THE VALUE INVESTORS

THE VALUE INVESTORS

Lessons from the World’s Top Fund Managers

Second Edition

RONALD W. C H AN Copyright © 2021 by John Wiley & Sons Singapore Pte. Ltd.

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Names: Chan, Ronald W., author. Title: The value investors : lessons from the world’s top fund managers / Ronald W. Chan. Description: Second edition. | Solaris South Tower, Singapore : Wiley, [2021] | Includes index. Identifiers: LCCN 2020039214 (print) | LCCN 2020039215 (ebook) | ISBN 9781119617068 (cloth) | ISBN 9781119617037 (adobe pdf) | ISBN 9781119617051 (epub) | ISBN 9781119620662 (obook) Subjects: LCSH: Investment advisors. | Financial planners. | Investments. Classification: LCC HG4621 .C425 2021 (print) | LCC HG4621 (ebook) | DDC 332.6—dc23 LC record available at https://lccn.loc.gov/2020039214 LC ebook record available at https://lccn.loc.gov/2020039215

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10 9 8 7 6 5 4 3 2 1

For my wife, Jacinth, whose faith in and love for me have no boundaries; and to my four children, Chelsea, Wellesley, Brighton, and Ronald Jr., who I hope will become stewards of their own future endeavors and find everlasting joy in their lives.

Contents

Foreword xiii Preface xv

Chapter 1 Master of the Market Cycle 1 Howard Marks, Oaktree Capital Management From Equity to Credit 6 A Priority on Avoiding Losses 10 The Pendulum Swing 14 The Negative Art of Investing 17 Nobody Knows 20

Chapter 2 Free to Choose in Value Land 24 Walter Schloss, Walter & Edwin Schloss Associates Living through the Great Depression 28 The Meaning of Survival 31

vii viii Contents

Net-Nets 32 Setting the Right Pace 36 Know Thyself 39

Chapter 3 Once Upon a Time on Wall Street 42 Irving Kahn, Kahn Brothers Group Becoming Graham’s Disciple 48 Preaching Value 51 A Centenarian Diet 56

Chapter 4 The Making of a Contrarian 59 Thomas Kahn, Kahn Brothers Group A Modified Graham Approach 64 The Case for Obscure Securities 69 Market Reflection 72

Chapter 5 On the Shoulders of Value Giants 75 William Browne, Tweedy, Browne Company A Valuable Detour 81 Statistics and Beyond 82 Setting a Global Standard 85 The Social Science of Investing 88 The Market Ahead 91

Chapter 6 A Journey to the Center of Value 94 Jean-Marie Eveillard, First Eagle Funds Valley of Tears 99 The Inefficient Market 101 The Meaning of Value 105 The Courage to Say No 108 Seeking Protection 110 Contents ix

Chapter 7 The Self-Taught Value Spaniard 114 Francisco García Paramés, Cobas Asset Management On a Solo Value Hunt 119 Investing Made Simple 122 Austrian Economics and the Market 125 A Global Rebalancing 129

Chapter 8 The Law of Value Attraction 133 Álvaro Guzmán de Lázaro and Fernando Bernad Marrase, AzValor Asset Management A Value Cross-Path 137 A Value Reunion 141 The Art of Concentration 144 The A to Z of Value 148

Chapter 9 The Odyssey of a Value Broker 151 Philip Best, Quaero Capital S.A. Establishing the Best Contacts 157 Acquiring the Best Techniques 162 Investing Off the Beaten Path 164 A Sustainable Investment Platform 168

Chapter 10 The Income-Conscious Englishman 173 Anthony Nutt, Jupiter Asset Management A Victorian Mindset 178 Finding the Right Investment Culture 181 Trusting Only Tangible Income 184 The Courage to Keep Going 188 x Contents

Chapter 11 The Frequent Value Traveler 190 Mark Mobius, Mobius Capital Partners Reading between the Minds 195 Thinking Big and Small 197 Trouble Is Opportunity 200 Feeling the Market 205

Chapter 12 The Value-Oriented Businessman 208 Teng Ngiek Lian, Target Asset Management Learning the Numbers 211 The Art of Contrary Thinking 214 Targeting Good Businesses in Asia 217 The Relativity of Valuation 219 A Value Lifestyle 222

