Howard Marks only made a handful of forecasts in his 63-year career.
In his just-released new Memo, he did make another forecast.
He thinks the investment world changed fundamentally for the first time in four decades.
Here's what changed and how investors should react:
In his just-released new Memo, he did make another forecast.
He thinks the investment world changed fundamentally for the first time in four decades.
Here's what changed and how investors should react:
1. This Time It Might Be Different
In bull markets, investors often claim that it is different this time to justify prices.
At least 80% of the time, it's not different, and the party ends eventually.
But there are these rare occasions where something fundamental has changed.
In bull markets, investors often claim that it is different this time to justify prices.
At least 80% of the time, it's not different, and the party ends eventually.
But there are these rare occasions where something fundamental has changed.
2. The Most Important Event in the last 40 Years
What was the most momentous development in the last 40 years?
The Global Financial Crisis? The Tech Bubble? Maybe the FED policy of 2020?
Marks wouldn't agree with any of them. For him, it's the interest policy.
What was the most momentous development in the last 40 years?
The Global Financial Crisis? The Tech Bubble? Maybe the FED policy of 2020?
Marks wouldn't agree with any of them. For him, it's the interest policy.
3. A lack of Experience
A 40-year interest decline also means that the vast majority of investors today only know this environment.
Higher interest rates or at least rising ones, as we've seen now, were only known in theory.
A 40-year interest decline also means that the vast majority of investors today only know this environment.
Higher interest rates or at least rising ones, as we've seen now, were only known in theory.
4. The Consequences of Interest Rate Changes
The last decades were great for companies that expected cash flows and profitability only far into the future.
With higher interest rates, future cash flows will be discounted at higher rates and be worth less.
The last decades were great for companies that expected cash flows and profitability only far into the future.
With higher interest rates, future cash flows will be discounted at higher rates and be worth less.
5. What Strategies Will Work Best?
Bargain hunting has been challenging in recent years.
Bargains only exist where panic exists. And there was no panic. And if there was, the FED stepped in.
This could change. Great investors might start to beat the ETFs again.
Bargain hunting has been challenging in recent years.
Bargains only exist where panic exists. And there was no panic. And if there was, the FED stepped in.
This could change. Great investors might start to beat the ETFs again.
6. Comeback for Bonds?
Allocating capital to the bond market wasn't much of an alternative for most investors in times of ultra-low interest rates.
Now, you can get high-yield bonds at 8-10% rates.
Bonds become an alternative again. Especially for endowments (the big players)
Allocating capital to the bond market wasn't much of an alternative for most investors in times of ultra-low interest rates.
Now, you can get high-yield bonds at 8-10% rates.
Bonds become an alternative again. Especially for endowments (the big players)
Here's an article with 7 Key Learning from All Memos ever written by Marks:
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