One of the Howard Marks memos I read recently that caught my eye was “On Bubble Watch.” Twenty-five years ago, Marks wrote a piece called “bubble.com” in which he diagnosed the dot-com mania of the time as a ‘bubble’ and raised the alarm. He warned against the excessive optimism surrounding internet, e-commerce, and tech companies in the 1999–2000 era, and just as he predicted, countless internet companies collapsed in the early 2000s.

We can never say for certain whether the stock market is at a top or a bottom, but there is no place that forgets history as easily as the stock market. Stock investing became widespread in Korea only fairly recently, but in the United States it has nearly a hundred years of history. Patterns similar to today’s have repeated in the past, and many people, forgetting that fact, have tended to repeat the same mistakes.

One sentence in the memo’s introduction struck me: “Being too far ahead of your time is indistinguishable from being wrong.” Rendered into Korean, it comes out roughly as “if you get too far ahead of your time, it’s hard to tell apart from being wrong.” The point is that if you run too far ahead, your timing ends up off and you can look like you were simply wrong. Whether his view turns out to be right or wrong, no one knows—but at least with bubble.com twenty-five years ago, he was not wrong.

Through Oaktree’s Insights (Insights), Howard has continually shared his views on the market with investors. It makes me think again about what it might mean that someone in his legendary position as a value investor is once more bringing up the subject of a ‘bubble.’ Of course, the fact that he mentions a bubble does not necessarily mean the market is one right now. But it may be worth keeping the possibility of an overheated market in mind and preparing for it.

I like value investors. Reading Howard Marks’s books, I find many parts fascinating. When he analyzes the market, he looks not only at the numerical factors but also considers psychological ones. He delves deeply into crowd psychology, investor emotion, and the psychological traps around the timing of buying and selling. In the end, I think whether one invests well or poorly also comes down to self-discipline and psychology. Seeing him explain these aspects in such depth, you can tell how deep his understanding of the market and of investors really is.

I recommend two of Howard Marks’s signature books. If you have the time, they are well worth reading. They will help you learn how to view the market, understand investor psychology, and develop a long-term investment philosophy.

• The Most Important Thing
• Mastering the Market Cycle

In the end, investing is a domain with no single correct answer. But if we do not forget history and are not swept along by psychology, we can make wiser choices. In that sense, Howard Marks’s memo offers plenty of food for thought when it comes to viewing the market.

1. The core elements that make up a bubble

Marks defines a bubble not as a “surge in prices” but as an “extreme of investor psychology.” In other words, he says the true bubble phase is when the perception that “this asset is so wonderful that no price is too high” spreads widely. The specific elements he mentions in the memo are as follows.

A new theme and the belief that “this time is different”

• ‘The New, New Thing’: Investors assign high valuations to cutting-edge technology (AI, the internet, etc.) or new financial products, claiming that “historical comparisons are meaningless.”
• “This time is different”: Believing that past valuation yardsticks no longer apply, they base investment decisions on future visions and hopeful metrics (e.g., page views, traffic) instead of conventional P/E or profitability.

Extreme optimism and fear (FOMO)

• When the FOMO (Fear of Missing Out) mentality of “I’ll lose out if I’m the only one left behind” spreads, the crowd piles in despite warning signs.
• Marks notes that during the past dot-com bubble, the fear that “if you don’t buy internet companies you’ll fall behind” was pervasive across the market.

Unproven valuation methods

• In the Nifty Fifty era (the fifty stocks most favored by U.S. investors from the late 1960s through the early 1970s), some companies traded at P/E ratios of 60–90x. In the dot-com era, companies were overvalued on the sole logic that “they have no earnings now, but they’ll do well in the future.”
• Marks holds that even as the “gap between price and value” widens, if investors ignore it and rush in to buy, it may already be the bubble stage.

The mindset that “price doesn’t matter”

• The thought that “this is such a great company that it’s fine no matter how expensive it is” makes investors forget the basic principle of investing (buy low, sell high).
• Marks emphasizes that “even a good company becomes risky if you buy it at too high a price, and even an ordinary company is attractive if you buy it cheaply enough.”