Chapter 13 in the Lost Decade 225 Shuhei Abe, SPARX Group A Musical Beginning 230 Breaking the Language Barrier 232 Learning from the West 232 The Evolution of SPARX 235 Building a Westernized Asia 238 Searching for Value 239

Chapter 14 Eternal Sunshine of the Value Mind 243 V-Nee Yeh, Value Partners Group A Multidisciplinary Path 246 Seeking a Comfortable Price 250 Finding a Value Partner 251 Spotting Value Minds 255 Becoming a Man of Value 257 Contents xi

Chapter 15 The Formless Value Deal Maker 260 Kin Chan, Argyle Street Management Ltd. Navigating in the Slum 266 Specializing in Distressed Investing 269 An Atypical Investment Structure 271 The Rise of the “Can’t Do” Spirit 276

Chapter 16 The Accidental Value Investor 279 Cheah Cheng Hye, Value Partners Group Starting an Investment Hobby Shop 286 Building a Value Temple 288 An Industrialized Process 291 A Value March Forward 295

Chapter 17 The Making of a Value Investor 298 Investment Stewardship 301 Intellectual Humility 303 Developing Your Own Rhythm 306 Be Unconventional 308 The Balance Between Diversification and Concentration 309 Temperament Is Above All 311

Acknowledgments 313 About the Author 316 Index 317

Foreword

tudents of investing look for a formula, a way of combin- ing accounting and other information that will produce Sinfallibly good investment results. Even , the founder and leading spirit of by far the most successful school of investment practice, spent a good deal of his time looking for such a formula. To this end, students read both tech- nical works and the retrospective testimonies of high-performing investors. In both areas, they are largely disappointed. The technical approaches have a meager record of success. A few notably good books have been written (for example, Joel Greenblatt’s You Can be a Stock Market Genius and Graham and Dodd’s ). But reported technical investment approaches rarely, if ever, lead to consistent, high-level returns (if they did they would be adopted by everyone and would become self-defeating). Investment memoirs generally also disappoint students. They tend to be long on philosophy and short on advice for how to buy particular securities. However, as the works of successful

xiii xiv Foreword investment practitioners, the memoirs do have much to recom- mend them. They describe, however, nonspecifically, investment approaches that worked in practice. And they capture an impor- tant aspect of investment success: that it depends more on char- acter than on mathematical or technical ability. This is the consistent message of investment memoirs as a group. The problem is that each memoir presents a unique perspec- tive on the character traits necessary for investment success. Different authors emphasize different characteristics: patience, coolness in a crisis, wide-ranging curiosity, diligence in pursuit of information, independent thought, broad qualitative as opposed to detailed quantitative understanding, humility, a proper appreciation of risk and uncertainty, a long-time horizon, intellectual vigor and balance in analysis, a willingness to live outside the herd, and the ability to maintain a consistently critical perspective. Unfortunately, an investor with all these qualities is a rare bird indeed. That is why Ronald Chan has done such a valuable service in writing this book. He has put together a set of thorough and rigorous portraits of a comprehensive range of notable value investors in a manageably short number of pages. His descrip- tions cover multiple generations from Walter Schloss and Irving Kahn to William Browne, multiple geographies from Asia to the to Europe and the full gamut of value investing styles. By combining descriptions of investment approaches with investor background, he illuminates the connection between individual character and effective investment practice. Taken as a whole, the book provides each practical value investor with the necessary material to sift through the historical records to find the style that is most appropriate to them. Ronald Chan’s work is an essential starting point for any nascent value investor and an invaluable reference for experi- enced investors. Bruce C. N. Greenwald Director, Heilbrunn Center for Graham and Dodd Investing Robert Heilbrunn Professor of Finance and Asset Management Preface

Try not to become a man of success, but rather try to become a man of value. —Albert Einstein

y late father was a successful serial entrepreneur. Over the course of a prolific 70-year career, he oper- Mated and invested in restaurants, pharmacies, amuse- ment parks, and eventually moved to property development and hospitality operations. His investments yielded not just profit but valuable insight into the mechanisms of how businesses work. Most were successful, but some weren’t, and by the time I was ready to embark on a career, he was prepared to send me into the world with advice culled from years of experience. His most valuable guidance dealt not with what I should do, but what I should not do: namely, to steer clear of professions weighted with labor, rent, and inventory.

