Next recession: how to invest, what to buy and sell before his arrival

If you ask Howard Marks where he thinks the stock market will be in a year, the answer you will get will probably be unsatisfactory.

The billionaire co-founder of Oaktree Capital Management strongly opposes forecasting the future with any degree of certainty whether as part of its investment process. But one thing he is convinced is that investors should be more cautious than aggression, according to a recent interview published by the Swiss newspaper NZZ News.

Oaktree has taken a more cautious approach to investing for a few years now, said Marks.

"This means that we are essentially fully invested in most of our funds and accounts, but we are still using more caution than usual," said Marks.

He does not see euphoria in his own right when he reviews the rest of the investment landscape. For this to be in place, hordes of investors should buy back their belief that nothing can go wrong, he said.

What has been rather cautious is the increasing level of investor comfort with risk taking. In a private world of return, institutional investors such as pension funds have had to deepen their spectrum of risks to meet the expectations of their clients.

And no badet clbad is more troubling for brands than credit.

In a memo to customers last September, he defined debt as "absolute zero when things go wrong". He notably referred to the issue by Argentina of 100-year government bonds and the large number of BBB rated companies, as examples of yield hunting. desperate.

Read more: There is overwhelming evidence that the next recession will be different from all others in recent history. Here's why the experts worry that we are ill prepared to end it

For skeptics about Marks' concerns, consider that he's not a novice in the debt markets. At the heart of the 2008 crisis, Marks and his team did their due diligence and raised $ 10 billion in distressed debt. He bet – and reaped the benefits – contrary to the prevailing climate today.

Now that the credit market is coming to an end, Marks warns of the dangers ahead. For example, if inflation increased, the Fed would raise its interest rates and crush over-indebted companies.

It does not anticipate another crisis similar to that of 2008 nor advise investors to sell everything. But he wants investors to be very attentive to their risk taking despite the weaker returns from safer badets.

With this in mind, here is Marks' three-part response to how investors should adjust their portfolios:

1. Go to the cashier. He added, however, that it would be an extreme measure that could prove costly. After all, the biggest gains of the stock market are often harvested during the final phases of the bull market.
2. Move your badet allocation preferences for bonds versus equities, high quality versus low quality bonds, large versus small, and defensive vs. cyclical.
3. Move to safer and more defensive badets in what you already have.