2. Past cases: recurring bubbles

In “On Bubble Watch,” Howard Marks says that “bubbles always recur whenever some ‘new thing’ appears,” and he cites the following as representative cases.

• Nifty Fifty (1960s–70s): There was a blind faith in the fifty greatest companies of the day—IBM, Coca-Cola, Xerox, and others—that “you should just buy them no matter how high the price.” Yet when the market plunged in 1973–74, there were even cases of losses approaching 90%. It left the lesson that “ignoring price is dangerous.”
• The dot-com (TMT) bubble (late 1990s to early 2000): As the conviction that the internet would change the world spread, “even companies with no earnings saw their share prices soar simply by going public.” Marks warned of it with “bubble.com,” and after the 2000–2002 crash many companies vanished.
• The subprime (housing) bubble (mid-2000s): On the belief that “U.S. home prices never fall,” lending regulations disappeared, and even loans with no income verification were issued indiscriminately. It ultimately led to the 2008 global financial crisis, and the market endured great pain.

3. Is the market today really a bubble?

The Magnificent Seven and concentration

Marks points out that recently, the top seven big-tech companies in the S&P 500 (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, Tesla) account for 32–33% of the index’s market capitalization. This exceeds the level seen during the past TMT bubble (22%), indicating that concentration in a handful of specific stocks has become severe.

Concentration in global market capitalization

He also notes that the total value of the U.S. stock market accounts for as much as 70% of the entire world (the MSCI World index). Marks observes that “the U.S. is indeed strong enough to lead the global economy, but a share this high has rarely occurred even in the past.”

“I can’t yet say for certain whether it’s a bubble”

• Marks draws a line, noting that since he is a credit (bond) investor, he does not directly analyze stocks or tech companies—yet he says “there are signs of psychological overheating.”
• At the same time, he also offers the counterpoint that “the large-cap tech stocks actually have solid earnings models and are not at the Nifty Fifty level, where P/Es reached 60–90x.”

The multiple chart and its implications

At the end of the memo, Marks cites a chart created by J.P. Morgan Asset Management showing the correlation between the S&P 500’s Forward P/E and the average annual return over the subsequent ten years. He emphasizes that this chart offers a glimpse of whether the market is in a state close to a bubble.

• The higher the Forward P/E, the lower the subsequent return. Looking at monthly data from 1988 to 2014, in the periods when the P/E was high, the S&P 500’s average annual return over the following ten years was for the most part low, or even negative. Conversely, periods when the P/E was low recorded solid returns over the next ten years.
• As of early 2025, the S&P 500’s Forward P/E is about 22x. Marks points out that “at a P/E level of 22x, statistically the average annual return ten years out has historically ranged from roughly +2% to -2%.” This can be read to mean that “high expectations are already priced into the market, and even minor bad news could trigger a large price correction.”
• The signal it sends to long-term investors: the fact that the average return over ten years could be low does not simply lead to the conclusion that “a short-term crash is coming,” but it may mean a state in which “share prices have run too far ahead relative to earnings growth.” In particular, it suggests that investors who use a lot of leverage could be hit hard if a sudden correction comes during an overvalued phase.

4. Conclusion: bubbles recur, but you can prepare

Twenty-five years ago, in his “bubble.com” memo, Howard Marks already warned of “investors’ blind faith and extreme crowd psychology,” and the dot-com bubble proved it in full. In this memo too, he says, “I can’t declare right now that it’s a bubble, but it’s hard to ignore the signs of a market hurtling toward an overheated phase.”

• Psychological perspective: when the optimism of “this time is different” becomes rampant and an atmosphere of “price doesn’t matter” takes hold, that is most likely the peak of the bubble.
• J.P. Morgan multiple chart: the Forward P/E rising to around 22x suggests that returns over the next ten years could fall well short of the historical average.
• Historical cycle: the Nifty Fifty, the dot-com era, subprime—bubbles differ only in form, but the basic mechanism has repeated.

Investors therefore need diversification, cool-headed valuation, and an attitude of skepticism when the “gap between price and value” widens. Every time a bubble forms, he warns that “the euphoria does not last long, but the aftermath lingers.” Even if it is hard to avoid bubbles perfectly, guarding against them and managing our own risk is clearly up to us.

Original: On Bubble Watch