“And if you bought those stocks, the day I got there in '69, and you held them firmly for five years, you lost almost all your money.”
Marks states good investing is not buying good things but buying things well; price determines risk.
“it's not what you buy, it's what you pay that determines whether your investment is risky or not. B, that good investing is not a matter of buying good things, but buying things well.”
Marks states that price, not asset quality, determines risk, and good investing means buying things well, not buying good things.
“B, that good investing is not a matter of buying good things, but buying things well. And the difference is not only grammatical.”
Marks says high-quality assets can be risky if overpriced, citing nifty-fifty stocks that lost almost everything from 1969 to 1974.
“A high quality asset can be priced so high that it's risky. I started work at Citibank in September 1969, when I got out of Chicago Booth.”
Marks warns that at PE ratio of 23, historical S&P returns over next decade were always between 2% and -2%.
“And it showed that historically, you bought the S and P when the PE ratio was 23, in every case, there were no exceptions.”
Marks says it's generally bad to buy what everybody loves and good to look at what everybody hates.
“in general, it's a bad idea to buy the things that everybody loves and it's a good idea to buy the things that everybody hates.”
Marks says current S&P PE ratios historically predict very low single-digit returns over next decade.
“Historically, if you bought at this PE ratio, your return over the next ten years averaged in the very low single digits. So I I think we're in a moderate return scenario.”
Marks argues bubbles never form around prosaic industries like timber because outcomes are too predictable.
“You're never going to have a bubble in paper stocks or timber stocks. It's too prosaic. People can say, well, we can tell how many houses you're going to build.”
Marks says 2023-2025 is the seventh best three-year period for the S&P 500 in a century, signaling elevated optimism.
“The period, twenty three four five is for the S and P 500 is, I think, the seventh best three year period out of the last 100. Seventh out of a 100.”
Marks notes the last three years rank among the top six in S&P 500 history.
“The S and P 500 stock index has been around for about a century. There have been ninety seven or ninety eight three year periods by definition.”
Marks argues tech companies' incremental profitability is enormous because virtual products have almost no marginal cost.
“Their incremental profitability is enormous. When your product is virtual and you're selling one, you're making some money, you want to sell two, there's almost no cost in the second one.”
Marks says only six three-year periods in a century were better than the last three years for S&P 500.
“There have been ninety seven or ninety eight three year periods by definition. And there have been only six which were better than the last three years.”
Marks cites Thinking Machine Labs raising 2 billion dollars at 12 billion valuation without disclosing its product as bubble indicator.
“And I say in the memo, for example, that some woman left OpenAI, started a company called Thinking Machine Labs, went out to raise money, and she said this company is going to engage in AI, but I can't tell you what we're going to do. It's a secret. And people gave her $2,000,000,000 for a sixth of the company.”
Marks argues good investing is not just buying good things but buying things well at the right price.
“it's not what you buy, it's what you pay. And good investing is not just a function of buying good things, but of buying things well.”
Marks says good investing is not just buying good things but buying things well at the right price.
“And good investing is not just a function of buying good things, but of buying things well.”
Marks notes the S&P 500 has doubled since September 2022 while intrinsic values have not, discouraging analysis.
“I mean, company values haven't doubled, intrinsic values, but prices have doubled, so it's been a great time, and great times encourage the desire to put money to work and discourage analysis,”
Marks says holding nifty fifty stocks for five years from September 1969 resulted in 95% losses.
“So if you bought the stocks the day I got there, I think it was 09/22/1969, if I'm not mistaken, and if you held them tenaciously for five years, the greatest company is America, you lost about 95% of your money.”
Marks recalls nifty fifty stocks in 1969 where banks believed nothing could go wrong at any price.
“These were the 50 best and fastest growing companies in America, where nothing could go wrong and there was no price too high.”
Marks recalls Citibank and money center banks invested in the nifty 50 in 1969, believing no price was too high.
“Well, know, when I started Citibank in September sixty nine, the bank and most of the money center banks, it's an old fashioned expression, invested in what we call the nifty 50.”
Marks says S&P prices doubled since September 2022 while intrinsic values have not.
“since roughly 09/30/2022, I would venture that the S and P has doubled. I mean, company values haven't doubled, intrinsic values, but prices have doubled, so it's been a great time,”
Marks states nothing is a good idea in the absence of price, lesson from Nifty Fifty experience.
“But the lesson I learned from my experience with the nifty 50 in '69 was that it's not what you buy, it's what you pay that matters.”
Marks recalls the Nifty Fifty lost 95% over five years despite being the greatest companies in America.
“And if you bought the stocks the day I got to work in '69 and you held them for five years, the greatest companies in America, you lost about 95% of your money.”
“I happen to believe that the Mag seven, most of or all of them are the best companies I've ever seen.”
Marks argues private asset valuation is fundamentally ambiguous with no clear standard for what constitutes fair value.
“Am I supposed to value these things at what they're worth? What I could sell them for? What I could sell half for?”
Marks defines proper private asset valuation as the price an intelligent, unemotional buyer would pay today.
“I think it should be valued at what an intelligent, unemotional buyer would pay for it today.”
Marks compares today's Mag Seven PE ratios of thirties to Nifty Fifty's sixty to ninety in 1969.
“When I was a kid and came into this business in '69, the Nifty Fifty were selling at PE ratios between sixty and ninety. So today's Mag seven in the thirties seem reasonable.”
“And, you know, they're mostly selling at PE ratios in the thirties, highest earnings ratios. That doesn't seem high to me.”
Marks states Nifty Fifty investors lost 95% over five years despite being greatest companies in America.
“if you bought those stocks the day I got to work in September of 'sixty nine, if you held them tenaciously for five years, you lost about 95% of your money.”
Marks recalls Nifty Fifty PE ratios were sixty to ninety, revealing his role as research director.
“So, it was a and so that was a real disaster for the people who invested in the Nifty Fifty, which was most of the money center banks.”
“When I started in this business as a young man, 1969, in the research department at Citibank, the bank and most of the banks invested in what were called the nifty 50, which were considered to be the best and fastest growing companies in America,”
“You know, the the the non Shiller PE ratio is about 23 or so today. The eighty year average is 16. So we're roughly 50% higher today. But in 2000, I think it was 32.”
Marks notes Nifty Fifty PE ratios were 60-90 versus Mag Seven today at PE ratios in the thirties, excluding Tesla.
“So so to look at at the at the max seven take out Tesla, they're selling at PE ratios in the thirties.”
Marks notes market PE ratio is 23 today versus 80-year average of 16, roughly 50 percent higher.
“the non Shiller PE ratio is about 23 or so today. The eighty year average is 16. So we're roughly 50% higher today.”
Marks characterizes current market valuations using traditional PE ratios as lofty but not nutty based on year-ago assessment.
“And, you know, those things showed the the market to be, I used the expression a year ago, lofty but not nutty.”
Markets oscillate between extremes of sentiment that drive prices away from fair value.
“The pendulum of financial markets swings constantly between euphoria and depression, between celebrating good news and obsessing over bad news, and therefore between overvaluation and undervaluation.”