Howard Marks: Odds are not in Investors' Favor
As always I read all of Howard Mark's letters. This one is particularly useful because he answers the one important question many of you would be asking. Has the market gone too far?
Marks goes on to talk about the 3 stages of a market rally:
Stage 1 Few believers
Stage 2 Most believers
Stage 3 Everyone concludes everything will get better forever
We seem to gone over Stage 2 very quickly and are now in Stage 3.
Marks also talks about some important questions to ask and highlights that a lot of smart, experienced investors concluded that asset prices have become too high for fundamentals, although time will tell.
His bottomline: "...with security prices where they are, the odds aren't in investors' favor."
I don't disagree.
What I would add is, beware the 2nd order effects (I am not talking about the 2nd wave of Covid, if it comes). For eg, I am referring to what will people do or change as they realise some changes might be permanent etc. Will they change their habits? Will they tighten their spending? What is the impact on the companies that sell things to these people?
I don't really like to predict the market, whether it will go up or down. What I might do is adjust my portfolio a bit and go higher up the quality chain.
You can read the full letter here: https://loom.ly/5eTmXwg