Last week we were treated to another thought provoking memo from Howard Marks. Apart from Warren Buffett and Stan Druckenmiller – very few investment managers boast a better 40+ year record than Marks. These investing legends rarely speak. But when they do – pay close attention. Marks’ note was follow-up to his previous memo titled “Sea Change”. Here’s the TL;DR: investors need to re-think their longer-term investment strategies. He is of the view the next decade (or more) won’t be the same as the last. A rising tide is unlikely to lift all boats. However, this also brings meaningful new opportunities for double-digit returns. We just need to start looking in different ‘pockets’.
"Asset Allocation"
The One Chart that Matters Most
If you were asked what is the most important metric in global finance – what would you answer be? The S&P 500? The US Dollar? Gold Something else? My answer is the US 10-year yield. Everything in finance is a function of this asset. For those less familiar with the game of asset speculation – this is a very important concept to understand. What’s more, its importance extends well beyond the stock market. To begin, the US 10-year yield is the proxy for financial instruments such as your mortgage, your car loan, student debt, your credit card etc. More than that – how this bond trades also signals investor confidence.
Think About Adding Bonds
For me, 2023 has been a year of repositioning and managing risk. I lowered my exposure to large-cap tech (down to ~20% portfolio weight) and increased exposure to banks, energy and some industrials (which all trade at reasonable valuations). Today I will look at two bond ETFs – which I think could warrant exposure in your portfolio. In summary, with the US 10-Year yield back above 4.0% – it pays to add some longer-term duration.
Stocks Are Not Cheap
The S&P 500 has had a fantastic first 6 months of the year – up almost 15%. That’s a welcomed relief from the miserable 2022. But are stocks now too expensive? What’s the premium investors are being asked to pay? There are a couple of ways we can assess this. For example, we can compare the earnings yield against the risk free rate of return (currently around 5.5% and going up). And whilst it’s always good to maintain some (long) exposure to the market – we need think carefully about how much (and where)
For a full list of posts from 2017…