Howard Marks, Oaktree Capital — 2025-08-14
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Memos from Howard Marks 2025-08-14T07:00:00.0000000Z" pubdate title="Time posted: >8/14/2025 7:00:00 AM (UTC)">Aug 14, 2025
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On July 28, I flew to South America on a plane without Wi-Fi, leaving me without email or entertainment. What was I to do but start in on a memo? Interestingly, the things I wrote during that flight turned out to be the answers to many of the questions I received from clients after I landed, so writing what follows served me well. I hope it'll do the same for you.
January 2 of this year was the 25 th anniversary of my memo bubble.com , the one that put my writing on the map, and I marked the occasion by publishing another memo, called On Bubble Watch . While the title may have raised concern for readers, my main conclusion was that the elevated U.S. stock market valuations at the time didn't necessarily signal the existence of a bubble, mainly because I didn't detect the extreme investor psychology I associate with bubbles. Security prices were "lofty but not nutty" is how I put it. Because a lot has taken place in the seven months since then, it's time for an update on asset values.
Before I start, please note that I'm talking about investing in general. My specific reference will be to public U.S. corporate securities – stocks and bonds – since they mark to market regularly and are the assets that most enter my consciousness. But since investors' actions toward one group of assets and the resulting price movements influence other assets and other markets – and since they ensue largely from investor psychology, which is highly contagious – I think my comments are probably applicable to other asset classes, to private assets as well as public ones, and possibly to markets outside the U.S.
I'll start by laying out where I think investment value comes from and how it should be assessed. I don't think I've ever done this before in this form. It's a big topic, but I'll try to cover it briefly.
Value
Investment assets – things such as stocks, bonds, companies, and buildings – have a value, which is sometimes referred to as their "intrinsic value": what the asset is "worth" at a point in time. This value is subjective. It can't definitively be found anywhere – not even by AI, as far as I know – and opinions will differ as to what it is.
In my parlance, the value of an asset is derived from its "fundamentals." The fundamentals of a company, for example, encompass a great many things. These include its current earnings, its earning power in the future, the steadiness or variability of its future earnings, the market value of its component assets, the skill of management, its potential to develop new products, the competitive landscape, the strength of its balance sheet, and the myriad additional factors that will influence the company's future. Ultimately, the totality of an asset's fundamentals constitute its earning power, which in turn is the source of its value.
A company may own land, buildings, machinery, vehicles, and natural resources such as mineral deposits or forests, and even facilities that allow it to derive electricity from river water or sunshine (which it obviously doesn't own). These are tangible assets, and there's often a market for them and a realizable price. But a company may also have assets that are intangible, such as patents, trade secrets, knowhow, research capability, reputation and image, human talent, management skill, and culture. Some of these may be transferable and salable, but others are not.
All the assets mentioned above have earning power individually, and in combination they create a company's overall earning power. A company's earning power almost always exceeds the sum of the earning power of each of its individual assets taken in isolation. Combining individual assets to maximize a company's overall earning power is the top job of management. When successful, the result is synergy: the benefit gained from skillfully combining things.
But not all assets have earning power (as I define it), and thus not all have calculable investment value. I describe earning power as the money you can make by owning and operating an asset – that is, I omit from "earnings" the possible gains from simply holding an asset and ultimately selling it. A diamond ring, painting, or classic car doesn't produce earnings for its owner (short of renting it out or charging people to look at it). For this reason, its economic potential comes exclusively from the possibility of selling it at a profit. And the person who buys it is likely to be doing so in the hope of selling it to someone else at a still-higher price . . . despite the fact that it won't produce earnings in the interim. I think of assets that don't produce operating cash flow or have the potential to do so in the future as not having earning power, and that makes them impossible to value objectively, analytically, or intrinsically (see my 2010 memo about gold, All That Glitters ).
Some earning power is current and produces income today. The result can be seen in this year's financial statements: the income that today's assets are producing in their current configuration and under today's conditions. Other earning power exists in the form of potential: for example, the income that will be earned when today's holdings of natural resources are exploited in the future, or the income that will be generated from new products developed by the company's employees from its intellectual property. The result will be dependent on the environment that unfolds, which in turn will be influenced by decisions made by company management, competitors, customers, governments, and even investors.
Assets can be tangible or intangible, and an asset's earning power can produce earnings today and also in the future in amounts that might be higher or lower than today. Together, an asset's current earnings, plus its power to produce earnings in the future, constitute its key fundamentals. Some investors emphasize paying a reasonable price for today's earning power, and others are willing to bet on what they see as potential growth in earning power. Regardless, I think prudent investing has to be based on judgments regarding an asset's present and future earning power. Once an investor has determined an asset's intrinsic value in this way, he will have a basis for establishing a "right" price that will allow for good returns in the future.
Price
While value can seem theoretical and ephemeral, price is concrete. It's the amount you pay to obtain something. Ultimately, as indicated above, doing a good job of investing comes down to estimating value appropriately and purchasing that value at a reasonable price.
As mentioned above, there are a great many things that combine to make up an asset's fundamentals. Ultimately, they can be boiled down to its earning power, and it's from earnings that value is derived. In the late 1960s, I was taught at the University of Chicago Graduate School of Business that the right price for an asset is the discounted present value of its future cash flows or earnings. You might object: What about all the other things listed above, such as a company's plant and equipment, intellectual property, and management, and even its reputation? Don't they have value? The value of all of these things is derived from their ability to contribute to the company's earning power, and thus it's captured in the earnings calculation.
The key part of a security analyst's job consists