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good day fell investors in this video I want to give you my opinion the summary on the latest Howard marks memo saying that we are in a bubble and also add this Bloomberg article commenting that can Howard marks predict the next stock market bubble bursting twice because he did that in 2000 just before the crash and let's see if he can do that again and then there was also this email from Marco saying how Howard Mar memo aligns closely with the recurring themes in my videos about the S&P 500 the risk and reward Plus in the Bloomberg article they mention Edward MC's work in other words stocks aren't always a sure thing over the longer holding periods exactly the article that we discussed in this video 5 days ago it might be that both Jonathan Levin here from Bloomberg and Howard Marx are watching our Channel hi Jonathan hi Marx thanks for subscribing but let's immediately start with the summaries the key topics and the conclusion that in my opinion yes we are in a bubble and what that matters for investors we are also going to change a little bit the S&P 500 because we are going to mostly use that in our value investment quadrant because now the time Horizon is 10 year and that changes perhaps the risk and reward of of investing let's start immediately the top 10 US companies make 48% of the S&P 500 67% of global market capitalization is the us and that is very high compared to historical metrics this is how Howard Mark starts his memo if we look at the global market capitalization 67% the rest of the world is practically irrelevant and everything is going into the US stock market bubble a nice addition from Howard marks when it comes to Bubbles we all discuss valuations debt levels is just psychology irrational exuberance Adoration of the businesses comments on Nvidia Bitcoin Tesla nothing can destroy those businesses also Apple Facebook whatever adoration does fear of missing out and there is no price too high to pay because as we discussed in videos only go up right and when it comes to no price too high one of my best friends is a Bitcoin I think Deca millionaire and he told me S buy Bitcoin when it was 4,000 now it is what 100,000 he really made a lot of money with Bitcoin the key is also here Howard Marx mentions it above there is nothing so disturbing to one's well-being and judgment as to see a friend get rich of course I'm happy for my my friend but many others see all these people get rich rich fear of missing out then they go in push stock price Higher and Higher and Higher and as long as that momentum lasts stocks only go higher by the way on the Bitcoin friend he's a genius he's watching Supply demand Trends this and that so it's completely different ball game than 99.9% of others when it comes to that fear of missing out just look at stock Holdings 30% of us households had them in 1989 we are close to 60 now of course also directly held stocks 20% 2000s then it were some bad years nothing sexy was happening housing market was good and the Crash just 1% and now if we look forward we are again to the 21 22% of households holding stocks and that is also something that Marx discusses mentioning reflexivity with Soros and that is a theory that positive feedback loops between expectations and economic fundamentals can cause price trends that substantially and persistently deviate from equilibrium prices that is certainly something that is going on the higher prices improve the fundamentals everyone is attracted more us more business for those businesses and we discussed also this in the inelastic Market hypothesis which is a key video if you want to understand how this Market works the problem with reflexivity the opposite also works the problem with the in elastic Market hypothesis buying pushes stock prices Higher One versus five but the reverse also is applicable savings nobody saving anymore retirement accounts have been stable and bonds also every one is going into stocks so this is clearly something to look at further fre stages of a bull market the beginning 2013 2010 nobody was buying stocks so only a few of us were buying I was buying heavily with everything I had 2009 10 11 12 then things are improving Improvement is taking place more and more people and then when things are so good then everyone conclud Ro that things can only get better forever everyone is getting rich stocks must be great but Howard marks clearly discusses JPM how he knew there was trouble head when the Sho shine boy gave him stock tips then we had housing in the movie The Big Short strippers bought houses and then also the Doom bubble where everyone was getting rich on tech stocks that didn't last long so there is always this new shiny thing and Howard Marx goes to his experience nifty50 but let's just go to my experience since I started this YouTube channel seven years ago so we've had weed stocks do you remember weed stocks well boom bust okay the bubble lasted for first two years then another boom and then now nobody talks about these stocks then we had blockchain everyone was discussing block chain uh the leaf T company changed the name into the blockchain company the stock jumped 3x then they delisted because of fraud then we had the electric car boom remember Neo Arc Innovation ETF and