For what warning flags should investors watch out now?
Howard Marks: There are two main things to watch: valuation and behavior. A great thing about investing is that you have historic valuation standards. You should be aware of them, but you shouldn’t be a slave to them. You can compare the current P/E ratio to historic standards and see that the current P/E ratio is about fair relative to history. So valuations are moderate to a little expensive in most areas. Looking at investor behavior, you can ask yourself: Is everybody at the club, on the train or in the office talking about stocks? Is everybody having fun and making easy money? Is everybody saying «even though the market has doubled, I’m going to put more money in»? Is every deal sold out? Is every fund sold out? In other words: Is the party rolling? And if that’s the case, then you should be very cautious. It’s like Warren Buffett says in one of my favorite quotes: «The less prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own affairs».
via AdvisorAnalyst Views – Howard Marks: “In The End, The Devil Always Wins”.