Most investors chase a dream: the brilliant manager who consistently ranks in the top 5%, crushing the market year after year with extraordinary returns. The financial industry encourages this fantasy. Marketing departments, performance tables, and hot stock tips all whisper the same seductive promise: exceptional returns are within reach if you’re smart enough, bold enough, and willing to take the risks that separate winners from the ordinary.
But Howard Marks, co-founder of Oaktree Capital Management and one of investing’s sharpest minds, spent decades debunking this myth. His most powerful insight came from an unlikely dinner conversation in 1990—a moment that would crystallize his entire investment philosophy and yield one of the most important lessons in modern finance.
David VanBenschoten, head of the General Mills pension fund, shared something remarkable: over 14 years, his fund’s equity returns had never ranked higher than the 27th percentile nor lower than the 47th percentile in any single year. Consistently second-quartile results. Yet when measured over the full 14-year period, the fund placed in the fourth percentile overall—the very top tier.the-best-of-howard-marks.pdf
This paradox stunned Marks. A manager who never had a top-decile year had delivered top-decile returns over the long term. The lesson was clear: consistency, not brilliance, is the path to extraordinary wealth.
The Trap of Chasing Top Performance
To understand why this matters, consider what happens when a fund manager decides to swing for the fences.
At around the same time as his conversation with VanBenschoten, Marks observed another prominent investment firm report terrible results. The firm’s president offered an explanation that revealed the industry’s most dangerous mindset: “If you want to be in the top 5% of money managers, you have to be willing to be in the bottom 5% too.”
Marks’s reaction was immediate and visceral: “My clients don’t care whether I’m in the top 5% in any single year, and they and I have absolutely no interest in me ever being in the bottom 5%.”
This distinction is everything. The pursuit of annual brilliance creates a false choice: spectacular wins or devastating losses. The manager who swings for the fences every year will occasionally hit home runs—years that look spectacular in performance tables. But the same approach that produces 1,600 basis points of outperformance in a winning year can produce 1,600 basis points of underperformance in the next. The result over time? Extreme volatility masquerading as mediocrity.
Also, the very act of being top-decile creates regret-driven selling. When a portfolio is up 40% and trailing peers by 5%, the pressure—both internal and external—to “catch up” is immense. Managers sell their winners too early to chase performance, or they take on riskier positions they don’t fully understand.
The Behavioral Edge: Why Consistency Is Harder Than It Looks
Consistency requires extraordinary discipline in an industry built on performance racing.
Achieving second-quartile returns every year means sitting out rallies you could have participated in. When the market rises 30% and you’re up 18%, it’s agonizing. Your investors ask questions. Competitors celebrate bigger gains on their websites.
In 1999, just before the dot-com collapse, disciplined value investors who rejected tech stocks looked like fools. They underperformed the market by 20+ percentage points. As Buffett noted in his 1999 shareholder letter, the pressure to join the tech bubble was immense. Yet those who resisted—who endured the reputational risk of underperformance in crazy times—were saved from catastrophe when the bubble burst
VanBenschoten’s 14-year record suggests he never capitulated to the pressure to chase performance. He never took a wild swing that landed him in the bottom 5%. That discipline—replicated year after year—was the secret.
This suggests a radically different way of thinking about fund management, investing, and wealth creation:
It’s not about the peak. The manager with one incredible year isn’t necessarily superior to the manager with 14 solid years. In fact, the latter often compounds more wealth.
It’s about the path. A smooth path upward (second quartile, then second quartile again) reaches a higher destination than a jagged path (top quintile one year, then 30th percentile the next).
It’s about psychology and time. The discipline to avoid the bottom 5% is harder than the ambition to reach the top 5%. But over decades, that discipline is worth more.
Accept underperformance in the short term. If your manager is disciplined enough to avoid catastrophic losses during bubbles and panics, they will underperform during the bubble phases. That’s the cost of the discipline that generated his exceptional long-term returns.
Conclusion
The path to extraordinary wealth isn’t paved with extraordinary returns every year. It’s paved with consistency, discipline, and the unglamorous work of avoiding the disasters while benefiting from the inevitable winners.
David VanBenschoten’s 14-year record reminds us of a timeless lesson: those who compound modestly but persistently outperform those who aim for brilliance and accept the volatility that comes with it. In a world obsessed with quarterly performance, annual rankings, and three-year track records, this is an uncomfortable truth.
Consistency compounds into wealth that far exceeds the dreams of those still chasing the next hot stock.
That’s the real winning formula and it’s within reach for everyone willing to embrace it.
