When Howard Marks publishes a memo, even Warren Buffett pays attention. Buffett has said Marks’s memos are the first thing he opens and reads.
His memos remind investors how easily a good story can become an expensive mistake.
Marks co-founded Oaktree Capital Management in 1995, after starting his investment career in 1969. He has spent decades studying businesses, lending money, and seeing what happens when investments go wrong.
He explains those lessons in plain English without pretending he can predict tomorrow. His memos help readers understand risk, avoid costly mistakes, and recognize opportunities.
His latest memo, A Layman Thinks About AI, appeared November 11.
Howard Marks’s latest memo explores turning AI’s promise into investment profits.
It tackles a challenge every investor should take seriously today.
You could be right about AI’s future and still lose money buying its stocks.
Great Technology Must Make Money
Marks starts by saying he is no expert on AI. That makes him careful about what he believes and what remains uncertain.
He examines 11 questions about profits, competition, data centers, debt, and risk. His main point is simple, and every investor should understand it.
AI can change the world without making every investor rich.
A company might build an amazing product but spend too much developing it. Competitors could drive prices lower, leaving customers with the savings and shareholders with little profit.
The same lesson applies to businesses supplying AI equipment and data centers. Being needed does not guarantee that a business will be profitable.
Data centers need reliable electricity, customers who can pay, and manageable debt. Their expensive equipment could become outdated before owners earn back their investment.
For me, this is one of the memo’s most useful lessons.
Before buying a stock, understand how the business earns money. Then decide whether its price gives you an attractive opportunity.
Invest Before Every Answer Is Clear
Marks says an uncertain future is no reason to ignore AI. The opportunity is too big to sit out simply because we lack every answer.
Instead, we should be careful about what we buy and how much we invest.
We need to understand what must go right for a business to succeed. Then consider how much we could lose if things go wrong.
That thinking applies whether you own a technology company, manufacturer, or hospital operator. Understanding the business gives you a stronger reason to own it.
We can be excited about AI while remaining careful with our money. A great opportunity still requires choosing the right businesses at sensible prices.
Own America’s Progress at a Bargain
That is how we approach investing at The American Prosperity Report. Our Alpha-4 Approach keeps us focused on what makes a business worth owning.
We start with an industry that has room to grow for years. Then we look for outstanding leaders who spend wisely and build lasting value.
We want sound finances so the business can handle setbacks and keep growing. Finally, we look for a bargain price based on what we believe the business is worth.
Even a great business can be a poor investment if you pay too much.
These standards help us judge opportunities without getting carried away by excitement. They give us reasons to invest beyond a promising story.
I remain bullish on America because our entrepreneurs keep finding better ways to solve problems. AI gives them another tool to improve products, lower costs, and serve customers.
The opportunity includes companies building AI, supplying equipment, and using it in their businesses. We can study those companies without knowing how every part of AI’s future will unfold.
I believe America’s next chapter will create tremendous wealth for patient investors.
At The American Prosperity Report, we want to own the businesses that help build it. Our Alpha-4 Approach keeps us focused on business strength and the price we pay.
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Regards,
Charles Mizrahi
Prosperity Insider
