale and adjacent market expansion opportunities that create much larger total addressable markets than historical businesses, but also face faster competitive threats and paradigm shifts.

Market Evolution and the Death of Simple Arbitrage

The transformation of financial markets from information-scarce environments to data-abundant ecosystems has fundamentally altered how investors can generate superior returns. Howard's experience with high-yield bonds in the 1970s occurred during an era when institutional prejudices and information limitations created obvious mispricings that would be impossible to exploit in today's efficient markets.

• Moody's definition of B-rated bonds as "fails to possess the characteristics of a desirable investment" regardless of price represented institutional bias that created systematic opportunities for contrarian investors willing to challenge conventional wisdom.
• The evolution from requiring physical visits to libraries and mailing away for annual reports to instant access to comprehensive financial data has eliminated simple quantitative advantages while elevating qualitative analysis importance.
• Warren Buffett's early success driving around rural areas to buy stock certificates from farmers would be impossible today, as geographic arbitrage and information asymmetries have been largely eliminated by technology and market development.
• High-frequency trading algorithms and machine learning systems now process vast amounts of readily available quantitative information, making traditional financial analysis commoditized rather than providing competitive advantage.
• Investment success increasingly depends on developing superior qualitative judgment about future business prospects rather than superior analysis of historical financial performance or current market positioning.
• Private markets like venture capital maintain information asymmetries and access limitations that create opportunities for differentiated returns, though competition for quality deals remains intense even in these less efficient markets.
• The poker boom analogy illustrates how strategies that work in early market environments become exploitative weaknesses as participant sophistication increases, requiring constant adaptation and evolution of investment approaches.

The Psychology and Process of Exceptional Decision-Making

Investment success depends heavily on psychological factors and decision-making frameworks that enable investors to act rationally despite emotional pressures and cognitive biases. Both Howard and Andrew emphasize the importance of developing systematic approaches to evaluation while maintaining flexibility to adapt as circumstances change.

• Second-level thinking requires going beyond obvious conclusions to develop insights that differ from consensus while being more accurate, though diverging correctly is much more challenging than simply being contrarian.
• Judgment cannot be easily taught or systematized, similar to asking a basketball coach to "coach height," as some people naturally develop better pattern recognition and analytical frameworks than others.
• Intellectual humility enables recognizing when assumptions might be wrong and seeking additional information or expertise rather than doubling down on potentially flawed analysis or biased perspectives.
• Founder evaluation requires understanding personal history and decision-making patterns rather than relying on prospective explanations, as past behavior under pressure provides better predictive value than theoretical responses to hypothetical situations.
• Exceptional founders typically demonstrate "uncomfortable idiosyncrasy" that makes them willing to pursue unconventional approaches despite social pressure to conform to established patterns or conventional wisdom.
• Team dynamics benefit from complementary skills and shared values rather than identical backgrounds or approaches, as diversity of perspective improves decision-making while alignment on principles prevents destructive conflicts.
• Risk management in venture capital operates through portfolio construction and expected value optimization rather than individual position sizing, requiring different psychological frameworks than traditional loss-avoidance investing approaches.

The Art of Selling: When to Hold and When to Fold

The decision of when to sell investments represents one of the most challenging aspects of portfolio management, particularly when distinguishing between businesses with exceptional long-term compounding potential and those that have reached fair value. The father-son discussion revealed fundamentally different approaches based on investment type and personal psychological makeup.

• Traditional value investing often involves buying "dollars for fifty cents" with clear exit points when securities reach fair value, while growth investing requires identifying businesses capable of compound value creation over extended periods.
• The Amazon example demonstrates how exceptional businesses can compound from $6 to over $3,300 per share, making early profit-taking catastrophically expensive despite appearing prudent at each interim price level.
• Charlie Munger's observation that investors only get "four good ideas in a lifetime" emphasizes the importance of maximizing returns from exceptional opportunities rather than diversifying away from concentrated positions.
• Most selling decisions are driven by emotional factors like avoiding regret or embarrassment rather than fundamental business analysis, leading to suboptimal outcomes driven by price action rather than intrinsic value changes.
• The concept of "unbying" reframes selling decisions as requiring the same analytical rigor as purchase decisions, focusing on business evolution and opportunity cost rather than profit protection or loss limitation psychology.
• Venture capital requires holding exceptional winners through multiple valuation increases, as the most successful firms generate majority returns from small numbers of category-defining investments held for extended periods.
• Opportunity cost analysis becomes critical in selling decisions, as capital must be redeployed somewhere, making relative attractiveness more important than absolute valuation concerns in many situations.

