In a recent podcast, author Tim Ferris interviews Howard Marks to discuss the Oaktree Capital co-founder’s views on investor psychology, his new book Mastering the Market Cycle: Getting the Odds on Your Side, and macro issues related to the economy. The lengthy discussion spans Marks career, life lessons, and how to navigate an uncertain and random world.

Here are some highlights:

• Marks emphasizes the importance of knowing your limitations as an investor. The phrase, “I don’t know,” he says, is something that should be practiced daily. The world, he says, “would be an easier place to navigate if people realized that their opinions could be wrong.”
• Uncertainty is a universal, Marks argues, and the future should not be viewed as an event that is pre-determined or predictable, but rather as a range of possibilities, as a “probability distribution.”
• Unlike in other businesses, says Marks, in investing there’s no single approach that will always render a successful outcome.
• “It’s not what you buy, it’s what you pay,” Marks asserts. The secret to investing success is centered on the price paid for a stock relative to its intrinsic value—then, he says, the “odds are on your side.” Buying “good things” and avoiding bad ones is not a guarantee that you’ll make money.
• When asked at what stage he thinks we are in the current bull market, Marks responded, “I think we’re in the eighth inning—which I’ve been saying for a while.” He adds, however, that his observation is “of limited use because, unlike in baseball, we don’t know how many innings there are in the game.”

The market’s “good news,” says Marks, includes:

o  The economy is functioning at a high level;

o  Unemployment is declining;

o  Stock prices, which were high by price-earnings ratio standards last year, are not as high this year because corporate earnings have been “supercharged” by the tax bill.

The market’s “bad news” includes:

o  Interest rates are likely to rise, which will increase the burden of debt on companies;

o  Rising bond yields offer more competition for stocks;

o  The threat of trade war.

“We are living in a low-return world right now,” says Marks, and taking risk is the only way to increase returns. While investors are not talking as if they’re bullish, they’re acting as if they are. When people move toward riskier actions, he says, it makes the market riskier for everyone. Marks describes his mantra as: “move forward, but with caution.”