Howard Marks: You Can’t Predict. You Can Prepare

Price action today seems driven less by underlying fundamentals and more by shifts in sentiment and positioning. That dynamic sits at the center of Howard Marks’s thinking. As he puts it in his recent interview with Nikhil Kamath, “Cycles are induced… primarily by behaviour.”

The observation carries weight in a market where enthusiasm around AI, persistent passive inflows, and steady growth narratives continue to lift valuations, even as unresolved risks remain just below the surface.

The temptation, as always, is to predict what comes next. But Marks is blunt about that instinct: “what I really don’t believe in is predictions.”

Investors looking for clarity on rate paths, earnings trajectories, or geopolitical shocks may be chasing something inherently elusive. Instead, the more durable approach is embedded in his long-standing philosophy: “You Can’t Predict. You Can Prepare.”

That idea feels especially relevant in a market where outcomes appear increasingly binary. On one side, a continuation of strong growth driven by technological investment; on the other, the possibility that expectations have simply run too far ahead.

Marks highlights the structural challenge clearly: “you can put together a portfolio which will do fine if several—any of several futures unfold.” The emphasis is not on maximizing returns in a single scenario, but on resilience across a range of possibilities.

Importantly, today’s cycle does not show the classic signs of late-stage excess—at least not broadly. Marks notes, “If the thing that presages a downturn is excesses to the upside, you don’t find too many of those.” That observation complicates the bearish narrative.

While pockets like AI infrastructure clearly exhibit boom characteristics, the broader economy lacks the kind of widespread overextension typically seen before major corrections.

Still, investors should not confuse the absence of obvious excess with the absence of risk. Markets are rarely stable near their long-term averages. As Marks reminds us, “the return on the S&P, which averages ten, is almost never between 8 and 12.”

This tendency toward extremes—driven by “Excess and correction.”—suggests that volatility is not an anomaly but a defining feature.

Another structural force shaping today’s market is the dominance of passive investing. Marks offers a sharp critique: “indexation has taken over, as it has, not because it’s so good, but because active management was so bad.”

That dynamic has implications for price discovery, potentially amplifying momentum on the way up and dislocations on the way down.

Ultimately, the current setup demands humility. Investors are operating in an environment where change is constant and often unpredictable. Marks captures this elegantly through the concept of Mujo: “that change is inevitable, unpredictable, and uncontrollable.”

In practical terms, that means resisting the urge to forecast with precision and instead building portfolios that can withstand multiple paths forward. The cycle may be in “middle age,” as Marks suggests, but that tells us less about timing than about mindset. Discipline, diversification, and awareness of behavioral extremes remain the real edge.

Full interview: