RE: LeoThread 2025-08-16 03:50

What's up, everybody? Merry Christmas. Happy holidays. This show is coming out on Christmas Eve for our American listeners and Christmas Day for everybody else. As the title of this episode suggests, there will be a segment from my interview with Howard Marks. It's between 20 and 30 minutes. Let's leave it at that. So that'll come at the end of this, but I have an important announcement to tell you all about beforehand, which is that finally, after a year of promising you, my listeners, a Hidden Forces subscription, I've finally done it. It's a long story as to why it took so long, and I'm not going to get into it. But one of the benefits that it took so long is that now anyone who subscribes gets immediate access to the transcripts of every episode we've ever done and to over 50 rundowns, starting with episode 19, which are these beautiful show outlines with reference materials, charts, pictures, quotes, all the rest of it. So anyone who's a regular listener has heard me reference (1/32)

these documents. They're the outlines that I put on Twitter and my personal feed and pictures and photo shots. It's like the nerd porn that I put out on social media. It's great. It's what I create before every single episode. So going forward, I'm going to be incorporating subscriber feedback and input into how I construct these, and I'm going to make a bigger effort to include links and documents and things like that related to the show. So that's all going to be made available through our website. And my intention in making these materials available is so that they can serve as educational compendiums to the subjects that we cover every week. And the same goes with the transcripts, which I'm happy to improve upon with user feedback. Again, if people want links or notes incorporated into them, I went through a couple of companies in order to find the right ones for these. So if you find errors in the archive, email me so that I can get them fixed. But this is going to be an (2/32)

evolutionary process with the goal of always being able to help you get more out of every single episode. But again, like I said, the archive of the transcripts is going to go all the way back to the very first episode. So when you get the subscription, you have access to everything. But wait, wait for it. There's more. And the more is that the baseline subscription is actually an entirely new podcast feed that you can add to your podcast application and get overtime segments, afterthoughts by me about the show, special one-off episodes that I put together for subscribers. So basically, I've already done two of these that I'm going to release with my episode on modern portfolio theory and the evolution of financial theory with Daniel Parris, as well as my episode with Bob Kerry, Senator Bob Kerry, the former 9-11 commissioner, Medal of Honor recipient, former governor and senator from Nebraska, which I actually completed right before I'm recording this. In both of those cases, a huge (3/32)

chunk of that interview, even longer than the 20 to 30 minutes that I'm releasing with Howard Marks today, which was originally meant for the purpose of being an overtime segment for the subscription, are going to be made available for subscribers. So that's what's going to come with the subscription feed. And I'm going to be releasing at least one of these every other week, but I may just end up doing it weekly or maybe even more often. It depends on what feedback I get from all of you. Most importantly though, I don't want any of you to think of these things, the rundowns, the transcripts, the audio or any future additional notes or educational materials that I put together around the podcast. I don't want you to think of these things in transactional terms. This is not a transaction. I've been doing this show for almost two years and I haven't asked for anything or taken any sponsors. I've done this and I continue to do it because I love doing it, but that doesn't mean that I can do (4/32)

it indefinitely without finding a way to cover the costs of production and I don't want to rely on advertising. I don't want to be interrupting these conversations with product or service announcements or pitches or anything like that. And I think that this is totally doable because I'm not looking to use this as a way of generating income for myself. I just want to make sure that I'm not covering the costs of this show out of my own pocket so that it's sustainable as a long-term project, which is what I want it to be. So when I say this isn't transactional, what I mean is that almost all of the value of what I do is the show itself, which is free, has been free, and always will be free. The vast majority of people on earth will continue to listen to it without ever making the choice to contribute a cent to making it possible, which is totally fine. But a small percentage of you are going to make the choice to support the show. And it's you that all of us, most of all me, are going to (5/32)

be immensely grateful for. So let me cap this off with some specific actionable information about how this is going to work. I looked at e-commerce platforms and subscription services that I could deploy myself through my site and decided that the best way to do this was actually to integrate Patreon into the Hidden Forces website, which I've never seen done before. So we're going to be using Patreon, which makes this way easier for those of you who already have Patreon accounts, but you're going to be able to access all of this material directly through the Hidden Forces website. So right now, as I'm talking, if you can go to hiddenforces.io, when you open up any individual episode, you'll still see the tabs that you saw before, info, related, bio. And to the right of those, you're going to see tabs for transcript, notes, overtime, or whatever else. And if you go into those, you're going to see that you can sign up and subscribe to them by going through Patreon. And that stuff's (6/32)