xv xvi Preface

“Any labor-intensive business will likely lead to human pol- itics, so look for those that require minimal manpower,” my father said. “Besides, international cities like Hong Kong are infamous for high rents, which will squeeze into margins and profits, so avoid a business that requires a prestigious location. And finally, handling most types of inventory requires both manpower and space, so it’s best to avoid this headache.” I embarked on a career in asset management armed with my father’s words of wisdom: The labor force is my brain; the office doesn’t require a prestigious address; and investment positions are my inventory, which are stored easily at a bank. After my father saw that I adhered to his first set of commandments, he decided I was ready for another assignment: learn how to beat the cost of capital. He provided me with some shares, asked me to pledge them at a bank, and then took out a loan. “If you beat your borrowing cost consistently, then you will become finan- cially savvy and independent,” he asserted. His assignment turned me into a prudent investor at a young age. To further develop my investment philosophy, I turned to the tenets of value investing as preached by Benjamin Graham and . As Graham said, a value investment is “one which, upon thorough analysis, promises safety of principal and adequate return.” It is also difficult to argue with Buffett, who asked: “What is ‘investing’ if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value—in the hope that it can soon be sold for a still-higher price—should be labeled speculation.” In 2002, I setup an investment vehicle which eventually became Chartwell Capital, the firm I continue to run. In the early days, I focused on value stocks that traded at low invest- ment multiples, equating this tactic to the investment equivalent of the Holy Grail, but soon enough I learned that this wasn’t the case. Cheap alone often accompanies unwanted baggage, such as poor business quality or an incompetent management team, and Preface xvii

I realized Warren Buffett was preaching the truth when he said that “there’s never just one cockroach in the kitchen when you start looking around.” And even if everything checks out on paper, sometimes a stock may lack trading liquidity, making it difficult for big money to jump in. Successfully balancing these elements is half art and half science, in my experience. Aside from business quality and valuation, investment tem- perament is also key to investment success. During market euphoria, does one have the sense and sensibility to stay away from the maddening crowd? What about during a crisis, when it takes courage and a contrarian view to buy when there is blood in the streets. It takes tremendous mental discipline, which requires equal parts patience, wisdom, and discernment to oper- ate a superior investment scheme between the cycles of boom and bust. As a fund manager myself, I developed the tempera- ment needed to make timely and prudent investment decisions, but it was not seamless and, in my experience, is in a constant state of evolution. Nearly 20 years later, I believe that there is no single formula that leads to investment success. However, I am fortunate to have learned from many value-oriented investors about acquiring the right investment skill set and mindset, which I shared in the 2012 publication of The Value Investors: Lessons from the World’s Top Fund Managers. Unlike other investment books, mine is not heavy in num- bers, but through interviews with fund managers from North America, Europe, and Asia, they illustrate how life encounters and experiences directly and indirectly shape the investor in them. I endeavored to provide a range of voices and personali- ties: the contemporaries of Benjamin Graham such as Irving Kahn and Walter Schloss; peers of Warren Buffett such as Jean Marie-Eveillard; and finally Asian value fund managers such as Shuhei Abe in Japan and Cheach Cheng Hye in Hong Kong. I am happy to report that the book was well-received and eventu- ally translated into various languages. xviii Preface

By 2018, my publisher suggested I work on a second edi- tion. This time around, I knew I had to bring more diversity to the book, so I interviewed credit strategist Howard Marks from Oaktree Capital; small- and micro-cap specialist Philip Best of Quaero Capital in Switzerland; Kin Chan from Hong Kong’s Argyle Street Management, whose strategy straddles credit and equity; and Alvaro Guzmán de Làzaro and Fernando Bernad Marrase from Spain’s AzValor Asset Management, who uncover value together as a team. I hope this second edition demonstrates that there is more than one type of value investor, and that life experiences shape their engagement in the market to generate superior investment returns. In the following chapters, you will find that value invest- ing is not a staid and old-fashioned investment strategy, but is dynamic and ever evolving. More important, it is about having a prudent and disciplined investment mindset. As Howard Marks repeated during our interview, “It’s not a matter of what you buy, it’s what you pay for it!” Now that the second edition is heading to the press, I still may not have a precise definition of what value investing is. In fact, my interviews with these investors have illustrated that there is no single path to successful investing. The goals are the same, but the methods we use to achieve them vary. In a sense, value investing is truly an inclusive discipline for those willing to make the journey. Ronald W. Chan June 2020 CHAPTER 1 Master of the Market Cycle

