This is a continuation of yesterday’s post.

Howard Marks is co-founder of Oaktree Capital Management and author of The Most Important Thing: Uncommon Sense for the Thoughtful Investor (2011). His thoughts, ideas and insights have become fodder for many of our blog posts as he is very willing to share them. In an interview with John Mihaljevic, CFA and Managing Editor of the newsletter The Manual of Ideas, Marks shares his views on many issues pertinent to the world of investing:

Adjust your level of aggressiveness based on the environment. Marks argues that investors should “adjust your activities based on the climate of the market.” He warns against inflexibility regardless of conditions on the ground. While investors will want to stick to their strengths, Marks says that a rigid approach could leave money on the table. Inefficiencies, he says, come from those who say, “I do this, and I don’t do that. What they are basically saying is, ‘I don’t do that regardless of how cheap it is.’ Well, that is silly because then you just leave bargains for others.”

Experience is very important. Learning, says Marks, comes from “bad memories.” He recalls how Oaktree established its first distressed-for-control fund in 1994—investing “big chunks of the debt of smaller companies so that when the debt was exchanged for equity we ended up as the controlling shareholder.” This is an interesting scenario in which, Marks explains, there are “more moving parts to go wrong” and where “you have to live with the consequences…but it can produce some good outcomes.”

Apply “Second-Level Thinking” to the European Crisis. Marks sees potential opportunity when prices go down, but asks himself whether the price has declined “sufficiently relative to reality.”  He poses the question, “European assets are lower in price because of the macro conditions, but are the macro conditions being viewed too pessimistically?” He advocates using “second-level thinking” in which you consider whether you’re able to think optimistically about the fate of Europe. Marks argues, “I don’t think anybody really has a good handle on what is going to happen in Europe. So then, how can gaming the Europe situation give you an edge?”