No. of Recommendations: 27
At one end of the ‘Magnificent 7’, you have Microsoft, which perhaps deserves its rating. At the other end you have an industrial, heavy capex, metal bashing core business, with internet bubble imagination type ventures bolted on, which is giving rise to, call it 95% of it’s market capitalisation. In between, you have a mix of things with varying degrees of questionable multi decade sustainability. A few have societal effects that might not be tolerated forever but may well be, or may be taxed harder. Who knows. AI will certainly make the world more efficient and many of these Mag 7 companies will try to monetise that. And other companies will emerge but they could be acquired by Mag 7 companies.
Add a sprinkle of crypto dust mania and central banks and governments injecting the patient with bigger and bigger doses of medication.
Then throw in some inflationary policies and higher interest rates, it’s certainly not hard to imagine the house part is in full swing. We will see what happens.
Buffett said Noah isn’t famous for predicting the rain. He was famous for building the boat. His own actions, at Berkshire, in the last year suggest some caution is warranted. Over a third of its market capitalisation in cash. 75% of Apple sold.
Buffett has said in the past that he reads everything written by Howard Marks. Howard Marks’ son recently commented that his father made very few market calls but they were all right, because he only made them when things were extreme.
You can read the Howard Marks comments and interpret in different ways. On the one hand he sets out the dynamics of a bubble and factors in the current set up that fit. On the other hand, he says valuations don’t seem nutty.
At the end of the full memo and podcast which I listened too, he said something that perhaps points to what he really thinks. He says he is no expert on technology companies. He refers to a JP Morgan that presents the historical correlation between high multiples and lower future returns. He then says he “is just setting out the facts for readers to ponder, just as he did twenty five years ago”.
Twenty five years ago was a market call and this is another one.
In 2000, Howard acknowledges he was correct in calling out the irrational valuations of the dot coms but lucky in how quickly he was to be confirmed correct.
In any bubble, there is always the possibility it gets way bigger, like Japan did. The pro business administration might make that more likely, or there could be major stumbles from unconventional government actions.
The quality of Microsoft and Apple muddy the bubble thesis.
If there is a crash, the timing is of course impossible to predict.
Will Howard Marks be correct and what should I do about it now. Tesla puts seem like a nice addition to my anti fragile portfolio from where I’m sitting.