Howard Marks Oaktree Capital Management

Risk is a choice rather than a fate. The actions we dare to take, which depend on how free we are to make choices, are what the story of risk is all about. —Peter L. Bernstein

oward Marks is the co-founder and co-chairman of Oaktree Capital Management, an investment management firm founded Hin 1995 that specializes in alternative credit strategies, such as distressed debt, high yield bonds, convertible securities, real estate debt, and emerging markets. As of 2018, the company managed $120 billion for cli- ents including public and pension funds, foundations, endowments, corporate and insurance companies, and sovereign wealth funds. The Los Angeles– headquartered firm has over 950 employees and offices in 18 cities worldwide. In April 2012, Oaktree went public on the New York Stock Exchange, raising $380 billion. In March 2019, Brookfield Asset Management acquired a 62 percent stake in Oaktree, with Marks and his colleagues owning the remaining 38 percent of the company and maintaining full control of its day-to-day operations. Marks is the author of Mastering the Market Cycle: Getting the Odds on Your Side and The Most Important Thing: Uncommon Sense for the Thoughtful Investor. Dividing his time between Los Angeles and New York, he is a trustee and chairman of the investment committee at the Metropolitan Museum of Art and also chairs the investment committee of the Royal Drawing School in

3 4 THE VALUE INVESTORS

London. He is an Emeritus Trustee of the University of Pennsylvania, whose investment board he chaired from 2000 to 2010. As of March 2020, Marks was ranked by Forbes as one of America’s 400 wealthiest individuals, with an estimated net worth of $2.2 billion.

Marks runs a book club, but it’s no leisurely pursuit: each title is chosen so that his team at Oaktree Capital Management can glean some kernel of wisdom and apply it to their profession. “We meet annually to discuss a book. This year, we read Kenneth Galbraith’s A Short History of Financial Euphoria,” Howard Marks said during an interview in his New York office in late 2019. Galbraith sums up the attributes of financial euphoria as fol- lows: “The first is the extreme brevity of the financial mem- ory . . . The second . . . is the specious association of money and intelligence.” Like Galbraith, Marks acknowledges that investor memory is often short-lived. Investors forget the natural cycle of boom and bust and repeat the same mistakes from one cycle to the next. In a memo from 2005, Hindsight First, Please (or, What Were They Thinking?), Marks gave the following advice to inves- tors: Don’t dwell excessively on recent experience but look to the future instead. Consider today’s developments after careful assessment of the past. With a lifelong interest in financial market history, Marks happily shared a sampling of his favorite books on the topic: “Peter Bernstein’s Against the Gods is all about risk and probabil- ities. I read Devil Take the Hindmost: A History of Financial Speculation by Edward Chancellor in 1999 and saw a lot of simi- larities with what was going on in the tech bubble, and I realized I could write a memo about it.” Marks writes an investment memo a few times a year, a habit he formed in 1990 when he felt compelled to write about achieving superior investment performance. In his inaugural memo, The Route to Performance, he wrote that “the best foundation­ Master of the Market Cycle 5 for above-average long-term performance is an absence of disas- ters. It is for this reason that a quest for consistency and protec- tion, not single-year greatness, is a common thread.” “I don’t know exactly why I started writing,” Marks explained. “I wasn’t that purposeful or trying to attract a large audience. I wrote because the topics merited discussion. The memos never attracted much attention in the early days. And then, on the first day of 2000, I wrote a memo called bubble. com, which had two major elements going for it: accuracy and speed. Those are the two things necessary to attract readers— you must be correct, and what you say has to turn out to be correct quickly, because if it takes too long, then you look wrong. A lot of that memo was inspired by Devil Take the Hindmost.” These days, investors flock to Oaktree’s website to download Marks’s missives. His writing process is deceptively simple: “I’ve been writing memos for over 30 years now and my writing has always been the same, which is to say that I try to write like I speak. I didn’t have to develop a different writing style separate from my speaking style. The only challenge is to get it from my brain onto the piece of paper.” When it comes to brainstorming for a topic, Marks turns to a trusty file rack brimming with inspirational news clippings and articles. “The topic is usually in my brain. When I’m ready to write the memo, I look at the clippings. Memos that have noth- ing to do with timeliness can take a month or two to complete. When there’s an element of timeliness to the piece—such as the financial crisis—I can write one in less than a day. In general, I write a lot during the holidays because it’s a form of recreation for me. There’s usually a memo in September that I wrote over the summer and usually a memo in January that I wrote over Christmas.” During the summer of 2015, Marks wrote It’s Not Easy, a memo inspired by Warren Buffett’s investment partner Charlie Munger, who summed up the essence of investing as: “It’s not supposed to be easy. Anyone who finds it easy is stupid.” In his 6 THE VALUE INVESTORS memo, Marks explained that “people who think it can be easy overlook substantial nuance and complexity.” To be a superior investor requires what Marks calls second-level thinking—an ability to think beyond the obvious. First-level thinking, Marks asserts, is superficial, and results in an investor merely regurgitat- ing facts and providing an ill-informed opinion of the future. Second-level thinking requires an investor to consider complex potential scenarios and the consequences of each. As the title of his memo suggests, making this leap is not easy. Marks wrote, “Remember your goal in investing isn’t to earn average returns; you want to do better than average. Thus, your thinking has to be better than that of others—both more powerful and at a higher level. Since others may be smart, well- informed, and highly computerized, you must find an edge they don’t have. You must think of something they haven’t thought of, see things they miss, or bring insight they don’t possess. You have to react differently and behave differently. In short, being right may be a necessary condition for investment success, but it won’t be sufficient. You must be more right than others . . . which by definition means your thinking has to be different.” Marks continued by noting that the superior investor requires a better-than-average ability to approach risks differ- ently: “No tactic or technique will lead to superior results in the absence of superior judgement and implementation.” Warren Buffett, meanwhile, provides the mechanism for doing just that: “The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.” Marks learned the lessons taught by imprudent investors when he first entered the world of finance.

