Howard Marks’ INVESTCON: When to Attack, When to Defend in Any Market

When Others Are Fearful, Attack; When Others Are Euphoric, Defend

Howard Marks, one of the most respected investors of our time, reminds us that the market is never purely black or white—it’s always grey. In his latest memo, he challenges the binary thinking of “Buy or Sell? Hold or Dump?” Instead, he emphasizes balancing your portfolio between offense and defense, depending on market sentiment.

“When others are fearful → attack. When others are euphoric → defend.”

This simple yet powerful principle lies at the core of contrarian investing. But how do you translate it into actionable steps? Marks introduces a framework that mirrors the military’s DEFCON system, which measures defense readiness from 5 (normal readiness) to 1 (nuclear attack imminent). In the investing world, he proposes INVESTCONs to guide us during periods of high valuations and widespread optimism:

INVESTCON 6: Stop Buying
INVESTCON 5: Reduce aggressive holdings and increase defensive holdings
INVESTCON 4: Sell off the remaining aggressive holdings
INVESTCON 3: Trim defensive holdings as well
INVESTCON 2: Sell all your holdings
INVESTCON 1: Short the market

This framework helps investors gauge the level of caution or aggression needed based on current market conditions. It’s a structured approach to navigating the grey areas, where the world isn’t “risk on” or “risk off,” but somewhere in between.

For a deeper dive into Howard Marks’ insights, you can read his memo and watch his discussion here:

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