Marks argues the key insight is that any asset can be good at the right price.
“the big realization of the last ten, forty years is that just about every asset can get cheap enough so that it's a good investment, and most investments can get so expensive that they're a bad investment. And the revolution of the high yield bond industry was really to say,”
Marks notes high yield bonds currently offer 7-8% yields, close to historical equity returns with different tax treatment.
“So today you can buy high yield bonds, whether it be The US or Europe or variations on that theme, what we call low grade credit.”
Marks explains that in high yield bonds, identifying which bonds to avoid matters more than which to buy.
“if there are a 100 high yield bonds out there and they're all 8% bonds, and you know that 90 will pay and 10 will default, it doesn't matter which of the 90 that pay you buy because they're all 8% bonds, they all get the same return.”
Marks reports 99% of Oaktree's high yield bonds paid off but warns competition periodically erodes returns and safety.
“I think it's 99% of the high yield bonds we bought paid off. So, you know, there's nothing wrong with it fundamentally, intrinsically.”