For billionaire investor and Oaktree Capital co-founder Howard Marks there’s little point in predicting whether the sharemarket is in bubble territory or where the market goes from here. That’s the enemy of long-term investment.
“Maybe the market goes up some more, maybe it goes flat, maybe it goes down,” he says.
“You might say that if it’s 20 per cent over fair value, it’s more likely to go down than up eventually, but in the short run, given the unpredictability and randomness of the investment world, there’s a good chance that it’s going to go up.
“It’s really important to not waste your time on trying to figure out when the market is 10 per cent or 20 per cent overvalued and not trying to mastermind it, but when it’s in fair value, the most important thing is to have the shares of growing companies and debt from companies that will pay you back, and just live with it.
“It would be nice to know what’s going to happen tomorrow, but if you accept that it’s not possible most of the time, then you ignore that and you just stick to trying to invest in the right companies and hold on for dear life.”
With the discussion turning to fair value of shares and overheated market, names such as chip giant Nvidia come up. The tech major has ridden the artificial intelligence wave to surge more than 120 per cent this year, elevating it to a value of more than $US2 trillion ($2.9 trillion). The key, Marks says, is to ignore the past; it’s irrelevant to today’s judgment on whether to invest.
“If a share is up 20 or 40 or 60 per cent, that doesn’t mean you should buy it today. But the point is that today you should say, maybe I missed something, I should re-evaluate, and today I should figure out if I should buy it.
“The fact it’s up is not a reason to buy it. It’s also not a reason to sell it. But the only reason to buy or sell is the relationship of the price to the value and, No.2, the outlook for the value. That’s all.”
Even in 50 years in the markets, Marks acknowledges he has made only five correct calls on valuations. The first was betting against tech stocks before the dotcom bubble burst given similarities to past market manias. Then betting against the US real estate boom of the mid-2000s; it also involved building up a $US11bn “distressed debt fund” ahead of the global financial crisis; buying stocks low in the years following the Wall Street GFC crash and anticipating the bottom of the Covid stock crash.
Here Marks rejects waiting to time the market bottom: “We buy when we can access value cheap.”
