These aren’t encouraging words for investors…
According to Howard Marks, co-founder of Oaktree Capital Management (NYSE: OAK-A), we are currently in an “Everything Bubble.”
What he means is that every asset class – from stocks to bonds to real estate – is expensive.
More accurately, very expensive.
From current valuations, Marks thinks we’re looking at the lowest prospective investment returns he has ever seen in his 40-plus-year career.
As I said, not encouraging!
To be clear, Howard Marks’ opinion is not one to be taken lightly.
Warren Buffett once said, “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something…”
If Buffett values what Marks has to say, you can bet your boots that I’m going to listen.
Realistically, though, this warning from Marks isn’t exactly a revelation to us here at Wealthy Retirement.
A quick look at the S&P 500 – which has doubled in a little more than a year – should set off some alarm bells.
Common sense tells us that near-term returns are going to be somewhat muted after a great run like this.
A double in a year is a great performance for a single stock.
It isn’t very often that the entire market goes up that far, that fast.
I recently wrote about how I was worried the S&P 500 had become precariously top-heavy due to incredible growth in megacap tech companies.
If the stock performance of these tech giants sputters, it’s going to be a big drag on the market, considering their oversized influence.
I also noted how – on every valuation metric – the current stock market is extremely expensive relative to historical norms.
As Buffett is fond of saying, “You pay a very high price in the stock market for a cheery consensus.”
And investors are cheerful about stocks, bonds and real estate these days.
I’ve been writing about it, and Howard Marks has confirmed it…
Generating investment returns is going to get harder from here.
What Is an Investor to Do?
Last March, finding good investment ideas was like shooting fish in a barrel.
There were bargains everywhere.
Now those fish have escaped the barrel and are hiding in deep, dark corners of a lake.
But don’t worry…
After almost three decades of serious investing (yikes, I’m old!), I’ve been through this situation a few times.
There are a couple of things that I’ve learned from prior periods when market valuations were stretched and good opportunities were hard to find.
First, this is the time to be patient.
The beauty of the financial markets is that if you ever don’t like the opportunities presented to you, you can take a pass.
There is nothing wrong with letting your cash pile build for a while.
When the market turns and opportunities start appearing, you will be glad that you did.
It can pay very well to be extra patient so that you have cash when the next correction arrives.
Second, the market turn that you and I are patiently waiting for can arrive in the blink of an eye.
While investors are fearless today, we may find that they are terrified tomorrow.
I didn’t expect the generational buying opportunity that COVID-19 served up last spring.
That arrived in the span of two months.
The market crash in 2008 happened almost as fast.
Same thing in 2000.
And there have been plenty of minicrashes and sector-specific sell-offs in between those major market events.
Third, while there aren’t a lot of obvious investment opportunities in a time like this, that doesn’t mean there aren’t any.
There are always opportunities in the financial markets.
In a time like this, we just have to work a lot harder to find them.
Hey, who doesn’t like a challenge?
When you next hear from me, I’m going to share one of the places currently worth putting some new money into.