Veteran investor Howard Marks on Friday had a wide-ranging conversation at the MoneycontroL Global Wealth Summit 2025 on the global business environment, current investment trends and the future of emerging economies like India.
Here is the full transcript of Howard Mark's interview:
N Mahalakshmi: Thank you so much Sonal and thanks so much Howard for this incredible opportunity to talk to us. I won't waste even 10 seconds talking about anything else, straight diving into the questions. And I just picked up something you said in your latest memo, and I read this out.
There were only four times in the history of S&P 500 when it returned 20% or more for two years in a row. In three of those four instances, the index declined in the subsequent two-year period. The exception was 1995 to 98, when the powerful TMT bubble caused the decline to be delayed until 2000. But then the index lost almost 40% in the three years later.
In the last two years, it's happened for the fifth time. The S&P 500 was 26% up in 2023 and 25% in 2024, marking the two best year stretch since 97-98. What is different this time in your view? I know that you hate to do predictions, but probabilistically speaking, it looks like stocks will underperform bonds, inflation, and cash over the rest of the decade. What's your view?
Howard S. Marks: Well, I think if you accept the past numbers, and it's dangerous not to, then you have to accept the fact that today's valuations imply modest returns over the coming decade. You know, one investment bank said 3% a year in early November, another said 5.5%. Certainly, the historic average return on the S&P has been 10, but we're at an above-average valuation. Invested will have below-average prospective returns. What's different this time, if anything, is the constitution of the S&P 500. We have the Magnificent Seven.
It appears that some of them, or if not all, are some of the greatest companies we've ever seen. Better than the companies that led the S&P in the past. You know, when I started work, reported for duty at First National City Bank in September of 1969, we were investing in the Nifty Fifty, and those were the magnificent companies of their day, selling at much higher fee than today.
Some of them didn't last very long, and if you held those stocks for five years, you lost more than 90% of your money. These look like better companies to me, although I'm no expert, I'm not an equity person, I'm not a tech person, selling at lower fee ratios. So, you know, there's always an argument this time is different.
Usually it's not different, but sometimes it is. This could be one of the times when it's different, but I think that it's hard to argue that the S&P is positioned for above-average returns, and maybe not today, even for average returns.
N Mahalakshmi: Fair enough. I was just about to come to that. Do you think the craze around AI today is reminiscent of the Nifty Fifty era?
Howard S. Marks: Well, it's reminiscent in the sense that the Nifty Fifty era was based on the new, new thing. It was dry copying for Xerox, it was computing power for IBM, super drugs for Merck and Lilly, instant photography for Polaroid, and so forth. And most excesses in the markets, I hesitate to use the word bubble, but I will, most bubbles are by necessity built around something new, something where there's no precedent, permitting the imagination to fire and confidence to reach escape velocity.
In 1999, we had the internet, and people said the internet will change the world. Guess what? The internet did change the world. They were right, but they were wrong to value the companies as they did. They were wrong to assume the persistence of the companies that they did, and most of the companies that went public in the TMT bubble of 98-99 are worthless today.
So now we have another new new thing, the AI. AI is expected to change the world. I'm no expert, I assume it will. Nobody knows how, certainly nobody knows when or to what extent. I think it's going to have a profound impact. But again, assumptions are being made about persistence and leadership. I can't dispel them. I can't endorse them. I only say they require attention.
N Mahalakshmi: Fair enough. But is it some kind of a warning signal, you would say, for investors, because the Magnificent Seven have contributed to more than 40% of returns for 2023, as well as 2024?
Howard S. Marks: Again, numbers that are on their face are a yellow light at minimum. On the other hand, I think that the experts, certainly the optimistic experts, would say wonderful companies at reasonable PE ratios. So the mere fact that they're up is troublesome, if in fact they are indeed great companies at reasonable prices. Somebody else will have to tell me whether that's true today. And of course, we'll get the judgment of the market in the coming years.
N Mahalakshmi: Right. Moving on to interest rates, something you've said recently, interest rates will not return to ultra-low levels, nor will they continue to decline. Why do you say that? I also want to say that high interest rates in the US have historically been correlated with low stock returns. What's your take?
Howard S. Marks: First of all, I want to clarify, today's interest rates are not high. Everybody says to me, oh, you mean, you're saying that rates will be higher for longer? Higher than they have been in recent years, but not high in the absolute. I refer to it part of the Fed funds rate for the last 70 years, most of which I've seen. And it averages just under 5%. Today's interest rate is below average on that basis. And I imagine will be brought down a bit in the coming years. But we went through a period from the beginning of 09, when the Fed took the Fed funds rate to zero to fight the global financial crisis until the end of 2021, when the Fed gave up on inflation being transitory and concluded that it had to raise rates to fight inflation.
