In this interview with The Market, Howard Marks suggests that stocks are currently overvalued by 20-30%, with a 60-65% probability the market will be lower in a year. However, there’s still a 35-40% chance it could rise, highlighting uncertainty.
While a downward tendency exists, it’s not a certainty, and valuations aren’t extreme enough to guarantee a decline. He advises against betting against the market, as the U.S. economy is strong, and companies tend to grow profits over time.
Historically, stocks rise in 8 out of 10 years, making shorting the market a high-risk move. The odds don’t currently favor such a bet.
Here’s an excerpt from the interview:
Let’s do a simple exercise. I would say that, at current levels, stocks are overvalued by 20-30%. Accordingly, maybe chances are that the market is going to be lower in a year from now. I would say the probability is 60-65%.
But that also means there’s a 35-40% chance that the market will be higher. Meaning, there’s a tendency for stocks to go down, but it’s essential to recognize that this is far from certain.
It’s not a 100%, 90%, or even 75% probability – nothing you can rely on. You have to understand that unless the market is insane in terms of valuations, anything can happen.
The US economy is doing well, and most companies, driven by a combination of economic growth and skilled management, tend to increase their profits over time.
Hence, if you bet against the market, you’re betting against these powerful forces. Historically, stocks go up roughly 8 years out of 10, sometimes even 9 or 10 years in a row.
So if you’re going to bet that the market is going down, you’re taking a big chance, and you have to have the odds on your side.
Today, the odds are not sufficiently on your side to make that call. If you call this a bubble and short the market enough, there’s a substantial risk you’ll get carried out.
You can find the entire interview here:
Howard Marks Interview – The Market
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