To The Moon

In his recent memo to Oaktree’s clients, Howard Marks outlined his views on the current high levels of the market. He believes the market has not yet entered a phase of irrational exuberance, but still advises clients to adopt a Level 5 defense—reducing aggressive positions and increasing defensive holdings.

When I first read that line, I stopped and let it sink in. Howard isn’t calling for a crash. He isn’t saying the Magnificent 7 are worthless. He’s simply saying: slow down, respect the altitude. And honestly, that’s how I’ve been feeling lately.

The Magnificent 7 and the S&P 500: Stretched but Not Broken

Let’s start with the obvious question: are the Magnificent 7 and the S&P 500 overpriced?

On one hand, the Magnificent 7 have been unstoppable. Nvidia generates enormous profits from AI, Microsoft keeps layering on growth engines, and Apple manages to look indestructible. These companies deserve premium valuations. But when the S&P 500’s performance becomes so concentrated in just seven names, I can’t help but wonder: what happens if the tide turns?

Apple (AAPL)

Microsoft (MSFT)

NVIDIA (NVDA)

Valuations today are not as insane as the dot-com bubble, but they’re undeniably elevated. The “multiple expansion” we’ve seen is already baking in years of strong earnings growth. If those expectations stumble, stocks with sky-high valuations could be vulnerable, and the adjustment might not be gentle.

That’s the risk Howard is pointing at. Not a bubble. Not madness. Just the reality that the higher you climb, the thinner the oxygen.

My Portfolio

Now, let me bring this back to my own portfolio.

I currently hold TLT, TLH, OXY, WEN, and RC. My biggest position by far is TLT (long-term Treasuries). Some friends tease me about it. “Why tie up money in bonds when the S&P keeps hitting new highs?” But here’s the thing: TLT, for me, is less about chasing returns and more about building ballast. In the chaos of markets, it’s my parachute.

iShares 20+ Year Treasury Bond ETF (TLT)

When I started building up TLT in the past, it was often painful. Yields kept climbing, prices kept falling. It felt like catching a falling knife. But I kept thinking: eventually, the cycle turns. Rates can’t climb forever. If something cracks in the economy, Treasuries will catch a bid again. Today, in 2025, that still feels like the right call—not because I expect a collapse tomorrow, but because the possibility of turbulence feels higher than average.

I pair TLT with TLH (intermediate Treasuries), which gives me some balance across the curve. Together, these positions give me peace of mind.

iShares 10-20 Year Treasury Bond ETF (TLH)

On the equity side, I’ve kept things selective. OXY (Occidental Petroleum) is my nod to energy. WEN (Wendy’s) might seem like a quirky pick, but I like the stability of a consumer brand that sells affordable indulgence. People cut back on luxury cars before they cut back on burgers and fries. And RC (Ready Capital) adds some income through real estate credit exposure, though I admit it’s one of the riskier pieces of the puzzle. I also hold SOXS, a leveraged semiconductor bear ETF, as a hedge against any sudden weakness in tech. Together, these positions reflect a balance between stability, income, and a little protection against potential market swings.

Direxion Daily Semiconductors Bear 3x Shares (SOXS)

Ready Capital Corp (RC)

Wendy's (WEN)

Occidental (OXY)

I’m not chasing the Magnificent 7 rocket ship. Instead, I’m building something sturdier like a ship with enough lifeboats to handle rough seas.

Should We Hold Defensive Assets Now?

This is the heart of the matter. With the market at elevated levels, I’ve been thinking a lot about how I want to position my own portfolio. For me, that has meant leaning on defensive assets but not going all-in.

S&P 500 (.SPX)

The market right now feels like a high-wire act. Many of the major indexes and popular tech names are trading at elevated levels, and the overall sentiment feels cautiously optimistic. One unexpected shift—whether in earnings or geopolitics—could change the scenery quickly. That doesn’t mean I’m stepping off the wire entirely—it just means I’m holding on more carefully and leaning into positions that give me a sense of stability.

In practice, that’s why TLT is my largest holding. TLH adds a bit more balance across the curve. These positions aren’t exciting, but they give me a sense of security. I also hold SOXS, a leveraged semiconductor bear ETF, as a hedge against any sudden weakness in tech. At the same time, I keep OXY, WEN, and RC because I still want exposure to areas where I see potential upside. For me, it’s less about predicting the next move in the market and more about building a mix that feels manageable and measured.

I’ve learned that extremes make me uneasy. Being 100% defensive would leave me feeling like I’m missing out, while being fully aggressive would leave me nervous if valuations falter. So my approach is somewhere in between: invested, but with defenses that help me sleep at night.

The Personal Lesson

If there’s one thing I’ve learned from the last few years—watching inflation spike, tech rebound stronger than anyone expected etc., it’s this: nobody knows. Not me. Not Howard Marks. Not even the CEOs of the Magnificent 7.

That’s why I like Howard’s concept of a “Level 5 defense.” It’s not about predicting the future. It’s about preparing for a range of outcomes. It’s like driving on a foggy highway—you don’t slam the brakes, but you do ease off the gas.

In 2025, that’s where I stand: cautious and comfortable with a portfolio that won’t win every sprint but is built to last through the marathon.

Closing Thought

The market may not be in bubble territory, but it is undeniably rich. The Magnificent 7 and the S&P 500 might climb higher still, but the risks are rising alongside the returns. For me, holding TLT as my largest position, along with a mix of income plays and selective equities, is my way of respecting that reality.

So, when Howard Marks says we should adopt a Level 5 defense, I don’t hear pessimism. I hear wisdom. It’s not about running for the exits—it’s about making sure you’re not caught off guard when the music changes. And in markets, it always does.