eventually going to be made available through the site. So if you subscribe, Patreon will know that you're logged in and it'll be able to make that stuff available to you. And each of those is part of a different bundle. So for $10 per month, you can access the overtime, which is all the stuff I was just telling you about, the extra bit with Bob Kerry, where we talk about 9-11, the 9-11 commission, and I get his opinion on what the role of the Saudi government was, the highest levels of government, and what the Bush administration knew or didn't know. And then with Daniel Parris, same thing, we go into a lot of really awesome stuff that deals specifically with investment options around the conversation that we have. So in both cases, this is really high quality material that you cannot get on the normal shelf. So that's for $10 a month. For an additional $5 a month, you can have access to all of the transcripts. And then for an additional $10, you can get access to everything, (7/32)

including the rundowns. So I thought a lot about this pricing. It's not fixed in stone, but I feel very comfortable with it. And let me tell you why. I looked at what all the other shows were doing, and besides making extra audio feeds available, and in those cases, a lot of times, the audio will come out once a month, I haven't seen much in the way of what we're providing. This is a huge archive of material, and there's no commitment. You can cancel the subscription at any time. You can also support separate from the subscription. If you want to just give a dollar a month, you can do that. And you know what? I'll love you for it. That will mean a lot to me and to everyone else, that you took the time to support the show and what we're doing. Of course, you can also provide more, and then I'd really love you. So here's my promise to you. If we get to a place where all the costs of producing the show, including the rental of my studio, the payments to my editor, web hosting, and all the (8/32)

other costs associated with putting this thing together, if we get to a place where all of these costs are covered, I will make an announcement and we'll figure out how we can use any additional income to create new and better content and grow the show. Like I said, I'm not interested in using hidden forces to generate income for myself. The most important thing that money can buy from you right now is time. And that means time to focus only on creating new content and generating ideas for new shows or newsletters or whatever else. Okay. So before we get to Howard Marks, I also want to say that for anyone who travels on British Airways, you can now expect to find hidden forces listed on BA's in-flight entertainment. We just finished onboarding our episodes with them, so that makes two airlines, the other one being United, that feature our show, which is super exciting. Okay. So Howard Marks, this segment lasts for about 25 minutes or so, I think. It rivals the episode itself for (9/32)

quality of content, in my view. In fact, I think it might very well be better. I asked Howard Marks about the role of intuition, how he relies on it in the management of his portfolio, contrarianism in investing. This moved from active to passive, the transformation in American capitalism after World War II with professional managers and professional management at companies. And if this trend has kind of run its course. I also asked him for what he would do if he was getting out of college today and how he continues to motivate himself every morning to go to work at Oak Tree for free, as it turns out. But finally, before I throw it to Howard Marks, I want to say in all likelihood, I'm going to release an episode for New Year's. I'm going to be in Greece when this episode comes out, visiting my family, but I'm going to find a studio there, hopefully to be able to record an intro to that episode. Look for that on New Year's Day, but if you don't get it, it will just skip straight to the (10/32)

second week of January, since this is the holidays and it's tough to publish through that. So, Merry Christmas, happy holidays. Hopefully, I won't have to give you happy New Year until next week, but if I do, happy New Year and enjoy the Howard Marks overtime. Howard, thank you for staying for this overtime segment. This is the first time I'm actually doing it, so I'm looking forward to see how it goes. There are a few questions that I had in our regular rundown that I wanted to ask you, and then I've got a few special questions that I have just for this segment. One has to do with intuition, which is something that you write about in the book, and it came up a lot in our conversation where you sort of danced around it, but I didn't ask you about it directly, which is, what role does intuition play for you when you're managing your portfolio? I think a lot of it depends on your definition of the word intuition. I'm not talking about voodoo, I'm not talking about guessing, I'm not (11/32)

