With the market back at the pre-pandemic levels, Marks concludes that "everything appears to be fairly priced relative to everything else, but nothing is cheap thanks to the low base interest rate."
In this low-return world, Marks enumerates the following strategies available to investors (underlined by me):
Invest as you always have and expect your historic returns. Actually, this one’s a red herring. The things you used to own are now priced to provide much lower returns.
Invest as you always have and settle for today’s low returns. This one’s realistic, although not that exciting a prospect.
Reduce risk in deference to the high level of uncertainty and accept even-lower returns. That makes sense, but then your returns will be lower still.
Go to cash at a near-zero return and wait for a better environment. I’d argue against this one. Going to cash is extreme and certainly not called for now. And you’d have a return of roughly zero while you wait for the correction. Most institutions can’t do that.
Increase risk in pursuit of higher returns. This one is “supposed” to work, but it’s no sure thing, especially when so many investors are trying the same thing. The high level of uncertainty tells me this isn’t the time for aggressiveness, since the low absolute prospective returns don’t appear likely to compensate.
Put more into special niches and special investment managers. In other words, move into alternative, private and “alpha” markets where there might be more potential for bargains. But doing so introduces illiquidity and manager risk. It’s certainly not a free lunch.
It is time to reduce risk and be more bias towards defensive investments with lower expected returns. Move more into special situations investments which are independent of the overall market.
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