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hey everyone me kevin here today i'm going to break down a really great piece by howard marks he gives us some really good guidance on whether or not we should buy hold off or sell our stocks right now when it comes to investing and to me this also applies to what the heck we might be thinking about when it comes to the real estate market just the broader market howard marks is a hedge fund manager and he's a co-founder and co-chairman of this company called oaktree capital he also wrote this book on mastering market cycles which i've read and it was pretty good now i don't agree with everything that howard mark says but let's get into his letter pull in some other information and let's just talk about the market speaking of the market make sure to get your two free stocks with weeble deposit just 100 with weeble and they will give you up to sixteen hundred dollars in free stock money the link is down below et apple pay or android pay for it and you don't have to talk to anyone okay let's hit the highlights of this letter now that you've got your life insurance and two free stocks first howard believes that right now because of low interest rates we've basically pumped up the prices of the stock market to a level where what we're expecting in terms of returns in the future is much lower than what it used to be so obviously when we hear okay yeah rates went down fed printed a lot of money okay great stock prices went up that sounds logical but the second part is much more interesting he says this isn't necessarily bad but it does mean that we have to adjust our expectations downward for what our money will do in the future this is really important because it's fun to sit in front of a compound interest calculator and say wow well if i just put my money and put it into an s p 500 index fund it'll grow at 9.1 year-over-year for sure well unfortunately mark believes that we're maybe not going to see the same growth rates that we've seen over the last 20 to 40 years the past won't necessarily predict the future and personally this is why i believe we're going into what i call a frugal decade not only a decade where we see lower investment returns like overall returns being lower which makes sense in a lower interest rate environment but also less spending across the board by people and potentially more investing which both of those things lead to asset prices going up and returns going down and right now the companies that feel the most safe to invest into are well oftentimes those dreaded tech companies that just seem like they hit new highs every week and you know maybe that's because tech really is taking over our lives i mean we're going to have robo taxi soon soon we'll have robots that can go get uber eats for us from the restaurant put it in the robo taxi and then we get it out of the robo taxi when it comes here so that it wouldn't be a surprise to see a tech version of everything in the future we already have a tech version of banking called fintechs we've got tech cars called tesla and neo and who knows maybe we'll even see tech real estate coming in the future and this is where we have to be real with ourselves we can't paint this rosy picture anymore of well if i just set my money and forget it into the s p 500 index fund we'll be fine and we'll be able to capitalize on the same rates that we saw in the 70s and 80s when inflation was much higher now this isn't to say don't invest in the s p 500 it's just to say we should probably dampen our expectations for growth over the future there's more money competing for less growth basically marx goes on to talk about valuations in his letter as well and he says when interest rates go down asset prices go up no surprise especially stocks because there are fewer other places to invest and specifically he talks about bond yields bond yields are low when interest rates are low so more people try to crowd into older bonds but then those prices go up and then people think about buying stocks or just holding cash and then eventually buying stocks well then given the pandemic and the lack of other safer alternatives in the stock market we really have this big concentration into tech and this is where howard marks actually believes that it and i had to really think hard about this he said that he believes the market today prices where they are today are fairly valued according to risk and at first this got me a little bit shocked i'm like oh okay i mean some of these valuations are a little you know who picked that number right well then i got to thinking a little bit i'm like well i mean if we think about it it makes sense that delta and carnival cruise lines and wind look cheap when there's a huge risk of these companies being saddled with debt for two to three years to come or more we have no idea when this pandemic's going to end at this point and it's also because hey when you look at a company like zoom which is sky high right now you tend to see a little bit less risk in that company potentially going bankrupt now potentially this is because society has just forced itself into a new way of doing business that we've compressed the next 10 years of a transition to a tech world one led by tesla amazon apple etsy and zoom and peloton into a world that has now fully transitioned in a matter of six months or at least well the stock market has i mean after all i did a video just the other day of me buying real estate in a zoom courtroom so it's almost like zoom is becoming the new xerox which is a good sign for zoom stock but this leads a lot of people to say well come on like zoom and all these other companies this run up is just being driven by unsophisticated retail investors the robin hood investors and we can't trust those valuations they're overpriced and people are just following into them well so i did some research on that and this is where i'm combining the howard mark's information with my opinions and obviously uh these other research the wall street journal just explained via jason swiggs intelligent investor column that a lot of people blame robin hood or retail investors on zoom's run-up and some of these other tech company run-ups zooms up 700 percent this year however according to robinhood zoom was only the 49th widest stock owned on robinhood and of 25 stocks with market caps over 10 billion