The Silence Before the Storm: Legendary Investors and Market Signals

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For decades, investors have sought clarity in a noisy financial world. While no single indicator can perfectly predict a market peak, the actions and commentary of seasoned, valuation-conscious investors—those who have successfully navigated multiple cycles—often provide signals worth heeding. When these figures, typically advocates of long-term optimism, begin to show caution through their capital allocation or public statements, it suggests the risk-reward balance has shifted in ways that demand attention.

These moves are not made in isolation. They are widely observed, intensely scrutinized, and often serve as consensus-breaking messages to the broader investment community.

Lessons from 2008: Decisive Capital Allocation

By the mid-2000s, rising markets and cheap credit fueled extreme leverage across the U.S. financial system. Amidst this euphoria, two investors made historic decisions that defied prevailing optimism.

• The Real Estate Exit

One of the more clear-cut signals was the divestiture executed by Sam Zell in the commercial real estate sector. Zell, known for his contrarian approach to acquiring distressed assets, recognized the unsustainable valuations being offered for stable property. In February 2007, Zell sold his company, Equity Office Properties Trust (EOP), to Blackstone Group for approximately $39 billion (including debt). Zell later commented that the price offered was simply too high to reasonably refuse. This massive transaction was immediately recognized by the financial press as the capstone of a hyper-leveraged real estate cycle, marking a perfect point of exit for a disciplined investor.

• The Contrarian Bet

Simultaneously, hedge fund manager John Paulson was making a monumental capital allocation decision. Recognizing the fatal flaws beneath the housing market—specifically the low-quality subprime mortgage-backed securities (MBS)—Paulson chose to place a historic bet against the system. Beginning in 2006, Paulson purchased billions in Credit Default Swaps (CDS), essentially insurance contracts that would pay out if the subprime mortgages defaulted. This aggressive, valuation-driven position was a complete rejection of the market's consensus. When the crisis unfolded, Paulson’s firm saw returns measured in the billions, cementing his action as a legendary example of profound insight just before a major systemic collapse.

These two high-profile capital moves—one a record-setting sale, the other an unprecedented short—demonstrate how leading investors in different asset classes acted decisively just prior to a major market inflection point.

Today’s Signals: Cash Hoards and Cautionary Warnings

The decade and a half following the GFC was characterized by unprecedented central bank intervention and a sustained period of near-zero interest rates. This monetary environment fueled an expansion of asset values across the economy. This period of cheap money postponed the necessary cleansing of the system, allowing large amounts of low-quality debt to proliferate, particularly in private markets.

This is why we observe these titans now: While the 2007 signals concerned leverage and fraudulent assets, today’s signals address the consequences of prolonged cheap money: stretched valuations and a new kind of opaque debt. With interest rates finally normalizing after years of an easing cycle, the cost of capital is surging. This change in the monetary regime serves as a catalyst, exposing the debt excesses and faulty business models that thrive in a zero-rate world, echoing the caution of Zell and Paulson as financial pressure builds.

The primary difference today is the immediacy of the signal. Unlike the GFC era, where the market had to wait for portfolio sales or regulatory filings to grasp the full extent of a legend's conviction, the digital age transmits their warnings instantaneously.

• The Discipline of Dry Powder

The foundation of current concern stems from the actions of Warren Buffett and Berkshire Hathaway. His philosophy holds that owning productive assets is always superior to holding non-yielding cash, as he famously stated: "Cash is always a bad investment." He often adds, "Cash is like oxygen; you need it, but not too much. I'm unhappy when we have too much cash." His choice to hold a record cash pile is, therefore, a clear non-verbal signal of market discomfort.

As noted in our late 2024 blog post, The Buffett Indicator, the cash buildup was already a significant concern, offering the following context: Buffett's Berkshire Hathaway has been accumulating a significant amount of cash, especially recently. This cash hoard has reached $325 billion, or nearly 30% of total assets (a new high) and is seen by some as an early warning signal for the market... The current level of cash is comparable to these previous peaks, suggesting that Buffett might not be able to find quality investments for inclusion in his portfolio.

• The "Cockroaches" of Credit

In October 2025, Jamie Dimon, CEO of JPMorgan Chase, issued a pointed public warning following the bankruptcies of a couple of firms involved in subprime lending. His quote was immediately amplified across all major financial news channels, focusing attention on weaknesses within the credit ecosystem: "When you see one cockroach, there are probably more. Everyone should be forewarned on this one." Dimon's concern centers on the opaque, less-regulated private credit market (or "shadow banking"). He warned that isolated failures (the "cockroaches") are symptomatic of poor underwriting and hidden risk that could multiply and threaten the broader financial system as higher interest rates reveal the extent of the bad debt.

• The Strategic Exit and Cautionary Memos

Howard Marks, co-founder of Oaktree Capital Management, finalized the sale of the remaining interest in his firm to Brookfield in a deal announced in October 2025. While the sale was strategically planned, Marks’s market commentary—often disseminated globally through his famous memos—at the time reinforced extreme caution. Marks noted that asset valuations had moved from merely "elevated" to "worrisome," and his firm’s portfolio actions showed Oaktree was taking protective measures consistent with a belief that the market was overly optimistic. His public warnings carry significant weight given his reputation for dissecting market cycles.

• "Taking Out the Garbage"

The warnings culminated with the commentary from bond investor Jeff Gundlach, CEO of DoubleLine Capital, whose vivid phrasing was instantly quotable and widespread. Gundlach warned that the debt accumulated from poor lending practices over the past decade—particularly in private credit—was now reaching maturity and would inevitably result in defaults. This is what he referred to as the system needing to: "Take out the garbage."[i]

His message aligns with Dimon's: a reckoning is coming, driven by the clearing out of debt that was sustained only by a decade of near-zero interest rates.

These voices, across asset classes, converge on a message of caution.

Highland’s Perspective: Discipline Over Emotion

Signals from legendary investors do not guarantee immediate change, but they remind us that risk is often highest when it feels lowest. At Highland, we view these warnings not as predictions, but as reinforcement of our core philosophy: discipline, alignment, and risk awareness matter most.

Client portfolios are constructed around each client’s specific risk tolerance and long-term objectives. When exposures are aligned with agreed-upon volatility, even sharp declines remain within the boundaries of the plan. Our strategies are designed to navigate periods of stress while keeping outcomes consistent with long-term goals.

History shows that success comes not from reacting to headlines, but from staying invested according to a disciplined plan. That is the foundation of our work as fiduciaries—advocating for clients, stewarding their investments thoughtfully, and ensuring decisions remain aligned with their objectives.

We remain focused on that discipline and stand ready to discuss how today’s environment may affect your strategy.

[i] Jeff Gundlach, CEO of DoubleLine Capital, The Big Picture Webcast, March 2024 (with follow-up commentary throughout late 2024 and 2025 regarding private credit).

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Highland Consulting Associates, Inc. is a registered investment adviser. Information presented is for educational purposes only and is not intended to make an offer of solicitation for the sale or purchase of specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.