Many people might have heard of Warren Buffett and how he built a fortune by investing in solid, growing businesses over the long-term.
However, not many may have heard of Howard Marks, who is highly regarded in investment circles as an astute value investor. Marks is the chief executive of Oaktree Capital, and he regularly pens down his thoughts on investing in memos which he releases to the public. Oaktree is a global asset management firm and is the largest distressed investor in the world, as well as being one of the largest credit investors.
In his latest memo titled, “The Seven Worst Words In The World”, Marks discusses the general sentiment within the stock market, his observations on how people in general are behaving with regards to risk, and also opines on what he thinks investors should do with their monies.
With the USA stock market at 10-year highs, this is the longest bull market ever experienced in post-war America. Marks remarks that the seven worst words are “too much money chasing too few deals” — this relates to the amount of money printed by governments around the world (known as quantitative easing) in the wake of the Global Financial Crisis. As returns from traditional asset classes are close to zero due to the extended low interest rate environment (also a by-product of the Federal Reserve’s policy to stimulate businesses by providing low cost of funding), more and more money ends up chasing the same few deals or securities. This distorts price movements as more and more people rush for the same few investments, and may end up creating a dangerous bubble over time.
The above observations by Marks appear to show symptoms of a bubble building up, albeit gradually.
As investors, we should be mindful of overall valuations and also observe and listen to astute investors and how they perceive the world, as they may provide valuable insights which are either not publicly available, or may not be readily apparent to the untrained mind.
With his warning in mind, it is recommended that investors proceed cautiously when evaluating investments for purchase, and to always ensure that one has a requisite margin of safety.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.