I meant to get this up earlier – Howard Marks spoke at the Goldman Sachs Financial Services Conference about distressed credit opportunities being created by the non-stop crash in crude oil.
Marks believes that investors can find success by calculating a margin of safety, not by inventing price targets or using forecasts. His process involves figuring out probabilities and what he can stand to lose in different outcomes.
I love every word of this:
I think that $37 oil will produce a lot of opportunities for the distressed investor. $30 will produce more if it gets there. Of course, nobody — maybe with the exception of the people in this room, if you let me know or give me your cards afterwards, nobody knows where the price of oil is going. And there’s nothing intelligent to be said about the future of the price of oil. And so, you have to invest in it very gingerly and carefully. But I wrote — a year ago, December 18, I wrote a memo on oil. I said, “At $110 everybody says, if it ever gets to $90, I’m going to back up the truck. When it falls to $80, at — they say if it ever hits $60, I’ll give it a lot of thought. And when it hits $50, they said, can’t touch it, falling knife.” So certainly, it looks like a falling knife, but I’ve always believed that it’s our job to catch falling knives, but to do it with caution.
The whole conversation he had was transcribed at Value Walk: