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On May 2nd, 2000, the whole world breathed a sigh of relief because the computer glitch intended to usher in the year 2000 had not occurred. Also on that day was a letter from a fund manager in Los Angeles to a client with the very strange subject line bubble.com. He is Howard Marks, co- founder of Oct Capital.
He wrote letters to his clients regularly since 1990, but for almost 10 years very few people paid attention to them. This letter is different. Just over two months later, the tech stock bubble began to burst, and Max's observation of this later became the core of his most famous book. We'll explore just how volatile the market was in 2000 , how Max thought differently from everyone else, and how that perspective can be applied to your investing today.
To understand the letter, we need to go back to the late 1990s. The internet had just entered our lives, and simply adding u.com to a company's name could result in a multi-billion dollar valuation. The Nasdaq index, which focuses on US technology stocks, rose from around 1,000 points in mid-1995 to over 5,000 points by March 2000, a fivefold increase in about five years.
The most famous example is Pest.com, an online pet supply website. The company, which went public in February 2000, even had a dog puppet as its mascot, but sold many items at prices below cost. Losses weren't a problem; investors at the time said that as long as growth was rapid, profits were a matter for the future.
Actually, someone had already warned me. In December 1996, Federal Reserve Chairman Len Greenspan questioned the irrational euphoria of the market, but the market continued to rise for more than three years . In other words, saying something right too soon is, in the eyes of many, no different from saying something wrong.
So what does the letter from bubble.com say? Max didn't give any projected numbers . He didn't say by how much NASDQ would be reduced , nor did he say on which day it would be reduced. He pointed out the familiar signs of every fever. It is believed that if the idea is right, then no price is too high.
Everyone fears missing out, and even Warren Buffett has been criticized for being outdated for not buying tech stocks. In his letter, Max wrote that just because prices are too high doesn't mean they're about to go down, and that prices could remain high for a long time. What we can do is recognize where the market stands.
On May 10, 2000, the Nasdaq reached a peak of over 5,000 points . This index has been falling almost continuously for over two years. By October 2002, the Nasdaq had fallen to around 1100 points, losing nearly 80% of its value. PES.com announced its closure in November 2000, less than a year after going public.
The dog puppet became a symbol of an entire era. It wasn't until 2015 that the Nasdaq surpassed its previous peak. Buyers who purchased at the peak in 2000, without considering dividends, would have to wait 15 years just to break even. So how did Marx think differently from everyone else ? In 2011, he compiled ideas from the letters into a book called The Most Important Thing .
The first chapter addresses this very question. Max calls it second-order thinking. First-order thinking says, "This is a good company, let's buy the stock." The second-order thinking then asks, "Everyone thinks this company is good, so does the price reflect that?" In short, the question isn't whether the company is good, but whether it's better than people think.
Max also pointed out a trap. To achieve better results than the majority, you must think differently from the majority. But thinking differently isn't enough; you also have to think correctly. In 2000, thinking differently meant standing outside a market where everyone was making money, and that feeling was incredibly unpleasant when your acquaintances seemed to get richer every day.
The image that Marx often used was the pendulum. Market sentiment rarely stays in the middle. It oscillates between exhilaration and fear, between greed and panic. When the pendulum is on the euphoric side , the risk is highest, even though it feels safest. When it's on the side of fear, the opportunities are often greatest, even though almost no one dares to buy.
In 2008, Max applied the same pendulum imagery but in reverse. Later that year, when the financial crisis sent panics through World Street, his fund aggressively bought debt from companies that were being sold off. According to later reports , in the weeks following the collapse of Lemon Brother, Ore disbursed an average of about half a billion dollars per week.
That figure is equivalent to approximately 13 trillion VND at the current exchange rate. At the time, many considered it reckless. When the market recovers, these investments yield significant returns. In other words, the same person was cautious in 2000 and more assertive in 2008. It's not that he changed his mind, but that the pendulum has reversed direction.
So what does this mean for Vietnamese investors? The domestic stock market has also experienced very distinct pendulum-like movements in the past. At the beginning of 2022, the VN Index rose to over 1500 points, and the number of new accounts opened reached a record high. By November of the same year, the index had at one point fallen below 900 points.
Market regulators often recommend that investors educate themselves and proactively manage risks. Marx's thinking is a specific way of doing that. First, when everyone around you is talking about stocks, ask yourself how much expectation is already reflected in today's price. Secondly, when everyone is afraid, ask the opposite question: has fear already been factored into the price?
And most importantly, remember a quote Max often gave: we can't predict, but we can prepare. Before we conclude, let's take a minute for the book itself. The most important thing is written from the letters Max sent to clients over more than 20 years. The book isn't thick, about 200 pages divided into several short chapters.
Each chapter addresses a topic Marx considered most important, ranging from quadratic idealism, value and price, risk, to the psychological pendulum. Warren Buffett once said that when he found a letter from Howard Marx in his mailbox, it was the first thing he opened and read. It's important to note that the book doesn't teach how to choose a specific stock, nor does it offer a formula for getting rich quick.
It teaches how to think and requires patience from the reader. In short, this book is suitable for people who have been investing for a while, have had their wins and losses, and want to understand why. In summary, there are three things worth remembering. First, the question isn't whether the company is good, but whether the price reflects that quality.
Secondly, the market is like a pendulum; it rarely stays in the middle. Third, no one can predict the exact time, but everyone can prepare. Láthưupbel.com doesn't predict dates; it simply reminds readers where they are currently located. In your opinion, is today's market pendulum on the bullish or bearish side? Please leave your comments in the comment section .
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