Over that 13 year period, even I was surprised to learn when I studied it, that the Fed funds rate was zero most of the time and averaged about a half. So that's the abnormality. That was abnormal. I merely think we're not going back to that abnormality. Today's rates are quite normal. And I see no reason why we shouldn't stay here.
N Mahalakshmi: It seems like the markets are very stuck up on decline in interest rates as a trigger for stock price to go up. Is that expectation sort of misplaced? You think this is a new normal, whether there are pulsing pressures on monetary front or fiscal front, these interest rates are okay for the US economy to continue to fare the way they are?
Howard S. Marks: I think today's rates are within the band of normalcy. I think they can stay there, our economy in the US is functioning. Well, it's not booming. And thus, it does not necessitate a bust. It's not sluggish. It's performing well. And I think that it today's rates or rates a bit lower, will be perfectly appropriate for that. Our economy does not need stimulus by taking rates way down. It does not have to be restrained from overheating by taking rates way up. I think rates can stay here. And I think they're quite reasonable.
N Mahalakshmi: Sure. History doesn't repeat itself, but it often rhymes, said Mark Twain. What is history teaching us now?
Howard S. Marks: Well, of course, today isn't history yet. And when today becomes history, several years from now, we'll learn its lessons. The important message from that quote from Mark Twain, which I think is one of the most important quotations in my world, is that the details of history change, the events change, the reasons for them change, the results of them change. But certain things do persist and rhyme, if you will, from year to year and generation to generation.
And most of those things, or I should say many of those things are behavioral. And people will always get overexcited when things go well and take asset prices too high. And then when things come off, they'll get too depressed and they'll take prices too low. These are the things that rhyme from cycle to cycle. And we have to be alert to them. When things are going well, people will lever up their enterprises in order to magnify the gains. And they'll do that because they underrate the probability of losses and they forget about the potential of leverage to magnify losses instead of gains. But it works both ways.
This is another lesson that repeats from generation to generation and usually has to be relearned from generation to generation because it's a lesson that's forgotten in good times. So I believe we'll always have cycles. Optimism will be taken to excess. Bad deals will be done when spirits are too positive and those will be exposed in slower times through losses.
Now you ask what will we learn from today? Today, I think, as I say, the economy is performing well. The prices are generous. Let's say high. And my memo of two months ago on Bubble Watch, I said lofty, but not nutty. And I stick with that. I don't see massive psychological excesses today. And of course, the events of the last days and weeks have even reduced the enthusiasm further. But I think that we know that the PE ratio on the S&P 500 is at an above average level, maybe warranted based on the excellence of the companies in it or maybe not, but certainly not underpriced and certainly not, in my opinion, a time for unusual aggressiveness.
N Mahalakshmi: This question may sound like it's a bit of an exaggeration, but probably it's not. Is value investing extinct? Buffett says that all investing is value investing. But if the essence of value investing is buying assets for less than what it is worth, we haven't seen anything close to that in Indian equities for the past two years, not in US, perhaps in China. What would you say?
Howard S. Marks: It's a very complex subject. I can't do it justice. And if I try, you'll run out of patience with me. But I wrote a memo in January 21. And all the memos are available on the Oaktree Capital website under the heading of insights. It was called something of value. It ensued from discussions I had with my son, Andrew, when he and his family moved in with my wife and me during the pandemic. He's an investor. I'm an investor. We actively debated the question of value investing.
Now, value investing, to me, means not thinking of investing as pieces of paper that you trade daily for profit, but thinking of an enterprise that you want to be an owner of, and are willing to hold for the long term. And if you're looking at a business and thinking about whether you want to buy a share of that business and hold it for the long term, you're probably going to want to make sure that the price is reasonable. And I think all of that makes sense.
Now, all semantics eventually get taken to an extreme. And we it morphed into value investing with a capital V. And what value investing with a capital V was taken to mean was disregard for the future, concentration on the present, insisting on discount valuation parameters. Andrew insists I came to the-- I accepted his contention, but that doesn't have to be the definition of value. That's too extreme. It's too dichotomous, separated from growth. And people like to dichotomize and codify things very formalistically. But I think, the way you're using it, let's say where you're using it, in a sense, kind of in the middle. And the world tends to think that the growth stocks are companies with high rates of growth, projected into the future. And value stocks are companies with modest growth rates, with an emphasis on the present.
I think if you think about it that way, the lesson is that since “growth investing is future oriented, it is accepted more readily in optimistic times.” And when people turn less optimistic and are less willing to credit the future with great events, then they become a little more cautious. And they want value in the era now. So they look at what are called value stocks. So I think if you look, for the most part, not precisely, but I think that growth investing value, described that way, rises when people are optimistic, and value does better when people are defensive or pessimistic. Well, the answer is that people haven't been defensive or pessimistic in a long time. The last serious prolonged negative incident we had was the global financial crisis, which started in 08. So it's almost 17 years old. We had something called the pandemic in 2020. It was a very serious event. A lot of people lost their lives. But the markets and the economies kind of shrugged it off in short order. So it didn't really last and it didn't have a profound effect.
