Howard Marks Memo summary: “Move Forward, but with caution”

Howard Marks is one of the most respected minds in investing community. His quarterly letter are wisdom nuggets.

Below is the transcript of the latest news letter, in which he discussed Current Market Environment, Bitcoins, Passive Investing.

On Current markets is it time to be in or out of the market?

I am not that “smart to tell its time to get in, or get out of the market”, so the correct answer is always somewhere in between.

No one can predict the future, but we all should know where we are standing now in the cycle is important.

Based on the valuations we can see that we are on top of the bull market, so proceed with caution.

So How to Play Now?

Changing our assets allocation from aggressive to the defensive mode is a more cautious approach.

Are we in a Bull Market? What are the Indicators?

FMO (Fear of missing out) can be taken over from value discipline, a development that is a sure sign of bull market.

Bull markets are always indicated by a set of few leading companies selling at very high multiples, these are the indicators of a bull market. E.g. FAANG (Facebook, Amazon, Apple, Netflix, Google)

Is it time to Sell my Stocks or ride the bull market?

People are waiting to ride the bull market and planning to sell if the market is down a couple of days, but no one knows how much will it drop? What happens if the drop drags back to the fair value of the security?

No one can ascertain when we are at the exact top or bottom, the key to success in investing is to sell out when we are close to the top of the market and buy when we are closer to Bottom.

Are We in a Bubble?

He also doesn’t see any bubbles, but since the valuations are high hence the current environment is risky.

In the current markets,

1. You can buy undervalued stocks with caution
2. Expect low returns
3. When you don’t find any you may remain in cash position



There are a lot of confusions about bitcoin, is it a currency, an Asset class, Payment Mechanism, or a medium of Speculation.

Let’s take a case of viewing bitcoin as a Currency (Digital Currency).

The main purpose of a currency is it’s a legal tender of exchange agreed by most people (Used to buy and sell goods), storage of value, and Medium of exchange for other currency.

If we consider bitcoin as storage of value, serious investing is buying things relative to the underlying intrinsic value of an asset, speculation is simply what the other person is willing to pay & does not depend on its underlying intrinsic value. It seems to be more of a speculative asset class

If you compare Bitcoin against any other currency (Dollar…) is no different, except most people agreed to use it as a legal tender.

For long periods currencies are backed by gold are silver, but that’s no longer the case, hence this makes fiat currencies no different from digital currencies, except fiat currencies are backed by the government.

If more people accept bitcoins as a legal tender there is no chance it cannot be a currency.

But the main problem comes from its volatility of value. Bitcoin has increased in value more than 3900% for the last three years. This makes the holders not to spend it freely and stores it to sell for higher profit. This violates the purpose of a currency.

Why is it so volatile? Is it desirable? Value of 1 Bitcoin today is around 16000$,
Can a bitcoin buy the same amount of goods worth 16000$?

These questions still remain unanswered


Bitcoin as a payment system?

Will the banks and other financial systems accept the territory of bitcoin? What if Amazon announces its own? Will you pay with Bitcoin or Amazonians?

Finally, if you think Bitcoin can grow in value 50X, this attitude is a lottery ticket attitude where the odds of success are too low, but potential growth is huge. The common cause of catastrophic events

Bitcoin is not alone, there are hundreds of digital coins – eleven include more than 1 billion market cap. Which one will turn out to be a winner? We Don’t Know

Howard Marks finished Bitcoin as a speculative Bubble & he is willing to be proven wrong.

Howard Maks Memos


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