From Equity to Credit

After earning an undergraduate degree at the Wharton School of the University of Pennsylvania and an MBA from the Booth School of Business at the University of Chicago, Marks interned Master of the Market Cycle 7 at First National City Bank of New York (now called Citibank) before joining the firm as a full-time equity analyst. “My first internship in 1967 wasn’t in the investment depart- ment,” he recalled. “It was in what was called operations—back office work. I learned quickly that I didn’t want to be in the back office. For my second internship in 1968, First National assigned me to the investment research department, and I discovered that I enjoyed thinking about companies. The bank was already a Nifty50 investor when I became a full-time equity analyst in 1968. It was the opposite of value investing and, though it worked for a while, it was incredibly unsuccessful and then failed horribly in the 1970s.” The Nifty50 were the 50 most popular large-cap stocks in America during the 1960s and early 1970s. They were consid- ered safe and stable with outstanding long-term growth pros- pects, and investors bought them regardless of their high P/E multiples. However, as a German proverb states, “trees don’t grow to the sky,” and these stocks were battered during the 1973 to 1974 bear market. Some have disappeared, but as of 2020, 29 of those companies still exist, including 3M, Eli Lily, IBM, McDonald’s, Merck, and the Walt Disney Company. Witnessing the Nifty50 flameout helped Marks develop his value-oriented mindset. “If you bought these companies in 1968, on the first day of my summer job, and held them for five years, you would have lost almost all your money,” he recalled. “In other words, buying high quality can’t be sufficient. You must consider the fairness of price, and that’s what investing is all about. “That’s a period when I began to develop certain concepts in investing, and as I say, ‘good investing is a matter of not buying good things but buying things well.’ You must know the differ- ence. It’s not what you buy, it’s what you pay. It’s all about the fairness of price.” Marks continued his career story: “The bank’s performance was terrible in the 1970s, as was the performance of many other banks, because they were all Nifty50 investors. The bank brought in a new CIO and he wanted to bring in his own head of research. 8 THE VALUE INVESTORS