So I think that if you look, you would conclude that for the most part, optimism has prevailed for 17 years, or at least 16 or maybe 15. And that's a big part of why what you call growth, what most people call growth has done so well, there will be a time for value of time when people say, well, those stocks are being valued very highly, because people say they have a bright future, but I'm worried about the future. And I think people will return. It's not growth of value. It's that these sorts of companies have dominated the calculation of the S&P 500 for years. And the trend towards passive and index investing has amplified the power of the S&P companies relative to the non S&P. And I think that's been an important contributor to the success of, you know, there's an overlap if you have a Venn diagram, an overlap between growth and S&P.
They're not the same things definitionally, but there's a coincidence. And I think that indexation and passive investing have directed a lot of money towards, it happens, the growth aspects of the S&P. It's hard to know when it's going to stop. But you would think that if the S&P companies appreciate a lot longer, and the other companies appreciate much less, you would think that eventually the S&P companies will become so rich that they can't keep outperforming. But my answer to that is same as my answer to many things we'll see.
N Mahalakshmi: So that is also a contrary logic that some people argue. One argument in favor of price multiples and strong equity valuations, especially in the US, is that industries are consolidating. And we're not talking about just new tech or AI, but even traditional industries, which is making companies significantly more efficient and profitable. Corporate profitability in America is at a historic high at 11.5%. Of course, real wages are at a historic low. That's a different matter altogether. Do you think this is good enough reason for equity valuations to sustain at elevated levels, despite higher interest rates?
Howard S. Marks: You know, I don't have an answer to your question. But what I'd like to do, I'd like to discuss the form of your question for the benefit of the audience. First of all, it's dangerous when you assess the appropriateness of the market pricing based on one factor. At a time, because there are so many factors that matter. But the people tend to say, well, there's more concentration, there's more profitability, companies are better today. It merits a higher ratio. That's the line of argumentation.
Well, I would say maybe. The question is, how much better are the companies? How much better do people assume they are? Are their assumptions correct? How much superiority is priced in to the prices today? Is that degree of superiority appropriate? So, better companies, higher multiples, easy to say, but hard to be sure that the increase in superiority and the increase in valuations are appropriate for each other.
N Mahalakshmi: Howard, how do you think Trump's policies are likely to reshape business and financial markets globally? For the US particularly, do you think tariff induced inflation, the cut in government jobs poses a real threat to US demand and therefore economic growth? We've been talking about a recession for the past three years. It's never it never happened. Growth has been fairly buoyant. What is your view on that? And secondly, what should global investors be watchful of?
Howard S. Marks: Well, the overarching thing that everybody should keep in mind is that Donald Trump is a pro-business president. And there's an old saying from my youth that what's good for General Motors is good for America. And I would say in general, this is a vast overgeneralization. The Republicans would agree and the Democrats would disagree. And certainly today there's a whole element in the Democratic Party which thinks that business and free enterprise aren't such a great thing. Donald Trump thinks they are and he will try very hard to make business do well and American business do especially well.
But some of the actions can have short term negative effects. For example, the tariffs, which he thinks will discourage imports and encourage exports and produce revenues for the government to balance the budget. All of that seems like great things, but they should have an inflationary impact.
That's just one example. I think his policies taken to their logical extreme, and we don't know how far they'll be taken, would end up in a lower level of globalization than we otherwise would have seen. Globalization, in my opinion, is a wonderful force. It raises boats all around the world. It lets everybody and every nation do the things they do best. And everybody in the world benefits from that degree of specialization and division of labor.
If we globalize less, I think the whole pie shrinks. Of course, I think it's fair to say that Donald Trump is less concerned with the size of the whole pie than the size of America's slice of the pie. But when you introduce inflationary forces, which, of course, could necessitate higher interest rates to cool off the inflation, which would be bad for the economy, when you reduce the level of globalization, when you introduce high levels of uncertainty, I think those things together are tough on business, collectively, and tough on investors.
So, where Trump is going to go with his ideas, how he will implement them, and how good a job of the implementers he does, all those things remain to be seen. But ironically, you have a highly pro-business president, who has introduced a lot of questions along the lines I just enumerated.
N Mahalakshmi: China. China has been waiting for a recovery for nearly three years now. It's not happened. To you, Oaktee, what is your view on China? And qualitatively speaking, how do you compare India vis-a-vis China?
