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xii I N T R O D U C T I O N tech- stock bubble in 2000– 2001; the accounting scandals of 2001– 2002; and the worldwide fi nancial crisis of 2007– 2008. Living through the 1970s was particularly formative, since so many challenges arose. It was virtually impossible to get an investment job during the seventies, meaning that in order to have experienced that de cade, you had to have gotten your job before it started. How many of the people who started by the sixties were still working in the late nineties when the tech bubble rolled around? Not many. Most professional investors had joined the industry in the eighties or nineties and didn’t know a market decline could exceed 5 percent, the greatest drop seen between 1982 and 1999. If you read widely, you can learn from people whose ideas merit pub- lishing. Some of the most important for me were Charley Ellis’s great article “Th Th , July- August 1975), A e Financial Analysts Journal e Loser’s Game” ( Short History of Financial Euphoria, by John Kenneth Galbraith (New York: Viking, 1990) and Nassim Nicholas Taleb’s Fooled by Randomness (New York: Texere, 2001). Each did a great deal to shape my thinking. Finally, I’ve been extremely fortunate to learn directly from some outstanding thinkers: John Kenneth Galbraith on human foibles; Warren Buff ett on patience and contrarianism; Charlie Munger on the importance of reasonable expectations; Bruce Newberg on “probability and outcome”; Michael Milken on conscious risk bearing; and Ric Kayne on setting “traps” (underrated investment opportunities where you can make a lot but can’t lose a lot). I’ve also benefi ted from my association with Peter Bern- stein, Seth Klarman, Jack Bogle, Jacob Rothschild, Jeremy Grantham, Joel Greenblatt, Tony Pace, Orin Kramer, Jim Grant and Doug Kass. Th e happy truth is that I was exposed to all of these elements and aware enough to combine them into the investment philosophy that has worked for my organizations— and thus for my clients— for many years. It’s not the only right one— there are lots of ways to skin the cat— but it’s right for us. I hasten to point out that my philosophy wouldn’t have meant much without skilled implementation on the part of my incredible Oaktree cofounders— Bruce Karsh, Sheldon Stone, Larry Keele, Richard Masson and Steve Kaplan— with whom I was fortunate to team up between 1983 and 1993. I’m convinced that no idea can be any better than the action taken on it, and that’s especially true in the world of investing. Th e philosophy I share here wouldn’t have attracted attention were it not for the accom- plishments of these partners and the rest of my Oaktree colleagues.

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x I N T R O D U C T I O N the idea of the most important things— each is a brick in what I hope will be a solid wall, and none is dispensable. I didn’t set out to write a manual for investing. Rather, this book is a statement of my investment philosophy. I consider it my creed, and in the course of my investing career it has served like a religion. Th ese are the things I believe in, the guideposts that keep me on track. Th e messages I deliver are the ones I consider the most lasting. I’m confi dent their rele- vance will extend beyond today. You won’t fi ere’s no surefi re recipe for nd a how- to book here. Th investment success. No step- by- step instructions. No valuation formulas containing mathematical constants or fi xed ratios— in fact, very few num- bers. Just a way to think that might help you make good decisions and, perhaps more important, avoid the pitfalls that ensnare so many. It’s not my goal to simplify the act of investing. In fact, the thing I most want to make clear is just how complex it is. Th ose who try to simplify in- vesting do their audience a great disser vice. I’m going to stick to general thoughts on return, risk and pro cess; any time I discuss specifi c asset classes and tactics, I do so only to illustrate my points. A word about the or ga ni za tion of the book. I mentioned above that successful investing involves thoughtful attention to many areas simulta- neously. If it were somehow possible to do so, I would discuss all of them at once. But unfortunately the limitations of language force me to take one topic at a time. Th us I begin with a discussion of the market environment in which investing takes place, to establish the playing fi en I go on eld. Th to discuss investors themselves, the elements that aff ect their investment success or lack of it, and the things they should do to improve their chances. Th nal chapters are an attempt to pull together both groups of ideas into a summation. Because my philosophy is “of a piece,” however, some ideas are relevant to more than one chapter; please bear with me if you sense repetition. I hope you’ll fi nd this book’s contents novel, thought provoking and perhaps even controversial. If anyone tells me, “I so enjoyed your book; it bore out everything I’ve ever read,” I’ll feel I failed. It’s my goal to share ideas and ways of thinking about investment matters that you haven’t come across before. Heaven for me would be seven little words: “I never thought of it that way.” In par tic u lar, you’ll fi nd I spend more time discussing risk and how to limit it than how to achieve investment returns. To me, risk is the most interesting, challenging and essential aspect of investing.

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