To The Moon

Market Master 101: My Take on Howard Marks’ Defensive Memo 📜

Howard Marks has always been a voice of reason during both euphoric rallies and painful downturns. His latest memo emphasizes caution, noting that while markets are elevated, we are not yet in the kind of irrational exuberance seen in past bubbles. What resonates with me is his call for “Level 5 defense,” which doesn’t mean hiding in cash, but rather trimming excessive risk and positioning portfolios in a way that cushions against volatility. As an investor, I find his words timely. With the Magnificent 7 and the S&P 500 priced at elevated multiples, it makes sense to focus not just on returns, but also on risk management.

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The Magnificent 7 and Lofty Valuations 💻📱

The Magnificent 7—Nvidia, Apple, Microsoft, Alphabet, Amazon, Tesla, and Meta—have powered much of the S&P 500’s gains. Their weight in the index is so heavy that the broader market often looks healthier than it really is. While their long-term prospects are undeniable, the valuations already reflect much of the growth story. Nvidia trades at levels where perfection is priced in, Apple has slowed revenue growth, and Tesla faces margin pressures. Howard Marks is not saying they’re doomed, but rather that the risk-to-reward ratio has shifted. For investors, blindly chasing them at these levels might be dangerous. I personally prefer a balanced approach where I don’t avoid them entirely, but I counterbalance them with income-generating and defensive plays.

$JPMorgan Equity Premium Income ETF(JEPI)$  

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My Defensive Core: JEPI for Stability 💵

One of my core holdings is JEPI (JPMorgan Equity Premium Income ETF). I see this as a strong defensive tool because it combines equity exposure with covered call premiums. This way, I still stay invested in the market but collect regular cash flow that cushions downturns. JEPI is not a get-rich-quick vehicle, but it provides stability and a smoother ride during volatility. This is exactly in line with Howard Marks’ principle: stay in the game but avoid being overly aggressive when the field is stacked against you.

$KraneShares CSI China Internet ETF(KWEB)$  

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Selling Calls: Harvesting Premiums 🎯

Another layer of defense I add is selling calls on positions I already hold. Covered calls are an elegant way to turn sideways or slightly bullish markets into an income machine. Instead of simply holding and hoping, I actively collect premiums. While the upside might be capped if the stock rallies strongly, I don’t mind because I value consistency and risk reduction over chasing the last dollar. This strategy allows me to align with Howard Marks’ philosophy: accept modest returns with reduced risk rather than gamble on speculative upside.

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Diversifying with KWEB and SPYG 🌏📈

To avoid putting all my eggs in the U.S. growth basket, I hold positions in KWEB (China Internet ETF) and SPYG (S&P 500 Growth ETF). KWEB gives me exposure to Chinese tech, which is currently beaten down but holds long-term recovery potential. SPYG keeps me invested in U.S. growth stocks without relying solely on the Magnificent 7. By diversifying across geographies and styles, I lower the impact of a correction in one market. This echoes Marks’ advice to reduce aggressiveness without fully retreating—still participating, but in a controlled way.

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QYLD and Option Income 📊💡

Another pillar of my defensive strategy is QYLD (Global X Nasdaq 100 Covered Call ETF). This ETF sells covered calls on the Nasdaq 100, providing steady income regardless of short-term market direction. While it sacrifices some upside, it fits my defensive posture perfectly. In elevated markets, upside may already be limited, but the downside risks are real. Collecting option premiums from QYLD allows me to profit even in flat or choppy environments, which is exactly the kind of positioning Howard Marks is advocating—defense with dignity.

$Global X Nasdaq 100 Covered Call ETF(QYLD)$  

Why Defense Matters at High Market Levels 🛡️

When valuations are stretched, downside risk grows exponentially. A 10% correction at these levels can wipe out months or even years of patient gains. By adopting a defensive stance, I protect myself from being forced into emotional decisions during downturns. Marks is right that we’re not yet in bubble territory, but complacency is a danger. If everyone believes the Magnificent 7 will rise forever, that’s when risk sneaks in. Holding defensive assets like JEPI, QYLD, and diversification through KWEB and SPYG provides me the breathing space to endure corrections without panic.

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My Portfolio Allocation Today 📂📊

Right now, my portfolio looks like this: a defensive core in JEPI and QYLD, income from selling calls, growth exposure in SPYG, and contrarian bets in KWEB. This blend allows me to stay invested but not overly exposed. I’m neither hiding in cash nor chasing speculative momentum. Instead, I’m creating a steady stream of cash flow while keeping exposure to long-term growth themes. This is exactly the balance Howard Marks describes—avoiding both extreme defensiveness and reckless aggression.

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Final Thoughts: Playing the Long Game 🎲✨

Howard Marks’ memo is a timely reminder that investing is not about winning every rally—it’s about surviving every cycle. My approach of combining JEPI, QYLD, covered calls, and diversification reflects that same philosophy. I don’t know where the Magnificent 7 or the S&P 500 will be in six months, but I do know that my portfolio is structured to absorb shocks, generate income, and keep me invested for the long run. In today’s environment, I believe defense is not weakness—it’s wisdom

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