This man sees the future. He predicted: 1) Dot-com Bubble (2000) 2)...
Oguz Erkan@oguzerkan
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Jan 15, 2025
~3 min read
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This man sees the future.
He predicted:
1) Dot-com Bubble (2000)
2) Great Recession (2008)
3) The COVID Bubble (2021)
Here is Howard Marks' latest warning: 🧵
He predicted:
1) Dot-com Bubble (2000)
2) Great Recession (2008)
3) The COVID Bubble (2021)
Here is Howard Marks' latest warning: 🧵
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1/ Howard Marks is the Co-Founder and the Co-Chairman of Oaktree Capital management.
He is managing more than $200 billion and has a robust understanding of the market, he wrote a book called "Mastering The Market Cycle" in 2018.
In 2021, he called the bubble before anyone 👇
He is managing more than $200 billion and has a robust understanding of the market, he wrote a book called "Mastering The Market Cycle" in 2018.
In 2021, he called the bubble before anyone 👇
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2/ He recently published a new paper: "On Bubble Watch" and made ominous forecasts...
He starts with a definition of a bubble: "Bubble is more of a state of mind than a quantitative calculation."
He says it was euphoria around a dozen stocks that led to the dot-com bubble.
He starts with a definition of a bubble: "Bubble is more of a state of mind than a quantitative calculation."
He says it was euphoria around a dozen stocks that led to the dot-com bubble.
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3/ Marks points out a specific state of mind to spot euphoria in the market: "No price is too high."
This happens when investors believe a business is so disruptive that it'll completely dominate the future.
He gives Cisco as an example.
It went up 20x and declined 88% later.
This happens when investors believe a business is so disruptive that it'll completely dominate the future.
He gives Cisco as an example.
It went up 20x and declined 88% later.
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4/ More on the market psychology 👇
Marks flags four words as the second most accurate indicator of euphoria: "It's different this time."
He had articulated many times before why this is a very dangerous state of mind:
Marks flags four words as the second most accurate indicator of euphoria: "It's different this time."
He had articulated many times before why this is a very dangerous state of mind:
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5/ Applying these two tests to the market today, Marks concludes that we are not in a bubble, yet.
He says:
- People care about price, but they are willing to pay up.
- There is no general "this time is different" mania.
Yet, he says there are warning signs appearing...
He says:
- People care about price, but they are willing to pay up.
- There is no general "this time is different" mania.
Yet, he says there are warning signs appearing...
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6/ He thinks investors are switching from current valuation levels to forward levels.
This is dangerous because it assumes prolonged persistence of leading stocks.
He reminds us that of 20 most overweighted stocks of 2000, only 6 of them are still among the top 20 today.
This is dangerous because it assumes prolonged persistence of leading stocks.
He reminds us that of 20 most overweighted stocks of 2000, only 6 of them are still among the top 20 today.
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7/ He thinks the US market has become too overvalued and overweighted compared to the world markets.
The US market now makes up 70% of the world index and magnificent 7 stocks make up 39% of the US market.
Marks says this is unsustainable and it'll have two potential outcomes:
The US market now makes up 70% of the world index and magnificent 7 stocks make up 39% of the US market.
Marks says this is unsustainable and it'll have two potential outcomes:
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8/ He thinks there are two potential outcomes:
- Severe market correction.
- Prolonged periods of very low returns.
If the overvaluation persists, he says, we will get 3-4% annual returns in the next 10 years.
- Severe market correction.
- Prolonged periods of very low returns.
If the overvaluation persists, he says, we will get 3-4% annual returns in the next 10 years.
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9/ Overall, he thinks we are currently not in a bubble but there are concerning signs:
- Looking at forward valuation ratios.
- Rising concentration in the US market.
- Record share of the US market in the world.
He says this will either take us to a bubble or a long period of very low returns.
- Looking at forward valuation ratios.
- Rising concentration in the US market.
- Record share of the US market in the world.
He says this will either take us to a bubble or a long period of very low returns.
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10/ What should investors do?
Well, there is no definitive prescription, only some suggestions:
- Avoid popular sectors.
- Don't overpay for growth.
- Overweight defensive businesses.
- Diversify into different asset classes.
You can't time the crash but you can prepare.
Well, there is no definitive prescription, only some suggestions:
- Avoid popular sectors.
- Don't overpay for growth.
- Overweight defensive businesses.
- Diversify into different asset classes.
You can't time the crash but you can prepare.
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Join 9,500+ readers to become a better investor.
You will also get a free e-book when you join 👇
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