Firm Building: Culture, Complementarity, and Competitive Advantage

Building enduring investment organizations requires balancing individual investment excellence with organizational capabilities that can scale and adapt over time. Howard and Andrew represent different approaches to firm development that reflect their respective investment styles and personal preferences for organizational complexity.

• Oaktree's growth from five founding partners to over 1,000 employees required developing management systems and cultural frameworks that maintained investment focus while enabling operational scaling and client service delivery.
• Shared values among founding partners created stable decision-making frameworks and mutual respect that enabled successful partnership over 35 years, while complementary skills prevented redundancy and role conflicts.
• TQ Ventures' intentionally small size with focused investment activity reflects Andrew's preference for maximizing time spent on core investment activities rather than organizational management or business development responsibilities.
• Hiring decisions should focus on identifying exceptional judgment and analytical capability rather than specific experience or credentials, as investment success depends more on thinking quality than resume accomplishments.
• Team player mentality becomes crucial in collaborative investment environments, as lone wolf approaches may generate individual success but undermine organizational knowledge sharing and collective decision-making improvement.
• Marketing and brand building serve different purposes for different investment strategies, with public market investors benefiting more from broad visibility while private market investors may prioritize deep founder relationships over general recognition.
• Long-term competitive advantage in investment management comes from developing sustainable cultures and processes rather than depending on individual performance, as people and market conditions inevitably change over time.

Legacy, Learning, and the Future of Active Management

The evolution of both Howard's memo-writing and Andrew's investment philosophy demonstrates how successful investors must continuously adapt their approaches while maintaining core principles that drive superior performance. Their collaboration bridges generational differences in market experience while highlighting timeless elements of investment success.

• Howard's memo-writing began as personal reflection rather than marketing strategy, evolving over 30 years from zero feedback to hundreds of thousands of subscribers who include Warren Buffett among their most devoted readers.
• The transformation from sporadic personal writing to systematic communication platform illustrates how authentic expertise shared consistently can build significant competitive advantages in relationship-driven businesses like investment management.
• Market timing in fund raising represents contrarian approach to capacity management, with Oaktree's largest funds launched during crisis periods when opportunities were most abundant rather than following successful performance periods.
• Technological change continues accelerating competitive pressures while creating larger addressable markets, making both opportunity and risk more extreme than historical periods when business models evolved more gradually.
• The democratization of information access has eliminated many traditional sources of investment advantage while creating new requirements for developing edge through superior qualitative judgment and pattern recognition capabilities.
• Family collaboration in professional contexts can generate unique insights by combining different generational perspectives and experience bases, though success requires mutual respect and intellectual honesty rather than hierarchical deference.
• Investment success increasingly depends on avoiding the negative effects of success like bureaucracy and risk aversion while maintaining hunger and intellectual curiosity that drive continuous improvement and adaptation.

Conclusion

The father-son dynamic in "Something of Value" illustrates how seemingly opposing investment philosophies can complement rather than contradict each other when applied thoughtfully. Howard's emphasis on risk management and consistent performance provides essential foundation for understanding downside protection, while Andrew's focus on identifying exceptional growth opportunities demonstrates how patient capital can compound extraordinary returns over extended periods. Their collaboration reveals that the most successful investors combine elements of both approaches, using value principles to avoid permanent capital loss while maintaining growth mindset to maximize returns from rare exceptional opportunities. Perhaps most importantly, their partnership shows how intellectual humility and willingness to learn from different perspectives—even within families—can generate insights that neither individual approach could achieve alone.

Practical Implications

• Focus on developing superior qualitative judgment about future business prospects rather than competing on readily available quantitative analysis of current financial metrics
• Match investment strategy to personal temperament and skill set rather than copying successful approaches that don't align with your natural capabilities and psychological makeup
• Evaluate founder quality through understanding past decision-making patterns under pressure rather than relying on prospective explanations or theoretical responses to hypothetical scenarios
• Frame selling decisions as "unbuying" decisions that require the same analytical rigor as purchases, focusing on business evolution and opportunity cost rather than profit protection psychology
• Build investment partnerships around complementary skills and shared values, ensuring all parties can contribute unique capabilities while maintaining alignment on fundamental principles
• Identify exceptional opportunities by looking for "uncomfortably idiosyncratic" approaches that diverge from consensus thinking while having sound fundamental business logic
• Recognize that market efficiency has eliminated simple arbitrage opportunities, requiring development of sustainable competitive advantages through proprietary insights or relationship access
• Use concentrated portfolio construction when you have high conviction about exceptional opportunities, as diversification away from your best ideas reduces potential returns
• Maintain intellectual humility and openness to changing market conditions while staying within areas where you can develop genuine expertise and competitive advantage
• Consider private markets when seeking less efficient environments with greater potential for differentiated returns, though recognize that competition remains intense even in these areas