I was lucky I didn’t get fired because our performance was so bad. In May 1978, the CIO asked me what I wanted to do next, and I said I would do anything other than spending the rest of my life choosing between Merck or Lily. So, he switched me to the bond department where I started a convertible bond fund.” To better understand the bond world, Marks asked people at other banks and brokerage firms what they would look for in credit. With a street-tested methodology in his back pocket, Marks entered the credit market, serving as portfolio manager for convertible and high-yield securities at the bank. Referring to some of the investments he made, Marks said that the credit world 40 years ago was hardly sophisticated. In fact, he considered that era to be “stupid” when it came to sound investing: “Today, thanks to smartphones and so forth, everyone knows everything. Back then, there were a lot of things that people didn’t know. The world was a stupid place compared to today. Deals would come out that were simply too favorable to the investor. It still happens today from time to time, but not as often as before.” Marks recalled one instance in 1984 when he discovered Eurobonds—bonds of American companies listed in non-dollar currencies. “I remember one in particular from Honeywell. It had a small conversion premium with a three-year maturity. Since Honeywell was creditworthy, meaning you couldn’t lose money, you could buy it around par, make the 6 percent coupon, and then be repaid at par. But you could make more if the equity rose since it had a small conversion premium, so if the stock went up, it would go up just as much. That’s too good a deal— upside but no downside.” “I developed a liking for things I thought of as a ‘one-way ratchet.’ In an intelligent market, you don’t have the opportunity to buy things where you can make money without fear of losing because other people eventually figure it out and that changes the price. But, as I said, the market was a dumb place then, so you could find one-way ratchets.” Master of the Market Cycle 9

In another example, Marks looked at a product developed by Merrill Lynch called LYON—Liquid Yield Option Notes. “These were zero-coupon convertibles that might come out at a price of 40 cents on the dollar,” Marks explained. “They would mature in X years at 100 cents on the dollar. The path from 40 to 100 would provide a yield of Y. Again, you couldn’t lose money, because on every third anniversary, you would have a put option [an opportunity to sell the security back to the issuer] at a price along the curve heading to par at maturity. That gave the LYONs a very good yield to maturity, yield to put, near-term liquidity, and guarantee of value.” The first such convertible was issued by Waste Management: “It was a hot and volatile stock. Think of the LYON as a bond plus a warrant. Warrants are more valuable when the underlying asset is more volatile, so with Waste Management, you had a safe, dependable bond with a good yield and frequent puts, as well as an option on the company’s common stock with its high vola- tility—a great combination.” In Marks’s view, these investment opportunities were too good to be true, and he was right: they don’t exist anymore. Besides the market being “stupid” and inefficient, these investment opportunities existed thanks to the supply and demand for convertibles. In a 1992 memo, Marks wrote that there were only seven convertible mutual funds between 1977 and 1984. The total assets under management were just $452 million. By the end of 1987, however, total assets had ballooned to $5.8 billion with 30 funds in the marketplace. Marks commented in his 1992 memo that it could “clearly be seen in retrospect that the strong flow of capital into con- vertibles in 1985–1987 poisoned the well’ and led to a loss of price discipline, to purchases of over-priced securities, and to poor performance.” Nevertheless, he had a first-mover advan- tage and made easy profits for a while. Looking back at his early career, Marks feels lucky to have switched from equity to credit. “To be an equity investor, to 10 THE VALUE INVESTORS some extent, you have to be something of an optimist, a dreamer,” he said. “In credit, the returns are mostly contractual. All you have to do is study the situation to figure out if the promise of interest and ultimate repayment will be honored. If it is, that’s all you need to know. We have a motto at Oaktree, ‘if we avoid the losers, the winners will take care of themselves.’ We don’t have to sit around and say, ‘let’s find some great winners,’ we just have to find a bunch of bonds that pay what they promise to pay. That’s much easier. It doesn’t require as much creativity. It’s a better business for an inherently conservative person, which is what I am. “Imagine if my boss in 1978 told me to start a venture capi- tal fund. That would be a disaster because I’m not a dreamer. The best things happen when we end up in a job that fits who we are. Being in credit fit very well with who I am.”

A Priority on Avoiding Losses

In 1985 Marks left Citi and joined TCW Group, an asset man- agement firm headquartered in Los Angeles with clients including corporate and public pensions, endowments, and foundations. Marks said, “I had moved to California in 1980 and pretty much worked there by myself. I had one or two analysts back in New York, one of whom, Sheldon Stone, is still my partner after 37 years. We were managing $1 billion on high yields and converts when Sheldon and I left Citi for TCW.” Marks brought his winning strategy to TCW, where he expanded his group and hired more analysts. “I hired Larry Keele in 1986 to work on the converts, and he eventually took over those portfolios. Then, in 1987, I hired Bruce Karsh, who’s now my equal partner, Oaktree’s CIO, and the chief portfolio manager on our distressed debt funds. Back in 1988, we intro- duced distressed debt investing and hired Richard Masson to be the head of research for distressed,” Marks explained. This all-star roster would eventually leave TCW to launch Oaktree in 1995.