No Fear

In late July, Howard Marks, a highly regarded US fund manager, shared his views on the current market conditions, I strongly urge you to read his entire letter to understand the gravity of the situation, however, I shall share the summary here anyway.

In his memo, he shared his observation of the current market conditions where there is too much money and too little fear.

  1. We are looking at some of the highest equity valuations in history
  2. The so called complacency index is at an all time high
  3. Elevation of a Can’t Lose group of stocks
  4. The movement of more than a trillion dollars into value-agnostic investing
  5. The lowest yields in history on low-rated bonds and loans
  6. Yields on emerging market debt that are lower still
  7. The most fundraising in history for private equity
  8. The biggest fund of all time raised for levered tech investing
  9. Billions in digital currencies whose value multiplied dramatically

You can find his memo here: https://www.oaktreecapital.com/docs/default-source/memos/there-they-go-again-again.pdf

He explicitly caution investors against simply reaching for results (high yield or overly-optimistic growth expectations). I concur.

In fact, 2 weeks after Howard Marks posted his letter, the crypto-currency Ethereum’s price went up a further 50 percent! Such is the exuberant state of the market. Have you been hearing from your friends about how easily they made money investing in cryptocurrencies?

In fact, if you read his letter in conjunction with what Temasek Holdings and GIC recently shared, you’d probably get a sense that the markets is indeed showing signs of froth. As reported by Nikkei in July 2017: “Temasek invested… S$16 billion… divested some S$18 billion for the year… It is the first time since the year ended March 2009 – the year the global financial crisis erupted – that Temasek has invested less than it sold off. GIC echoed those concerns in its latest annual report. “Valuations remain high across most major asset classes…”

In the light of the current situation, I believe it is ever more critical to be highly selective and sift out High Quality Companies or Investments at Attractive Valuations. I agree with Mr Howard Marks that such occurrences are getting rare, but there are still worthy candidates.