Howard Marks on Tech Bubbles: Why History Always Rhymes | Talks at GS 2022

[Transcript]

KATIE KOCH: I want to pivot to talk about another cycle. And you had talked about history can be a guide. And you have a quote I've heard you repeat a lot which is that "history doesn't repeat, but it often rhymes," by Mark Twain. So, I want to talk about the tech bubble. In January 2000 you wrote a memo called Bubble.com. And actually, for everybody in this audience, I think it's a really powerful thing to go back and read at this moment in time because there are a lot of parallels to it. Technology can change the world and not generate a profit. Eventually, these companies need to make money. Valuation matters. All that good stuff.

You have said that that memo, when you wrote, got very wide receptance. And you've been doing it for 10 years. But you became an overnight success on that. Why's that?

HOWARD MARKS: Well, I never had any response in the prior 10 years.

KATIE KOCH: None?

HOWARD MARKS: Zero. Nobody even told me they got it. But of course, this was— no, I mean it. But this was the days before the internet. So, I mailed them out to a few hundred clients. And they weren't passed around virally like they became.

KATIE KOCH: And you've previously said—and when we get to those moments of euphoria, particularly in tech for example, there's something, people make a narrative, that there's something new happening here that history can't discount. So, how would you describe that for this one?

HOWARD MARKS: You have to have something new. Because if you only have old stuff: steel, paper, and chemicals, you know, the history is too well defined. And the limitations are too well understood. But if you have something new, that gives flight to the imagination. You know? And you can say, well, this is something that's going to make everybody rich.

And you alluded before to the fact that, so, what they said in '98 and '99 was the internet will change the world. And so, by definition, any web grocer is worth infinity. Well, guess what, the internet certainly changed the world. But most of those companies didn't survive because they didn't make money and they had bad business models and so forth.

And what that memo really pointed out more than anything else was how bad the business models were. And they sold on multiple of eyeballs. You know? Because there were no earnings. And in many cases, there were no revenues. But you know, so, you have 50,000 eyeballs a day it's worth such and such.

But anyway, you have to have something new. So, it could be a SPAC. Could be SAS. Could be, pardon the expression, bitcoin. You know? But there's no history to look at. So, it's easy to weave a narrative that — you know? And there are no historic valuations to limit you and so forth.

Source: https://www.youtube.com/watch?v=wkJXQ46ma8I&ab_channel=GoldmanSachs

 

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