In this episode, we delve into the fascinating world of market bubbles, drawing insights from a recent memo by Howard Marks. Marks reflects on his past predictions, particularly his 1999 "bubble.com" memo, and discusses what constitutes a bubble, noting that it's more of a psychological phenomenon than a quantitative one, marked by irrational exuberance, adoration of assets, FOMO, and the belief that "there's no price too high". The memo highlights historical bubbles like the TMT bubble of the late 90's and the housing bubble of the mid-2000s, and it examines the current market, where the "Magnificent Seven" stocks dominate the S&P 500. Marks also explores how newness and the idea that "this time is different" often fuel bubbles, referencing examples from the Nifty Fifty to the internet boom. Ultimately, the memo emphasizes the importance of considering both the quality of an investment and the price paid, and it discusses the potential risks of overestimating future growth and the challenges of persistence in a rapidly changing market.
