The Bubble Risk Has Risen to 'INVESTCON5'
Oracle of Finance Howard Marks made his name in January 2000 by publishing a prescient warning that the market's then-boom was likely a bubble just two months before the collapse began. The technology-heavy NASDAQ Composite index plummeted 80% over the next two years.
Wall Street has again hit record levels this year, and Marks is worried. Is it a bubble? He won't say outright. But he has a plan for investors who want to minimize their risk.
When valuations are high, I consider becoming more defensive.
— Howard Marks
Marks says he and his wife like to watch TV thrillers, in which the Pentagon sometimes announces a Defense Readiness Condition, starting at DEFCON 5 and escalating as the danger of nuclear war grows to DEFCON 1.
In the same vein, he suggests progressively applying his "Investment Readiness Conditions," or INVESTCONs, in the face of above average market
valuations and optimistic investor behavior:
Howard Marks INVESTCON Levels:
6. Stop buying
5. Reduce aggressive holdings and increase defensive holdings
4. Sell off the remaining aggressive holdings
3. Trim defensive holdings as well
2. Eliminate all holdings
1. Go short
It's essentially impossible to reasonably reach the degree of certainty needed to implement INVESTCON 3, 2, or 1. Because "overvaluation" is never synonymous with "sure to go down soon," it's rarely wise to go to those extremes.
— Howard Marks
Because the market can stay exuberant for a long time, Marks says INVESTCON 4 is about as far down as he has ever gone. But he is confident that for most investors, it is now time for INVESTCON 5. That means selling off some of your more aggressive or speculative holdings and shifting towards investments more likely to do well in a market crash.
Most investors have little to lose by selling down shares that appear historically expensive, says Marks. If the market continuing to grind higher for a while, they will still benefit from that growth. And, by having reduced their risk, they won't lose sleep.
You can read Marks' August 2025 "INVESTCON" memo and January 2000 "bubble.com" memo for free on the website of Oaktree, his investment company. For even more of his straight-talking, cautious, and insightful investment insights, get Marks' most popular book, The Most Important Thing: Uncommon Sense for The Thoughtful Investor.
Also, don't forget to watch for the next My Daily Oracle Newsletter in your inbox or sign up at www.mydailyoracle.com.
Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice. Please consult a qualified financial advisor before making any investment decisions. Links on this page may be affiliate links, meaning your purchases help support this newsletter. Quotes may be edited slightly for clarity. Images represent our best effort. Copyright © 2025 mydailyoracle.com. All rights reserved.