The Inevitability of Cycles: Howard Marks' Lesson We Keep Ignoring

Thinking· 5 min read

The Inevitability of Cycles: Howard Marks' Lesson We Keep Ignoring

I recently reread an essay by Howard Marks titled "The Most Important Thing Illuminated". It's not a book about getting rich fast. It's about not losing what you have.

And that's exactly what most entrepreneurs and developers need to hear.

The Pattern That Always Returns

Marks has been investing for over 50 years. He's seen tech booms, real estate crises, cryptocurrency collapses. And in each one, he observed the same thing: people forget that cycles exist.

In good times, everyone believes this time is different. Valuations don't matter. Exponential growth is guaranteed. Risk disappeared.

In bad times, everyone believes it will never improve. Panic takes control. Prices fall to irrational levels.

Marks calls this "the pendulum". It swings between extreme optimism and extreme pessimism. And here's the key: the pendulum always swings back to the center.

It's not an opinion. It's an observation based on decades of data.

Why This Matters For Your Business (Not Just Investors)

You might think: "I'm not an investor. I build products."

Wrong.

Cycles affect everything. If you built a SaaS during the 2023 AI boom, you probably saw easy growth. Users arrived without effort. Funding was accessible. Everything seemed inevitable.

Now, in 2024-2025, the market is different. Users are more skeptical. Funding is harder. Competition is fierce.

Marks would say: this too is inevitable.

The question isn't "Will the boom return?" The question is "Am I prepared for the opposite cycle?"

The Difference Between Predicting and Preparing

This is where Marks is brilliant. He doesn't predict when the market will crash. Nobody can. But he prepares his portfolio for when it does.

In times of euphoria, Marks reduces risk. He sells inflated positions. He accumulates cash. His colleagues criticize him: "Why aren't you riding the boom?"

Then the crash comes. And Marks is in cash, waiting. While others panic-sell, he buys at prices others consider suicidal.

Years later, those "suicides" were the best returns of his career.

The lesson for you:

It's not about predicting whether your market will collapse. It's about preparing for when it does.

How?

  • **Maintain healthy margins**: If your SaaS only makes money in perfect growth scenarios, you're not prepared for the opposite cycle.
  • **Reduce dependencies**: If your business depends on a single user source or revenue stream, you're at risk.
  • **Accumulate runway**: When everything goes well, many entrepreneurs spend as if it will last forever. Marks would do the opposite: accumulate resources.
  • **Understand your real numbers**: Don't confuse vanity metrics with actual health. Non-paying users aren't business.

The Current Cycle: A Perspective

In Spain and Europe, we're at an interesting point in the cycle. The AI boom was real, but far more moderate than in the US. Many European companies built more sustainable products, without inflating too much.

This means that when the cycle inverts (and it will), many European startups will be better positioned than their US counterparts.

But only if they understood Marks: euphoria is temporary, prudence is permanent.

The Mindset Marks Teaches

Marks isn't pessimistic. But he's not naively optimistic either.

He's realistically cyclical.

He knows that:

1. Good times don't last: But that doesn't mean you don't enjoy them. It means you don't build your future assuming they will. 2. Bad times don't last either: When everything collapses, the temptation is to give up. But Marks knows this will pass too. 3. Time is your ally if you're prepared: Those who survive multiple cycles are the ones who accumulate compounding advantages.

Look at Buffett. Look at Marks. Look at any investor who's won for 30+ years.

They're not the ones who got every move right. They're the ones who survived every cycle.

Practical Application: Your Defense System

You don't need to be an investor to use Marks' framework. You can apply it to your business today:

Phase of Euphoria (where we are now in many sectors):

  • Document your growth assumptions
  • Ask yourself: "What if this inverts tomorrow?"
  • Reduce unnecessary costs
  • Build a runway of 12-18 months minimum

Phase of Panic (when it comes):

  • Don't make desperate changes
  • Remember that Marks would be buying, not selling
  • Use the time to improve your product, not burn money on marketing
  • Watch your competitors: some will collapse, others will disappear

Phase of Recovery:

  • Those who survived will be stronger
  • The market will reward prudence
  • Your accumulated runway will be your competitive advantage

The Real Learning

Marks doesn't teach how to make more money. He teaches how not to lose what you have.

And in a world of inevitable cycles, that's more valuable.

Those who understand this don't panic when the cycle inverts. They simply execute their plan. Because they had a plan.

Those who don't? They discover they have no plan when panic arrives.

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Takeaway

You can't predict when the next downward cycle will come. But you can prepare for it.

That's Howard Marks' lesson that most ignore.

The question is: Would your business survive an inverse cycle?

If the answer is "no", then you have work to do. Now. While there's still time.