"Previous Strategies No Longer Work — Howard Marks"

Vyacheslav Dvornikov

Jan 30, 2025

Investors should not expect the same strategies that have been profitable in recent years to work in the future, said on Monday by Oaktree Capital Group co-founder Howard Marks. "I do not believe the next 10 years will be characterized by falling interest rates or ultra-low interest rates," Marks said Monday at the Global Alts conference in Miami, known as Miami Hedge Fund Week.

Marks referred to bank forecasts, including Goldman Sachs, according to which stock returns in the next decade may be in single digits. The average annual expected return of the US market over a 5–10 year horizon has decreased from 4.4% to 4.2% over the past year, according to the latest forecast by AQR's Cliff Asness. Why Asness, whose fund we have invested in, is considered one of the best investors in the world, we explained here.

Even if rates return to near-zero, the average annual loss on stocks of the largest US companies will be minus 2.2%, says the forecast by GMO's Jeremy Grantham, a stock market historian and renowned manager who predicted the dot-com bubble burst and the mortgage bond crisis. We promptly reported on both forecasts in our channel.

Marks' speech came just as the success of Chinese AI startup DeepSeek made investors question the high valuations of Nvidia and other AI-related companies. "It just shows how strong psychology and market irrationality are in the short term," Marks explained the stock sell-off.

Marks' views are closely followed on Wall Street, primarily for his sporadic client memos, notes the Financial Times. In a January memo titled "On the Watch for a Bubble," the legendary investor recalled one of the most insightful predictions of his career — 25 years ago in his essay he warned about the irrational behavior of investors regarding dot-com companies.

Now the head of Oaktree (with $205 billion under management) pointed to warnings about today's markets, including high stock valuations, AI euphoria, the dominance of the "Magnificent Seven," and the fact that "automatic" buying of large company stocks began "without regard to their intrinsic value." How the rise of passive investing affects the latter sign, Movchan’s Group partner and GEIST fund advisor Elena Chirkova explained here.

Why this matters

More and more long-term forecasts for the US stock market point to low expected returns in the coming years. In such conditions, investors will need to seek new approaches: the "buy and hold" rule may no longer work. The value of active management increases, but at the same time, the results of private investors on average turn out much worse than the market.