In Howard Marks‘ view, investors today are doing one thing wrong: assuming the market won’t or can’t change.

The billionaire co-chairman of Oaktree Capital said he believes the US stock market is in the early stages of a bubble. That means investors today could be falsely assuming their strategy in recent years — which involves being heavily invested in equities and concentrated in just a few areas of the market — will continue to work going forward, he said, speaking to Bloomberg on Wednesday.

“The single biggest mistake — I’ve been thinking a lot, what is the biggest single mistake investors make — and I’ve concluded that it is that they conclude that the way things are today is the way it’ll always be, and the things that have been happening will continue to happen. Whereas reversion to the mean is much more likely,” Marks said.

While Marks said he didn’t believe a correction or bubble burst will happen soon, he identified a handful of things that he finds worrying about today’s market.

1. There hasn’t been a serious market correction in about 16 years. Stocks entered a bear market in 2022 and have also weathered tough periods surrounding events like President Donald Trump’s tariffs announcement and the COVID-19 pandemic. That doesn’t compare, though, to the sell-off sparked by the Great Financial Crisis, when the market plunged more than 50% and took years to fully recover.

2. Valuations are high. Marks said he wasn’t concerned about the Magnificent Seven stocks. That’s partly because earnings among most of those firms are still strong, which could mean they’re fairly valued.

   The problem lies in the other 493 stocks in the S&P 500, he said, which are also highly valued despite not producing the same results.

   “It’s the fact that high valuations are being applied to more average companies, that I think is more alarming than exceptional valuations being applied to exceptional companies,” he said.

3. Investors are extremely bullish. The last time the investing environment has looked this optimistic was around 1997, Marks estimated, in the years leading up to the dot-com bubble.

   “People go from neutrality to liking stocks, to liking them a lot, to liking them a ton, to liking them too much. And that’s the continuation that creates bubbles, and we’re probably in the early days of that,” he said.

Marks said he believed it was the right time for investors to become defensive in their positioning. His own firm has been snapping up more credit, he said, an asset class he called inherently more defensive than equities.

“I’m not raising an alarm bell, but I do think it’s time for some caution,” he added.

With stocks hovering near all-time highs, more forecasters on Wall Street have been eyeing the risk that the market could be mired in a bubble.

In a recent note, Bank of America strategists said they believed the high price-to-book ratio of the S&P 500 could be indicative of a market bubble.

According to other valuation metrics, stocks now look more expensive than they were at their peak in the early 2000s, John Hussman, the famed bear who called the 2000 and 2008 crashes, wrote in a recent note.