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Published: April 7, 2020 at 11:37 p.m. ET, By Mark DeCambre<\/p>\n
There has been an near-endless debate on Wall Street about when and if stocks will retest that late-March nadir amid the unknowable that is the duration and overall economic impact from the pandemic.<\/p>\n
However, at least one thing is known, as far as Marks is concerned. In a recent memo<\/a>, titled \u201cCalibrating,\u201d he said that the chances are high that the Dow Jones Industrial Average which fell as low as 18,974.10 about two weeks ago, the S&P 500 index which sank to 2,281.64, and the Nasdaq Composite Index which touched a low of 6,897.84, will slip below those recent nadirs.<\/p>\n Read: Investors should prepare for a coronavirus-induced \u2018vicious spiral\u2019 more than twice as bad as the financial crisis, says J.P. Morgan<\/a><\/p>\n Citing monthly research from Gavekal for April, the billionaire investor and co-chairman of Oaktree Capital Management said that history going back to the 1950s suggests that a retest is almost certain:<\/p>\n That said, Marks \u2014 reiterating some of the calls from his past memos in March \u2014 said investors need to focus on purchasing assets that they deem to be intrinsically valuable at prices they think translate to discounts based on some metric.<\/p>\n \n\u2018So it\u2019s my view that waiting for the bottom is folly. What, then, should be the investor\u2019s criteria? The answer\u2019s simple: if something\u2019s cheap \u2014 based on the relationship between price and intrinsic value \u2014 you should buy, and if it cheapens further, you should buy more.\u2019 \u2014 Howard Marks\n<\/p><\/blockquote>\n To be sure, it has become decidedly harder for many bulls to suss out value opportunities now, amid markets that have whipsawed over the past several weeks.<\/p>\n The price-to-earnings ratio in the coming year, a popular measure of value, for the S&P 500 was around 16.50, with the five-year average at 16.7<\/a>, based on FactSet data. And the Shiller PE ratio<\/a>, popularized by Yale finance professor Robert Shiller, was at 25.10. That represents the lowest level since 2016, but still loftier than the 16.19 mean average.<\/p>\n However, Marks\u2019 point may be less about valuations and more about conviction.<\/p>\n \u201cIt\u2019s not easy to buy when the news is terrible, prices are collapsing and it\u2019s impossible to have an idea where the bottom lies,\u201d he wrote. \u201cBut doing so should be the investor\u2019s greatest aspiration.\u201d<\/p>\n
\n\u2026MARKETS RARELY CLEAR AFTER ONE MASSIVE DECLINE. IN 15 BEAR MARKETS SINCE 1950, ONLY ONE DID NOT SEE THE INITIAL MAJOR LOW TESTED WITHIN THREE MONTHS\u2026IN ALL OTHER CASES, THE BOTTOM HAS BEEN TESTED ONCE OR TWICE. SINCE NEWS-FLOW IN THIS CRISIS WILL LIKELY WORSEN BEFORE IT IMPROVES, A REPEAT SEEMS LIKELY.
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