The memo by Howard Marks of Oaktree Capital Management explores the concept of risk in investing, drawing an analogy between investing and chess. The author highlights the role of sacrifice in chess, where a player intentionally loses a piece to gain a more advantageous position. This concept is then applied to investing, where taking on risk is often necessary to achieve higher returns. The author emphasizes that avoiding risk may lead to little or no return, while taking on moderate or high risk can lead to substantial gains or losses. The memo also discusses the importance of taking calculated risks and the potential consequences of not taking enough risk in investment decisions. The author concludes by emphasizing the paradox of risk-taking, where success often comes from making a large number of well-reasoned investments, some of which may not yield high returns but overall contribute to long-term success.
Source: “The Indispensability of Risk” by Howard Marks from Oaktree Capital Management.
