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The Seven Worst Words In History – Key Takeaways from Howard Mark’s Latest Memo

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Howard Marks has recently released his latest memo – The Seven Worst Words In The World.

PS: – They are “too much money chasing too few deals”.

Here are my key takeaways:

1. Howard Marks believes that investors knows that the future is unknowable.

However, he also believes that investors can also enhance their likelihood of success if they adapt their investing stance based on where the market is in the cycle.

Knowing where are you are in the cycle will help investors decide their investment stance. Should you be taking more risk, more leverage? Or should you be reducing your risk exposure and fortifying your balance sheet. Taking the “temperature” of the market will help you decide these questions.

2. Howard Marks looks at several things to decide if markets are too “frothy”

  • Elevated market prices
  • High risk tolerance
  • Unwise behaviour of market participants
  • Excessive optimism

On the reverse, in deciding if markets are precarious, he looks at whether

  • Depressed market prices
  • Low risk tolerance
  • Overly conservative behaviour of market participants
  • Excessive pessimistic

3. He believes that you should be far more conservative when markets are too bullish and turn more aggressive when markets are bearish.

This is similar to what Warren Buffett’s quote – You want to be fearful when people are greedy, and greedy when people are fearful.  As I like to say, you can have a good outlook or a good price – but never both at the same time.

4. He believes that the current climate in the US is being driven by too much optimism, rosy projections of the future, low level of scepticism and high risk tolerance.

Howard Marks cites several aspects such as the lofty valuations of FANG stocks (Facebook, Amazon, Netflix, Google) and crypto-currencies as evidence of this behaviour.

5. He doesn’t believe that conditions are as bad a they were in 2007.

However, he is worried about the effects of the current environment on the future even though he doesn’t expect there to be any serious economic weakness in the near term.

The seeds of a downturn are often sown in an economic boom, and its never possible to know when the next trigger point will come. Howard Marks is clearly concerned that current conditions are laying the foundations of an economic downturn in the future and is sounding the warning bell now for investors to prepare for it.

6. In light of current conditions – he isn’t advocating that investors should stop investing.

Rather, he is cautioning investors to be far more careful in prudent in the investments they make, and to favour strategies that emphasise downside protection rather than upside gains.


This is an outstanding memo from Howard Marks that provides plenty of anecdotal evidence. Its useful to put his memo into context as his viewpoint is much more US-centric and representative of what is happening in that part of the world now. The Chinese economy is not experiencing the above but that is certainly a post for another day.

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