This video features an interview with legendary investor Howard Marks, who shares his insights on investment strategies, market cycles, and managing risk. He discusses the common approach of investing in S&P 500 index funds, the importance of emotional discipline in investing, and the historical patterns of market bubbles and crashes. Marks also touches on his personal investment philosophy, his career, and advice for listeners on avoiding common investor mistakes.
Howard Marks points out that historically, when the S&P 500's Price-to-Earnings (P/E) ratio is high (specifically citing 23 as a historical benchmark), the annualized return over the subsequent 10 years tends to be between 2% and -2%. He shows a chart illustrating a negative correlation between the P/E ratio at purchase and the expected future return, meaning a higher P/E ratio implies a lower expected return.
According to Howard Marks, the riskiest thing in the world is the belief that there's no risk.
He explains that market risk doesn't originate from the companies, securities, or institutions themselves, but rather from the behavior of people. This human behavior, when it leads to imprudent actions or excessive optimism, unduly raises prices and creates precarious market conditions.
Howard Marks referenced several historical events to illustrate market bubbles and the importance of historical patterns: