Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 238

Howard Marks and his 'Latest Thinking'

Regular readers of Cuffelinks know we are fans of Howard Marks, Founder and Co-Chair of the $100 billion fund manager, Oaktree Capital. Financial markets are at a fascinating junction where most analysts expect favourable global growth, but a shadow is cast by massive government debts, rising interest rates and growing tensions between major countries (this week, The Economist identifies conflicts between the US, North Korea, China, the UK and Russia).

The latest Marks memo to his clients focusses on this contrast of market optimism versus fear.

The positives

Marks starts by clarifying he would never tell investors ‘it’s time’ to ‘get out’. The market rarely gives such clear signals. To counter the perception that he is overly cautious, he lists a number of positives, including:

  • The sustained US recovery from 2009 is now joined by other economies, delivering worldwide growth. There has been no boom and when a recession eventually occurs, there will probably not be a severe bust. The pro-business President Trump is encouraging capital spending, and tax cuts will help company profits.
  • US unemployment is down to 4.1%, the lowest in 60 years, which should gradually translate into wages growth and increasing consumer demand.
  • At the moment, inflation remains low and any rise in interest rates should be gradual and limited.
  • Overall, investors have not been behaving euphorically, reducing the catalysts for a downturn.

The negatives

He warns that this favourable macro environment comes with high prices for most asset classes, and the threat of rising inflation and interest rates and an uneasy quiet in markets:

  • Many valuation measures (such as Buffett’s ratio of market capitalisation to GDP, the VIX, bond yields, the Shiller cycle-adjusted P/E ratio) are at or close to all-time highs, which in the past have signalled a downturn.
  • Investors are taking risks to compensate for low returns, leaving prudent investors sidelined:
    “How healthy can it be when investors think an asset or market is rich but they’re holding anyway because they think it might go up some more? Fear of missing out (or “FOMO”) is one of the more powerful reasons for investor aggressiveness, and also one of the most dangerous.”
  • The easy money has been made, prospective returns are well below normal for almost every asset class and risky investor behaviour prevails. He argues for defensiveness rather than squeezing the last drop of return from the market.

Marks' summary of conditions

Marks does not try to satisfy the demand for a definitive position. Asset prices are worrisome but investor psychology is unpredictable. He will continue to invest on the basis of value relative to price, based on his mantra of “move forward but with caution”. His summary is:

“For me the key points regarding the general market outlook are as follows:

  • The absence of widespread euphoria certainly is an important flaw in any near-term bearish view.
  • Thus there’s no reason for confidence in the existence of a soon-to-burst bubble.
  • Investor psychology continues to grow more confident, however.
  • Asset prices are already unusually high.
  • Future events remain unpredictable, but today’s high prices mean the odds are against a significant long-term upward move from here.
  • No one can say what’s going to happen in the short term.”

And in response to the argument that a more aggressive stance would have produced higher returns, he says that could not have been justified by logical reasoning in the past. He muses:

“Is an incorrect decision one that didn’t work out well, or one that was wrong at the time it was made? I insist it’s the latter.”

We should all recognise this when we have remorse about missing out on a surging tech stock with little revenues, negative bond rates and Bitcoin going above $20,000.


Graham Hand is Managing Editor of Cuffelinks. The article is general information and does not consider the circumstances of any investor.

Howard Marks’s latest memo to his clients, which also discusses his reaction to the latest US tax cuts, is linked here: Latest Thinking.

CNBC Video: Billionaire investor Howard Marks: I wouldn't call this market euphoria



Howard Marks on uncertainty, forecasting and doubt

Howard Marks on 'Which way now?' - UPDATED

Review: Howard Marks on the market cycle


Most viewed in recent weeks

The risk-return tradeoff: What’s the right asset mix for a 5% return?

Conservative investors are forced to choose between protecting capital and accepting lower income while drawing down capital to maintain living standards or taking additional risk. How can you strike a balance?

How long will my retirement savings last?

Many self-funded retirees will outlive their savings as most men and women now aged 65 will survive at least another 20 years. Compare your spending with how much you earn to see how long your money will last.

Buffett's favourite indicator versus all-in equities

Peter Thornhill shows how his personal portfolio has thrived under an 'all-in equities' strategy, but Warren Buffett's favourite valuation indicator says stock markets are priced at their most extreme ever.

In fact, most people have no super when they die

Contrary to the popular belief supported by the 'fact base' of the Retirement Income Review, four in every five Australians aged 60 and over have no super in the period up to four years before their death.

Five timeless lessons from a life in investing

40 years of investing is distilled into five crucial lessons. An overall theme is to embrace uncertainty to make an impact on how much you earn, how much you spend, how much you save and how much risk you take.

Welcome to Firstlinks Edition 403

Most Australians hold their superannuation in a balanced fund, often 60% growth/40% defensive or 70%/30%. Lifecycle funds are also popular, where the amount in defensive assets increases with age. Employees who are not engaged with their super (and that's most people when they start full-time work) simply tick a box for the default fund selected on their behalf by their employer. Are these funds still appropriate?

  • 15 April 2021

Latest Updates


Whoyagonnacall? 10 unspoken risks buying off-the-plan

All new apartment buildings have defects, and inexperienced owners assume someone else will fix them. But developers and builders will not volunteer to spend time and money unless someone fights them. Part 1


Super changes, the Budget and 2021 versus 2022

Josh Frydenberg's third budget contained changes to superannuation and other rules but their effective date is expected to be 1 July 2022. Take care not to confuse them with changes due on 1 July 2021.


Why don't higher prices translate into inflation? Blame hedonism

Why are prices rising but not the CPI? When we measure inflation, we aren’t measuring raw price changes, we’re measuring the pleasure-adjusted or utility-adjusted price changes, and we use it incorrectly.


Should investors brace for uncomfortably high inflation?

The global recession came quickly and deeply but it has given way to a strong rebound. What are the lessons for investors, how should a portfolio change and what role will inflation play?

Risk management

Revealed: Madoff so close to embezzling Australian investors

We are publishing this anonymously knowing it comes from an impeccable source. Bernie Madoff’s fund was almost distributed to retail Australian investors a year before the largest-ever hedge fund fraud was exposed.

Exchange traded products

How long can your LICs continue to pay dividends?

Some LICs have recently paid out more in dividends than their net profit as they have the ability to tap their retained profits and reserves. Others reduced dividends to ease the burden on cashflow and balance sheets.

SMSF strategies

How SMSF contribution reserving can use the higher caps

With the increase in the concessional cap to $27,500 on 1 July 2021, a contribution reserving strategy could allow a member to make and claim deductions for personal contributions of up to $52,500 this year.



© 2021 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.