Howard S. Marks: Well, let me say up front that I'm not an expert on either. I travel, I visit India. And by the way, let me say, I think it's coincidentally ironic, here I am in India today, but not with you in person. I'm in Hyderabad for the opening of Oaktree's Hyderabad office that we're all very excited about. Unfortunately, I can't be with you in Mumbai today. But I'm no expert on China. I'm no expert on India. I travel, I go on impressions. I read, you probably know more than I do. I only know what I read.
Look, I think that China has great potential. It has great human resources, educational resources. It's very purposeful, and it is highly motivated to become the biggest economy in the world. It has problems of declining population, low birth rate. And the high-functioning private sector operates alongside the state-owned enterprises, which generally, I think, don't do as well for the economy as the private sector. It is kind of an unusual, what might you say, a strange bedfellows there. But China has done very well for the last 30 plus years. If they settle on the right policies, it can continue to do well. But it has to make up its mind about whether it's going to be a truly socialist or encourage the private sector.
India, on the other hand, has a growing population and coming off a low base, it has incredible opportunities. And, of course, you have a very constructive government right now, which is trying to move this country ahead. My last visit here was exactly eight years ago. I feel a different energy today. And India seems very positive. But, of course, you have a large sector of this large and growing population that you have to move into the middle class, have to educate with skills, you have to get jobs for, and you have to increase your capital base, different challenges. But hard for me to say better or worse right now, especially because of the geopolitical overtones. Many people have described China as uninvestable.
People want, I think people inherently want, you know, the term the BRICS was coined 30 or 35 years ago. And I think everybody who's optimistic wants to have some money in some subset of the BRICS. I think India seems to be a great candidate for that right now. And in fact, of course, India has benefited from the fact that so many people see China in a less positive light today.
I'm optimistic on India, very glad to be here, both physically myself and with our office and with our lending activities, and I'd feel a lot worse if we were not participating in India as we are today.
N Mahalakshmi: For the benefit of our audience, what advice do you have for people out here to become second order thinkers, second level thinkers?
Howard S. Marks: Well, the first advice I have is that to be a superior investor, you have to achieve what I call second level thinking, which is thinking different from the herd and better. Not easy. By the way, not everybody can be different from the herd and better. Most people will be in the in the herd and no better. Some people will be worse. So it's not easy to be different from the herd and better.
And if you can't, then you shouldn't try any fancy shots. You should just settle for participating in the growing Indian miracle. And my own guess is that participating an average participant in India in the coming decade will be a pretty good thing. To be an above average participant, to have higher returns than the averages, you have to have a knowledge advantage. And it takes a lot of hard work and understanding of companies and markets to achieve that. If that's people's goal, if they want to be above average participants in these markets, they have to achieve that. They have to do the work. They have to achieve the understanding, the insight. I can't tell them how to do that. I can only tell them about the importance of doing it. And be a second level thinker, to be an above average investor, you have to achieve a rare, higher level of insight and sophistication.
And you have to understand that if you have the same data, you see things the same, have the same thought process, engage in the same actions, you'll be an average participant. Nothing wrong with that. But if you want to be above average, you have to excel in one or more of those elements. And it's hard. And my most fervent advice to our audience today is that if you aspire to be above average, go for it, put in the work, try to achieve that level of insight. But the more important thing is participate in this economy and in this market. I don't mean buy today. I mean, in my opinion, you don't want to miss out on India of the next 10 years. And if you engage in market timing in, out, buy, sell, you just might miss it. And some of the most important lessons are based in humility and an understanding of the limitations on what we can achieve. And an example of that is one of my sayings is if you wait long enough at a bus stop, you'll catch a bus. If you run from bus stop to bus stop, you may never catch a bus. So, , near hyperactivity, merely trying harder is not necessarily the route to success. A lower level activity combined with a higher level of thought might be the way to go.
N Mahalakshmi: One last question, Howard. Buffett talks about ovarian lottery. You know, a big part of his success was because he was born a white male in America at that time. Today, if you were to pick a country, U.S., China, India or any other country, what would you think will qualify as ovarian lottery number one?
Howard S. Marks: Well, I don't know who's going to win the race among those three countries. The greatest luck is to be born at this time rather than 200 years ago and to have access to education. And you can get a great education in all three countries. And I'm fortunate that as I travel in all three countries, I meet the students at the leading educational institutions, and they're the ones who are having winning the lottery today. The great news is, you know, I was born almost 80 years ago. Buffett was born 90, almost 95 years ago. Our lottery victory was to be born a white male in America in the mid-20th century. Today, you don't have to have been born a white male in America. Just participate, just living in any of our three countries. If you can access the educational system and work hard, you can have success. It's not nearly as dependent on your gender, race or location.
N Mahalakshmi: Thank you so much on that note, Howard. That's all we have time for. But thank you so much for this opportunity. It's been a real privilege and honor. Thank you.
Howard S. Marks: Thank you for your good questions.
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