저자: The Financial Economics · 외국인
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What I say at Oak Tree is that we try to try to invest in companies that will grow and companies who will repay the money we lend them. That's the important thing, not what the Fed does or what the market does or what the administration does or something like that. How should investors position themselves for the coming months?
I'm not asking you to forecast. I know you don't like that question. I wouldn't do that. But how do you position yourselves now in the alts, the alternative classes? Well, I think that I think that one of the characteristics of alternative investments is uh these are we we everybody makes these investments because they're supposedly alpha investments.
They're supposed to be out investments where the uh return will be primarily a function of the skill and judgments made by the managers of the investments. Not that's as opposed to beta uh investments where most of the return is a function of what goes on in the market. So I think you know we should be the the alternative uh managers and their investors should be relatively isolated from so-called market developments and what what should be.
Yeah. Right. Well they they should be but sometimes psychology takes over and becomes this overarching trend. um uh it's not supposed to be the case, but I think you know we ju we just have to uh we should be able to isolate our clients from market developments because they should not be uh uh the at the heart of our returns.
And you know if if we what I say at Oak Tree is that we try to find companies we try to invest in companies that will grow and companies that will repay the money we lend them. That's the important thing not what the Fed does or what the market does or what the administration does or something like that.
Um and uh so you know one of the features of of alternative investing should be that we diversify our clients from market developments and and uh but of course we we have to constantly make sure that we've made our investment decisions for good fundamental reasons. The world has changed. We have seen the market sell off.
We have seen tariffs implemented that are the highest levels that we've seen going back a hundred years. How do you understand where there's value? What a return is that would justify a risk at a time when you know potentially you could get seven 8% 9% with credit with stocks they have delivered more than 10% for the past number of decades.
But going forward I want to respond first to your last sentence. Stocks have delivered an average of 10% a year for the last h 100red years but not when the PE ratio was 19 and the PE ratio today is probably 19. the average return has been 16. So we can say that when the when the PE ratio averages 16, the return average is 10.
But when the PE ratio is 19, my guess is if you look at history, if you bought the P the S&P when the PE ratio is 19 historically, you probably made let's say 1 to 6% a year or 2 to 7% a year, something like that, but certainly not 10. And so uh what you pay matters and the price of the S&P is elevated relative to historic levels.
So you shouldn't expect historic returns. Whereas in credit, one of your arguments is you can expect to get that return because the default risk isn't as great as some of the excess spreads and what you're getting in allin yield. Well, you know, with with credit is a a new fangled word for fixed income or which was a new fangled word for bonds.
In 1978, uh I was moved at City Bank from the equities department to the bond department. Nobody talked about fixed income or credit. But with debt or bonds or fixed income or credit, what you see is what you get. You can read on the piece of paper what the promised return is. And then the only thing you have to wonder about is will I get it?
That is to say, will the issuer default or will they keep their promises? And by the way, they promise you interest. They promise you to pay your money back at the end. And if they don't keep the promise, they lose the company. So they have a lot of incentives to pay. I've been in in non-investment grade credit for 47 years and in our experience roughly 99% of our issuers have paid as promised.
You've thrived during your five decade career almost five decade career uh during times of dislocation. Is this a time of dislocation to play or not to? Well, it's it's a time of dislocation. Everybody has to judge for themselves whether the reduction in asset prices so far is right, inadequate or excessive.
If it's excessive, you should jump in with both feet. If it's inadequate, you should wait until things adjust further. And it's impossible to make that judgment qualitatively. You used the word measure before. I pushed back a little bit. There's no place you can look. There's no analysis you can do to determine whether today's asset prices are right for the environment ahead.
Now, there never is. It's always conjecture. It's always guesswork. That's in theory why the greatest investors are great because they make those judgments better than most people. It's excessively hard today because today we have no idea what the future's going to be. Normally, we think we know what's going to happen in the future.
We normally assume the future will look mostly like the past. We extrapolate and usually it works because the world doesn't change that much. But the the world economy and the world order beyond economy, meaning geopolitics and international relationships has been shook up like a snow globe by the events of the last days.
And nobody knows what it's going to look like. Nobody knows. I I dare say if you tell me that you what our rules will be six months ago, six months from now, I'll bet you you're wrong. This is in flux. And if you think it's in flux, then by definition, you don't know what the future holds. And then even if you know what our country is going to do, and it's going to be that way 6 months from now, we don't know what other countries are going to do, what the ramifications will be.
And so, you know, I always invey against forecasting I don't believe in macro forecasting, my own or other people's and we know much less today than usual. Now, people who who like to run their lives according to forecasts, they say, "Well, this is going to happen in the future, so I'm going to do this and this is going to happen in the future, so I'm going to do that." What what you really need if you like to work with forecast is you need two things.
Not just a forecast, you need the forecast, but you need a an estimate of the probability that your forecast is correct. And today, whatever your forecast may be, you have to say the probability that I'm right is lower than ever because the probability that we know what the future's going to look like is lower than ever.
And that's that's how I feel. Is this a time to be fearful or greedy? Bloomberg's offices. Uh you have to think in terms of your neighbor, the department store. Bloomingdales. Bloomingdales just put everything on sale. Prices have come down on for the S&P uh 8% in the last two days and uh much more in the last six weeks.
It's on sale. That should encourage people to think about buying. Will they go down further? Nobody knows. Are the prices fair? Nobody knows. But everybody runs from the market when prices go down because they think it conotes risk. It's just stuff going on sale. And uh of course it takes a precient pro of which there aren't many to know whether as I keep saying the the the discounts are adequate or appropriate.
But certainly you have to look and and and it doesn't make any sense to say just a minute I did XYZ when the price was 100. Today the price is 90 so I'm going to boycott it. That doesn't make any sense on its face. You have to take a hard look. Do you still think that the US is the best place to invest?
I think it's probably still the best place but it's less best than it used to be because I think that uh if you think about the things that made it the best place uh one of them was the rule of law that may be less the fact today one of them was the predictability of outcomes that may be less today.
Well, the worst thing about investing in the United States for many years has been our fiscal situation, our deficits and debts. And the US has behaved like somebody who has a golden credit card where there's no credit limit and the bill never comes. So, of course, you can spend more than you make. And and if somebody has a golden credit card, uh well, what would you do?
Well, you might buy a nice car, but what the hell? You might as well buy all the cars because the bill's not going to come. And that's the way we've behaved and and that's the way Washington has spent money. But can the events of the recent days change that? Can they cause there to be a credit limit?
Can they cause a bill to be presented at some point in time? And if the answer to either or both of those questions is yes, that's a real risk. If people don't like the dollar, don't like investing in the United States, don't want to hold an unlimited number of treasuries, if we just make people mad and say, "The US is still a great credit, but I don't want to hold their debts because look how they're treating me," the fiscal situation will be very complicated.
Howard Marks, we have to leave it there. That was Oak Tree Capital Co-chairman Howard Marks. Thank you so much.
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