During his recent interview with CNBC, Howard Marks said, “there’s enthusiasm, there are high valuations,” he doesn’t believe the current market environment has reached the stage of mania.
“The valuations are not crazy, high but not crazy. And when things are either high or low but not crazy, you can’t make an observation that has a high likelihood of being correct.”
For Marks, it’s not the price level alone that defines risk, but the psychology surrounding it. “The main ingredient in bubbles is psychological excess. There’s no such thing as a price too high, and I don’t detect that level of mania at this time. So I have not put the bubble label on this incident.”
He concedes that “this may prove to have been a time when you should have become defensive and people will look back and say, well, why didn’t you? But I don’t think you can say that dependably right now.”
His reminder that “expensive and going down tomorrow are not synonymous” is a subtle rebuke to those who equate valuation with timing.
When asked about comparisons between today’s AI enthusiasm and the dot-com era, Marks noted, “I think there’s relatively little doubt that AI will change the world. And AI has been successful as an investment, and people are piling in and there’s some fear about being left out. But to me, it just hasn’t reached that critical mass of mania values.”
The conversation then turned to value investing — a topic Marks has written about extensively. “A lot of it came down to whether you’re talking about value with the small V or a big V,” he said. “Value investing with the big V is kind of a sect, and it has hard and fast rules and it’s firmly delineated. And we do this, but we don’t do that. And I think that the key to excellence in investing is open mindedness.”
Yet discipline remains crucial. “You should stick to your last and the things you’re good at,” he advised. Value investing with a small v, by contrast, “means trying to figure out what something is intrinsically worth and seeing if you can buy that at a reasonable price. I think that makes a lot of sense.”
Marks acknowledged that it’s difficult to apply such a framework to “a conjectural field like AI,” where future cash flows are nearly impossible to forecast. Still, he observed that “something like the S&P 500 is expensive today. There’s no question about it. The P/E ratio on the S&P 500 is around 24 on next year’s earnings, and the historic average is 16.”
Optimism, however, is not entirely misplaced. “There are better companies, so they warrant higher multiples and the optimism is warranted,” he said. But he also offered a familiar caution: “This time it’s different is always said about the new, new thing. It is the sentiment that gives rise to bubbles.”
You can watch the entire interview here:
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