I all made videos about this looked like an idiot when weat stocks went up for six months I made a video about Neo I made a video about Arc at Peak AR situations we discussed also not to forget Beyond food you must be Beyond sanity to buy by andd the result is there and now I'm talking about the S&P 500 how stocks do not really return 10% all the time sometimes well but more likely 4% over the next 20 30 years and then value investing is the way to invest forward and this is a nice comment from Howard mark marks when a whole Market or a group of Securities is blasting off and a specious idea is making its adherance reach few people will risk calling it out and I was very surprised when the dean of valuation said that yes the markets are richly priced but not in a bubble you should just average keep on buying so think about your last dollar you're either in or out there is no this on that so everyone is very careful stocks for the long run shows how returns will be very bad people discuss the cost of not being in the market but what's the cost of being in the market is perhaps even more important because at current valuations historically returns have been zero and Wall Street keeps on forecasting 7,000 10 15% for stocks could go forward Goldman said 0% for the next 10 years but okay maybe stocks can go up a little bit more then for concluding for strategy Howard says it's not what you buy it's what you pay that counts good investing doesn't come from buying good things but from buying things well there is no asset so good that it can become overpriced and thus dangerous and there are a few assets so bad that they can't get cheap enough to be a bargain further he continues with something that we do often also compare the top 20 with the top 20 now 2000 we have six companies remaining and only Microsoft was in the top 20 from the current magnificent 7 this tells us a lot because we don't know whether in the next 20 years of The Magnificent 7 there will be one that is now in the top 20 businesses change things change it's extremely hard to predict for one year let alone a decade or two and that is always the infatuation people predict longer term longer term pushing valuations higher and higher because of the unlimited future profits which is what creates a bubble so to conclude yes to be a bubble things have to burst but let's call it I think it is a bubble I'm not investing in US high priced stocks there are some cheap stocks but okay let's compare the bare versus bull thesis we have been optimism 60% up since the last two years that leads to extremely high valuations top 10 things change over time reflexivity works on the upside but also on the downside which makes things very risky and most likely returns will be negative for the next decade or two the Bulls say the p ratio is high but not insane because those are all incredible business is nobody's saying there is no price too high they are just paying froy not bubble and you missed on huge gains but not being investing don't make the same mistake I'm calling it this will not end well we are it all factors off a bubble and even Howard Mark says you can think for yourself my thinking is this is a bubble most likely it will not end well I might look like an idiot for another year two years years three years 5 years same to me I'll keep doing my thing that works no matter what and then if we look at the S&P 500 over the past five years everyone is mentioning this if you count over more Cycles okay the S&P 500 did 12% per year over the past five years now what I want to discuss here can we do 12% with less risk even if stocks go forward 10% a year for the next five years can we do the the same with much less risk or if you want to better portfolio if you buy treasuries are you happy with 4% with absolutely no risk waren Buffet is in US Treasures four 5% no risk for 5 years and you get to your financial goals that is the key thing you must think about because if I look at the S&P 500 if I look at valuations perer ratio 30 as Warren Buffett says when investors forget that corporate profits grow about 7 % per year they tend to get in trouble and if I look at S&P 500 earnings 171 to 196 that's not 10% that's not even 5% this is adjusted for inflation just for reference so when it comes to the sap 500 if I have to put a 10-year Horizon returns zero at best does very low reward very high risk and I'm putting it here slowly over time we'll start adjusting going forward value investing is finding same returns with no or low risk he have 3 months US Treasury 4% no risk birkshire 10 year they will do their five six 7% no risk then we have other companies depending on how you're liking and I think I'm even better with my research platform because you can find Value globally so it is all up to you I think it is a bubble I invest in a way that even if it is or it isn't I'm not affected I do my thing and I try to separate myself from the market whatever happens I'm happy you're all getting rich keep in mind when you make money on valuation you also have to sell to lock in that gains which is something that you discuss we can discuss it in another video if you wish so that's it check what I do check the other videos I'll see you in the next one
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