talking about throwing darts or deciding on the basis of which foot I put on the floor first in the morning, but I think that we have to make judgments, subjective, personal, qualitative judgments. One of my favorite quotes is from Einstein, who said, not everything that counts can be counted and not everything that can be counted counts. Not everything can be quantified, nothing about the future can be proved, so I think it all comes down to judgment. If you think about it, just about everybody has access to all the same numbers. Just about everybody has the intelligence to process those numbers equally well. The margin of superiority comes from people who understand better than others the import of those numbers, the inferences that should be drawn and the actions that should be taken. I think that these kinds of judgments are extremely important. Somebody I can't remember right now said, I'd rather be approximately right than precisely wrong. You can't attain that much precision in (12/32)

your life when you're making judgments about the future, but you talked before about the importance of experience. Observation, emotional control, insight, hopefully second level insight. These are the things that can permit you to do a superior job. Is that just also a necessity or a feature of how our brains work that we can only ... There are theories in neuroscience, specifically one I'm thinking about called cognitive load theory, which is why a lot of high performers wear the same stuff, Barack Obama, Steve Jobs, et cetera. So much power to make decisions and that allocating more of that to the unconscious is the way to maximize performance. Is that one way to think about it? The importance of it, that is. Yeah. I don't know if I would use the word the unconscious, but I guess I would say the non-quantitative. The most important questions about a given company are not what it's going to earn this year or next. The most important questions are what kind of business it's going to (13/32)

have in 10 years and what kind of success and what kind of market share. And so I think that those things, as I say, anybody can reach the quantitative conclusions. The qualitative subjective conclusions are what separates the winners from the losers. Another question I had for you that we danced around in the interview had to do with contrarianism. And you have this great quote in the book. I'm going to butcher it if I try to say it, wing it. But your point is that it's not just enough to be right. If you're right and you're part of the consensus and everyone else is right, then you're not going to make any money. You have to be right and you have to have a view that's different than the consensus, which is what contrarianism is. And you also make this great point about the difference between contrarianism and pessimism, which can often be conflated. Talk to us a little bit about this notion of contrarianism and the role it plays in superior investing. We've talked a couple of times (14/32)

about second level thinking. And it seems clear to me that if you think the same as others, you will reach the same conclusions. If you'll reach the same conclusions, you'll take the same actions. If you take the same actions, you'll have the same performance. And yet success in the investing business is performing better than others. So that process can't be the one that leads to success. You have to, at some point, diverge from the crowd. You have to develop a knowledge advantage. You have to see things differently. You know, one of the important phrases in investing is variant perception. You have to see things at some point differently from others. The way that everybody, the massive investors, sees a given company is what determines its stock price on a given day. It is a voting booth, as Ben Graham said, and everybody cast their vote on a given day for the value of Apple. And the consensus becomes the price. That's what a market is. And the big wins come when you see things (15/32)

differently, reach a different conclusion than the consensus, feel that the price should be much higher or much lower, take action on that. This is the way to be a serious outperformer. You have to see things a little differently. You have to see what you believe is the error in the consensus. So you have to see things differently. But there's another requirement. You have to be right. And most of the time, the consensus does a pretty good job of being right, and you can't habitually have a non-consensus view and expect it to be consistently right. So the requirements are, you have to think differently and better. It's not easy. And this is a lot of what Charlie Munger meant when he said that investing is not easy. And yet this is the requirement. How else can you be a superior performer unless you see things different from the crowd and better? Do you come to your investment insights or your contrarian views gradually? Or have there been instances in your life where you have this (16/32)

revelation or this contrarian idea and you see something in that moment that you hadn't seen before and that no one else is seeing and it's a really great opportunity and you have to move on it? I mean, I wouldn't accuse myself of having many epiphanies. I try to be rather level in my views toward the markets. And then as the market changes, as the price of an asset changes relative to the asset's fundamentals, if the price rises relative to the fundamentals, I should gradually like it less until eventually if the price gets high enough relative to the fundamentals, I should absolutely dislike it. But that's a process of gradual accretion and not epiphany. The only time I think things change radically is when the world changes radically. September 14th of 08, most things were pretty much okay, people thought. September 15th, Lehman Brothers declared bankruptcy and everybody thought that the financial world was going to end. So when the world changes radically, it makes sense that your (17/32)

