Monday, December 29, 2025
Legendary contrarian investor Howard Marks has led Oaktree Capital Management since he founded it in 1995. After fees, his clients have gained an annual return of 19% a year.
A high yield corporate bond specialist, Marks prioritizes avoiding losses more than chasing gains. And when he talks, it pays to listen.
Lately, he says stock market investors are facing a “lost decade.” That’s when the market goes nowhere in inflation-adjusted terms, leaving investors with no gains or even losses after heavy volatility.
It’s happened before. From roughly 1966 to 1982, U.S. stocks were flat. Prices moved up and down, but after accounting for inflation, investors were left with no gains.
It happened in the period of 2000-2010 too. The dot-com crash, the 2001 recession, the housing boom, and the housing bust ended the decade right where markets started.
According to Marks’ research, when the average forward price-to-earnings ratio of the S&P 500 is above 23, the next 10 years’ annualized return ranged from -2% to 2%. Today, the forward P/E ratio is 25, having crossed 23 in June.
Granted, 10 years is a long way out. We don’t know what we’ll eat tonight, much less what we’ll be doing in a decade.
But another analyst, Lucas Downey, looked back over the past 25 years to find weekly instances when stocks traded above a forward P/E of 23. In addition to stocks putting in a lost decade after this set up, they were hit in the short term too, being down more than half the time in from one to six months out.
And yet, even with all this unfavorable data, nobody seems worried. Markets continue the upward climb.