Investing legend Howard Marks says when other investors are terrified, that's the time to jump in — and don't be ruled by emotion

• Billionaire Howard Marks said investors should be aggressive and jump in when others are terrified.
• The great investors he knows are unemotional, and do not follow the herd, the Oaktree Capital boss said.

Investors must pounce at opportunities in the market when others are terrified, according to billionaire investor Howard Marks.

"When other people are unafraid, we should be terrified, because that means they'll pay prices that are too high," he said in a Monday episode of the "Investor's Podcast Network."

"When other people are terrified, we should turn aggressive, because their terror makes things available to us cheaply."

In recent days, financial markets have been volatile thanks to concerns about the impact on the economy from Russia's war with Ukraine, reacting to developments as they happen. There's still uncertainty around Russian President Vladimir Putin's intentions, the extent of future sanctions by the US and its allies, military outcomes, and the policies of non-NATO states.

The conflict has driven up commodity prices, which could push up already red-hot inflation. Investors are grappling with a lack of clarity around global growth and central bank policy in the face of these pressures.

Marks, the cofounder and co-chairman of Oaktree Capital Management, urged investors to keep their heads and not follow the pack in deciding when to buy or sell.

He quoted iconic investor Warren Buffett, who said in a 2018 letter to shareholders: "The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs."

Great investors are unemotional

High-grade investors don't make knee-jerk reactions, Marks believes, saying "emotion is the greatest enemy of superior investing."

The billionaire investor said many people follow consensus by buying when an asset's price is high, and selling when it's low. This herd instinct encourages them to get excited about company profits — and a resultant gain in stock price — when the economy is doing well.

"The great investors I know are unemotional about their investing, and they go counter to these trends," he said.

A slide in stock prices shouldn't mean a cut in exposure, Marks said, noting some people turn pessimistic when the economy contracts and corporate profits fall.

"This is the opposite of what we should be doing," he said. "We should be scaling out as the price rises — perhaps when it gets unreasonable. We should be getting in with both feet when it falls."

Clearly, most human emotion is arrayed against doing the right thing, he said.

Being imaginative

At the same time, investors shouldn't rely purely on data and analysis in deciding what to do, according to Marks.

"You have to have some imagination," he said.

Marks harked back to his "Now what?" memo, written in 2008, which laid out the events that led up to the financial crisis.

"You couldn't prove that the financial-institution world was not going to melt down," he said.

In the aftershock of the Lehman Brothers collapse, which turned into a full-blown national emergency, Marks thought hard about whether he should keep investing.

"I said if we buy, and the world melts down, it doesn't matter. But if we don't buy, and the world doesn't melt down, then we fail to do our job. We must buy," the investor said.

"Now that's not scientific. It's logical," he said. "But it sure wasn't quantitative or analytical or anything like that. It was an intuition."

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