view on the proper behaviors should change radically and we did. There's something else comes out of that question, which is that after 2008, we've seen this major shift away from active management towards passive. Right. A lot more people... In the stock market. In the stock market. More people have been moving to index funds, ETFs, et cetera. Is that a trend that you expect to continue? And the other question I have is if most investors are, as you say, on average, average, and in most cases, it may very well be a rational decision to put your money in an ETF or in an index fund as opposed to giving it to an average manager who will either do average or below average. And charge high fees. And charge high fees. The question is, well, where are the great managers and how does someone find one and then how do they give them their money? Well, this is the great dilemma and this is something that's really not easily answered. The trend toward passive investment really has... I mean, when (18/32)

I was at University of Chicago more than 50 years ago, this is when they first told me that on average, most people do average before fees and below average after fees. So you shouldn't pay somebody high fees to give you average performance. You should only pay people who are exceptional. We went through a period when pretty much everybody could charge fees commensurate with success when they weren't producing success. We have the Morningstar system, which gives mutual funds ratings, not on some absolute standard of whether they did a good job or whether they beat the stock market, but on whether they beat others. You can have a five-star rating and still have not done as well as a stock market, in theory. The point is that the first real index fund was formed around 1974. It gradually started to raise money. Nobody took it that seriously because somebody in the mutual fund industry that I won't name said, well, who's going to accept average performance? The answer turned out to be a (19/32)

lot of people will accept average performance if the alternative is below average performance. As the world has gotten smarter through the process that I described before, as people look at things more objectively, I mean that argument, who would settle for average? That's a great argument until you look deeply into what's really going on. When you do, a lot of people would say, I will. The average is pretty good. If I can get the average certainly and with low fees, I'm in. Now the trend towards passive has strengthened. Now something like 38% of all the mutual fund equity money is managed passively. Our next question is when will it stop? I think it makes sense to think that the trend will continue as long as the passives do better than the actives. We've been going through a long period here when the passives have been doing better than the actives. This year started off weak, which means that the actives who might have had less than full representation in the leading stocks (20/32)

outperformed, but then the market has turned strong in the last few months and now the active managers are behind again. I think that trend towards passive will not stop until passive underperforms for a while. I don't know when that'll be or what would make it happen, but it may happen at some point in time. The other question that's interesting, I wrote this last memo called Investing Without People, which started off with the discussion of passive investing. Passively as more and more money is managed passively and fewer and fewer people are out there looking for bargains, then we can assume I think that the level of so-called efficiency will decline and that it will become possible once again to get some bargains. That's my hope. That speaks to, in fact, you took the words out of my mouth, the move towards passive investing is not independent of this move towards market efficiency that we've been discussing during the interview and the financial markets and the size of the (21/32)

financial sector growing. Well, market efficiency makes it really hard to outperform. I think that in the last 40 years, people have concluded that markets are much more efficient than they used to think. There's another trend that we've seen over the decades and that has been this move since I think primarily after World War II of separating management from ownership. It's been a financial innovation that's really generated a lot of wealth and it's allowed the principles of specialization to work wonders in many cases. What we've also seen in more recent years is perversions of that. I think one perfect example is tying executive compensations to stock value and then stock buybacks and trying to game your income in that way. Do you feel that the benefits of that model have run their course or that there needs to be some sort of rejiggering of that? I think this is an important topic. I learned about this when I was in college, which was a long time ago. What I was taught was that one (22/32)

of the reasons that the free market system, capitalist system, the US economic system had produced good results was that whereas 100 years ago or maybe 150, companies were pretty much run by their owners. Eventually, we developed this thing called professional management. At an appropriate point in time, the professional managers took over from the founders and owners and brought skills that the founders and owners or certainly their children or their children's children didn't have. Managing companies was turned over from the owners and founders to professional managers who maybe had skills that the others didn't have and that this was a great source of our economic success. Makes sense. However, nothing's perfect. That's one of the bottom lines on life. Through this process, we developed basically two classes of people, the company owners and the company managers. It gets dangerous, as you say, when the managers are not responsive to the owners. If they paid themselves too well, if (23/32)