Howard Marks, a widely respected value investor and co-founder of Oaktree Capital Management, recently issued a memo highlighting several cautionary signs of a potential bubble in the stock market.
Marks, who famously foresaw the dot-com bubble, pointed out that today’s high market valuations could lead to poor returns over the long term or even sharp declines in the near term.
Marks reportedly noted that the S&P 500’s current price-to-earnings (P/E) ratio is around 22, which is near the top of the historical range. He explained that higher P/E ratios have historically led to lower returns in the long run.
Marks also expressed concern about the enthusiasm surrounding new technologies like AI, which has driven up the prices of companies like Nvidia.
Marks emphasized that investors should not be indifferent to today’s market valuations and should be cautious about the potential for a market correction.
He also raised questions about the role of automated buying from passive investors and the presumption that the largest companies will always succeed.