Something of Value

Episode Summary

Executive Summary: Howard Marks argues that the old value-vs-growth split is now too simplistic. Drawing on decades in markets and conversations with his investor son Andrew, he concludes that investing should focus on intrinsic value, qualitative judgment, and future potential—not just low multiples. In today’s tech-driven, information-rich market, some expensive growth companies can be fair value, while cheap stocks can be traps.

Main Topics: Pandemic, family, and perspective shift (Priority: 4/5): Marks opens by describing the personal context of the memo: living with his son Andrew and family during COVID-19, which led to extended conversations that reshaped his thinking about value and growth investing. What value investing really is (Priority: 5/5): He defines value investing as estimating intrinsic worth via discounted future cash flows and buying only when market price is meaningfully below that worth, emphasizing business ownership, not just securities pricing. Value vs. growth as a false dichotomy (Priority: 5/5): Marks argues the investing world has treated value and growth as opposing camps, but successful investors like Graham and Buffett actually used multiple approaches; the distinction has become more of a label than a useful framework. Why classic value metrics are less reliable today (Priority: 5/5): He explains that low P/E, P/S, or low book-value multiples no longer guarantee bargains because modern markets are highly competitive, information is widely available, and cheap-looking stocks can be value traps. The rise of dominant growth companies (Priority: 5/5): Marks argues that today’s leading tech firms have extraordinary scalability, capital efficiency, network effects, and optionality, making some high valuations potentially justified over long horizons. How to think about winners and compounding (Priority: 5/5): He challenges the habit of selling great companies too early, arguing that rare long-term compounders should often be held as long as the thesis remains intact rather than sold on arbitrary price targets. Open-minded skepticism for modern investors (Priority: 4/5): Marks concludes that investors should keep skepticism but pair it with curiosity and deep understanding, especially toward innovation like technology and crypto, rather than dismissing unfamiliar trends reflexively.

Key Arguments: Value investing is fundamentally about intrinsic value and buying at a discount, not simply buying low-multiple stocks. The traditional value-growth divide is artificial; both are just different ways of thinking about future cash flows and risk. Low valuation metrics can signal value traps when future earnings are not sustainable. In the modern market, readily available quantitative data is quickly priced in, reducing the edge of formulaic value screens. Technology companies can deserve high valuations because software-based businesses often have low marginal costs, rapid scaling, and large optionality. Older value frameworks worked better when information was scarce, competition was lower, and inefficient markets allowed hidden bargains to persist. Great companies may be impossible to value precisely, but that does not make them uninvestable; it means investors must use judgment and ranges, not rigid point estimates. Selling exceptional compounders too early can be more damaging than holding them through volatility if the long-term thesis remains strong. Skepticism protects investors, but in a fast-changing world it must be paired with curiosity and willingness to learn. Market regimes change; future outperformance may come from both former value and growth names depending on valuation, rates, and fundamentals.

Data Points: Value vs. growth outperformance period: 13 years - Marks notes that growth stocks have outperformed value for the past 13 years. Pandemic cohabitation: 10 weeks - Andrew, his wife, and son lived with Howard and Nancy for about 10 weeks during the start of COVID-19. Howard Marks career start: 1969 - He says he started his investment career during the Nifty Fifty bubble. Nifty 50 period of decline: 1972-1974 - The Nifty 50 stocks crashed after their run-up in the early 1970s. Investment industry size today: tens of thousands of funds managing trillions of dollars - Marks contrasts today’s crowded market with the much smaller industry of the 1960s and 1970s. S&P 500 value index construction: one-third of S&P 500 market cap - He explains that the value index selects roughly the third of the S&P 500 with the most value-like characteristics and least growth-like characteristics. Historical internet users in 1998: 150 million globally - Used to contrast the early internet era with today’s much larger digital economy. Low sales multiples in growth mania: 30 to 40 times sales - Marks cites extreme valuations for some software businesses during the recent growth-stock boom. User base comparison: more than 150 million internet users in Indonesia alone today - Illustrates how much the internet has expanded since 1998. Family investment stake: meaningful amount of Bitcoin - Marks notes Andrew owns a meaningful amount of crypto for the family, despite Howard’s skepticism.

Pivotal Quotes: "Value investing doesn’t have to be about low valuation metrics. Value can be found in many forms." — Howard Marks: Core thesis of the memo: value should be defined by intrinsic worth, not just cheap multiples. "The search for value in low-priced securities that are worth much more should be just one of many important tools in a toolbox, not a hammer constantly in search of a nail." — Howard Marks: Marks warns against rigid adherence to classic value screens and urges broader judgment. "If you find a company with the proverbial license to print money, don’t start selling its shares simply because they’ve shown some appreciation." — Howard Marks: His conclusion on holding great compounders and avoiding premature profit-taking.

Implications: Investors should stop treating value and growth as mutually exclusive. The better approach is rigorous business analysis, openness to innovation, and patience with rare compounders—while avoiding mechanical valuation rules that can miss modern market realities.