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Episode publishedPodcast: The Memo by Howard MarksThe Memo by Howard Marks
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This is the memo by Howard Marks on Bubble Watch. Exactly 25 years ago today, I published the first memo that brought a response from readers after having written for almost 10 years without receiving any. The memo was called bubble.com, and the subject was the irrational behavior I thought was taking place with respect to tech, Internet, and ecommerce stocks. The memo had two things going for it. It was right, and it was right fast. One of the first great investment outages I learned in the early 19 seventies is that being too far ahead of your time is indistinguishable from being wrong. In t
about bubbles, a subject that's very much of interest today. Some of
what I write here will be familiar to anyone who read my December memo about the macro picture. But that memo only went to Oaktree clients. So I'm going to recycle here the part of its content that relates to the subject of bubbles. Since I'm a credit investor, having stopped analyzing stocks nearly 5 decades ago, and since I've never ventured far into the world of technology, I'm certainly not going to say much about today's hot companies and their stocks. All of my observations will be generalities, but I'm hopeful they'll be relevant nonetheless. In this century's 1st decade, investors have
it a bubble? What is a bubble?
Investment lingo comes and goes. My young Oaktree colleagues use a lot of terms these days for which I have to request translation. But bubble and crash have been in the financial lexicon for as long as I've been in the investment business, and I imagine they'll remain there for generations to come. Today, the mainstream media uses them broadly, and people seem to consider them to be subject to objective definition. But for me, a bubble or crash is more a state of mind than a quantitative calculation. In my view, a bubble not only reflects a rapid rise in stock prices, but it is a temporary ma
I can't do so often enough. It's the 3 stages of the bull market.
The first stage usually comes on the heels of a market decline or crash that has left most investors licking their wounds and highly dispirited. At this point, only a few unusually insightful people are capable of imagining that there could be improvement ahead. In the second stage, the economy, companies, and markets are doing well, and most people accept that improvement is actually taking place. In the third stage, after a period in which the economic news has been great, companies have reported soaring earnings, and stocks have appreciated wildly. Everyone concludes that things can only ge
that's reasonably priced. Bubbles
are marked by bubble thinking. Perhaps for working purposes, we should say that bubbles and crashes are times when extreme events cause people to lose their objectivity and view the world through highly skewed psychology, either too positive or too negative. Here's how Kindleberger put it in the first edition of Manias, Panics, and Crashes. As firms or households see others making profits from speculative purchases and resales, they tend to follow. When the number of firms and households indulging in these practices grows larger, bringing in segments of the population that are normally aloof f
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