"Marks isn't usually wrong about valuation. He's just operating on a timeline most retail investors can't sit through without flinching. Here's the mechanic that matters: opportunity cost of waiting. When a famous investor says future returns will be low, the instinct is to reduce exposure. But "low" in Marks' framing means -2% to 2% real returns over ten years, not a crash next Tuesday. The path to that low average usually includes years that look nothing like the average."
A portfolio concentrated in the S&P 500 can outperform forecasts that predict low long-term returns. Howard Marks warned that buying the S&P 500 at 23x earnings would likely produce real returns between -2% and 2% over the next decade. Despite that caution, the S&P 500 rose about 13% after the warning, and the portfolio of the investor who held a large S&P 500 position doubled since selling a prior business. The key issue is opportunity cost: reducing exposure based on “low” expected returns can cause investors to miss years that look very different from the average. Low average outcomes can still include strong interim periods, so waiting can be costly.
Read at 24/7 Wall St.
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