dollars that have more than tripled this year moderna and peloton are the only two on robinhood's top 25 stocks peloton is a stock that i've been encouraging since april by the way i've really enjoyed that one's run up but anyway this wall street journal article goes on to say that no it's actually not robin hood investors that are pushing these stocks to all-time highs because they're fomoing it's actually big institutions whose quote ownership of scalding hot stocks has boomed this year even as those shares become widely expensive by traditional yardsticks and index funds only account for about 19 percent of institutional buying so that means you have a ton of massive institutions and hedge funds buying insane amounts of companies like zoom despite these sky-high valuations and howard marks has an explanation for this howard marks calls this the bifurcation of the u.s equity market the stock market leading tech and software companies have become more different from other companies he says as their role and power have expanded he also says that they have become a larger part of stock indexes like the s p 500 on the s p 500 i personally believe that the s p 500 potentially could be a little bit of a dying index it's an index fund that values three tobacco companies as better investments or greater investments than companies like starbucks and other companies like disney and i don't believe that the future that we see for the s p will look anything like it used to be but that's just my opinion but howard marks goes on to say that one quarter of the s p 500 is now based on tech fast growing and an ability to increase profits and increase profit margins two very important things margins very very important for tech but a lot of those tech companies are focusing on reinvesting in their businesses so not necessarily pulling high margins which makes the s p feel artificially more expensive you're really getting companies that are investing into the future faster now and then talking about the leftover two-thirds of the s p 500 howard marks thinks that those companies have already enjoyed maximum margin and they are now slow growth companies howard realizes that tech stocks also seem richly valued but he believes that quote current profits severely understate the tech leaders potential and that their investments today help them increase their profit margins in the future this is why he believes that larger p e ratios and price to earnings ratios are actually warranted but he does say that some of this can feel bubbly because the reality is investors are valuing these companies way out into the future and i kind of agree with this you see this a lot coming people are now instead of valuing companies like 18 months in the future or two years in the future by looking at 2022 we see a lot of people going well snowflake will be really profitable in 2030 when it has x billion dollars in revenue oh tesla's gonna look great in 2030 when it hits this many car sales it's a little gets a little concerning the further we go out the harder it is to actually do realistic projections anything can happen which brings up some serious downside risks howard marx says we're not seeing inflation we're seeing increasing debt as a country and we might not see growth across the board for some time because of the pandemic and ultimately long-term trends show that we're probably becoming less productive as a country in fact howard marks quotes federal reserve governor bernard who says we might see a downward spiral if we don't get another stimulus package to help us through this rough patch and her version of a downward spiral downward spiral is low rates muted inflation and weak growth that's not good if she thinks that's a downward spiral because all three of those things are kind of things that we're seeing weak growth outside of tech low rates and muted inflation so we really get this mixed bag message from howard marks and when we combine it with other information it's kind of one of those things where it's like great so what do we do well howard marks believes that our market has a lot of uncertainty right now and actually believes that it might be best to play defense right now he mentions that quote the odds aren't aren't in the investor's favor and the market is vulnerable to a negative surprise now he didn't tell us what he thinks that negative surprise might be and earlier he mentioned in his letter that he's cautiously optimistic but from his 16-page letter we can conclude that hey maybe it does make sense to take the foot off the gas a little bit and be a little bit more conservative let a little bit more income come in stay away from margin and too much debt but when it comes to buying into the market when we're ready hey maybe it's okay to pay a higher premium for some tech stocks mostly because they might be the actual future so following the on this i've made some modifications to my strategy i'm no longer buying individual stocks instead i've expanded my 1337 portfolio to include 40 stocks instead of 30 and i've flattened my allocations out a bit to spread and diversify my new investments so i did buy stocks this morning and i bought some over the last three weeks though at a much slower rate than i've usually been buying that's mostly because i've been paying off paying off debt paying off margin instead of buying new new stocks and i've also already paid off all of my credit lines and i'll draw on these as i need to buy real estate but right now it's it's a good feeling to know hey if the market crashes big time you're not exposed to a big margin risk and you could always take out some credit lines and buy stocks if you wanted to but in the meantime every time i get paid i'm kind of looking at well if debts paid off i've got money in the markets i don't need it for a while in the future maybe it makes sense especially with all this information we got here to just buy our favorite high quality stocks don't expect insane returns but just get in and wait that's my thought and update on the stock market for today thank you so much for watching this if you like this consider checking out the courses down below where i go really deep into analysis fundamentals and my strategies and theories i think you'll really enjoy them so check those out you can always email me to bundle up
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