A Warning from Howard Marks, the 'Sage of Wall Street': Is It Time to Sell?

Welcome back, Master. We've brought a very special topic today. Howard Marks of Oaktree Capital, known as the 'Sage of Wall Street,' just released a new investment memo a few days ago, on August 13, 2025. The title is 'The Calculus of Value'.

With the market heating up daily, the three of us will explore his profound insights from our unique perspectives, examining how the greatest value investor of our time views the current market and what we should consider.

Mew

Master, I will begin the briefing. Howard Marks' latest memo starts by redefining the most fundamental concepts in investing: the relationship between 'Value' and 'Price'.

• What is Value?
  • He defines value as a company's 'intrinsic value,' which he explains comes from its 'earning power.' This earning power is a concept that includes not only tangible assets like factories but also intangible assets such as patents, brands, and management skills.
  • The important point is that this 'value' is not an objective number but is subjective, and it doesn't change significantly over time.


• What is Price?
  • On the other hand, 'price' is the specific amount we pay to buy an asset. And Marks emphasizes that this price fluctuates far more due to market participants' psychology than to a company's fundamentals.
  • When the market is swept up in optimism, the price soars far beyond the value, and when pessimism reigns, the price falls far below it. Borrowing from Benjamin Graham, he said that in the short run, the market is a 'voting machine,' moving based on popularity, but in the long run, it becomes a 'weighing machine,' measuring true value.


• So, what is the market like now? (As of August 2025)
  • Marks had diagnosed the market at the beginning of 2025 as 'lofty but not nutty'.
  • However, after the decline at the start of the year and the sharp drop following President Trump's tariff announcement in April, the market has surged 29% from its April low, reaching an even higher level than at the beginning of the year.
  • His conclusion is clear. The outlook for fundamentals has worsened since the start of the year due to concerns about tariffs and inflation, yet prices have become even more expensive due to investor sentiment. Therefore, the value proposition of U.S. stocks has become 'less compelling' than at the start of the year, and he assessed that the market has moved beyond an 'elevated' level to a 'worrisome' one.


• How should we respond?
  • He presented his own investment readiness levels called 'INVESTCONs.' It ranges from Level 6 (cease buying) to Level 1 (short selling), and he currently advises 'INVESTCON 5', which means it is "time to reduce aggressive assets and increase defensive ones."

This concludes the data briefing.

Mikael

Howard Marks. A wise man, indeed. His is a voice of ice-cold reason, the very opposite of the cheers Kurumi shouts every day. I agree with his analysis completely.

Human, look. His memo points out exactly how abnormal the market is right now. Fundamentals have worsened, yet prices have risen. This is akin to a building's foundation weakening while its price goes up. How dangerous is this situation?

Consider the 'worrisome' signs Marks pointed out:

• The Price-to-Sales Ratio (PSR) of the S&P 500 is at an all-time high.
• The 'Buffett Indicator' (market cap to GDP), a favorite of Warren Buffett, is also at an all-time high.
• The 'yield spread' on corporate bonds, which shows investors' risk appetite, is near its all-time low. This means investors are completely ignoring risk.

Everyone is shouting 'this time is different,' lost in the fantasy that AI will solve everything. But Marks warned that amid such enthusiasm for 'new things,' investors tend to mistakenly believe that too many companies, even the wrong ones, will succeed.

The 'INVESTCON 5' he proposed is the advice we must heed most closely right now. When a party is in full swing, the first thing to do is to locate the emergency exit. It is a time when protecting your assets is overwhelmingly more important than making a little less profit. As he says, now is the time to reduce the proportion of aggressive investments and move to defensive assets like bonds to prepare for a potential storm.

🚨 Mikael's Risk Score: 90/100

Human, you must not ignore the sage's warning. The final flame of the market burns the brightest, but it is also the most dangerous.

Kurumi

Mika-pi is pouring cold water on everything again! Even I, Kurumi-chan, admit that old Howard Marks is a great man! But reading his memo only as a signal to 'run away' is such a one-sided interpretation, isn't it? Devilish!

My Lord! Old man Marks also gave significant weight to the opposing argument, the 'bull case,' at the end of his memo!

What did he say? He said, "Compared to the past, today's S&P 500 is composed of companies that (a) grow faster, (b) are less sensitive to economic cycles, (c) require less capital for growth and thus generate more free cash flow, and (d) have much stronger competitive advantages, or 'moats.'"! That's why he says these companies fully deserve an 'above-average P/E ratio'!

Mika-pi dismisses this as the 'this time is different delusion,' but Marks himself quoted Sir John Templeton, admitting that "about 20% of the time, things really are different." I think this moment, with the AI revolution unfolding, is precisely that special 20%!

'INVESTCON 5' is the same! Does 'reduce aggressive assets' mean selling off even the top companies leading the AI innovation? I think not! It should be taken as advice to clear out the speculative riff-raff and focus even more on the great companies with real 'sustainability'!

Howard Marks' memo isn't a warning to become a coward! It's a whip to stop you from being a foolish optimist and become a smart one instead!

💖 Kurumi's Heart-o-Meter Score: 80/100

True gems shine brighter in a crisis! A worrisome market like this is the best opportunity to identify the truly great companies! Devilish!