Investing

3 key pieces of advice billionaire Howard Marks gave to a high school investing club

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Howard Marks, co-chairman, Oaktree Capital.
Courtesy David A. Grogan | CNBC

Imagine being a high school student and having Kevin Durant visit your high school basketball team's practice, or having Martha Stewart pop into your home ec class.

That's like what happened earlier this year, when legendary investor Howard Marks joined a high school investment club in Pleasanton, California, for one of its after-school meetings.

Marks is the billionaire cofounder of Oaktree Capital Management and is widely considered to be one of the most successful investors in the world. He's known for writing "memos" to his clients about the state of the markets, and has also written a few books that have garnered praise from none other than Warren Buffett. So his taking the time to speak with a bunch of high schoolers is fairly remarkable.

Marks called into the club in May earlier this year, and the Amador Valley Investment Club recorded the entire exchange. Here's some of the valuable advice Marks gave.

1. Everybody worries about losing money, even the pros

Whether you're a novice investor or a seasoned pro, it's normal to get nervous when the market gets bumpy. Marks says that this unease is something that never really goes away — it's your money, after all.

But, Marks said, be strategic: Prioritize the things you need to worry about, "and then worry like crazy."

If you can learn to recognize your own impulses as they relate to investing risks, you may be able to become a more successful investor. Knowing your weaknesses can also help you stick to your long-term strategy, and avoid panicked moves.

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2. There's no need to fear a down market

"Investors should be aggressive when prices are low," Marks says, "and defensive when prices are high."

That's generally the opposite of the behavior we see in the markets, where increasing stock prices often indicate optimism, inspiring more people to buy. Marks is saying that you should consider doing the opposite and be wary when you see a stock's price shoot into the stratosphere. People get greedy, and "that's the time for caution," he says.

Warren Buffett has often pointed to the upside of falling stock prices for long-term investors: You're buying at cheap prices, and you have time to ride out those bumps to benefit from the market's proven, long-term track record.

Investors should be aggressive when prices are low.
Howard Marks
cofounder of Oaktree Capital Management

3. Diversification matters

Football players wear helmets, soccer players wear shin guards, and investors diversify their portfolios — it's the primary way to guard against the risks of the market. Diversifying your holdings helps make sure that your portfolio's performance isn't dependent on a single company or industry, and that you stay on track to meet your goals.

"We diversify to protect against what we don't know," Marks says. And since there's an awful lot most investors don't know, diversification is a key concept to understand. "I've never met anybody who has a one-stock portfolio."

Stick to these guiding principles, Marks says, and you'll be in a better position than many investors. But, he warns, "I would discourage you from doing the thing that you think makes you the most money." Instead, make sure to do your due diligence as an investor.

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