EMBRACE UNCERTAINTY, SAYS MARKS

Howard Marks urges investors to embrace uncertainty, long-term thinking, and focus on controllables, shunning in his memo “The Folly of Certainty”

Howard Marks, the renowned investor and co-founder of Oaktree Capital Management, recently penned a memo titled ‘The Folly of Certainty.’ In this piece, Marks underscores the perilous nature of certainty in areas influenced by human behaviour, randomness, and complexity – particularly in the domains of politics, economics, and investing.

KEY THEMES FROM THE MEMO

The Illusion Of Control

Investing is often accompanied by a psychological need for control. Investors strive to identify patterns, develop trading strategies, and select stocks or funds that they believe will outperform the market. This desire for control is understandable but can be counterproductive.

The illusion of control stems from the human tendency to seek order and predictability in a chaotic world. Investors may convince themselves that they possess the knowledge and skills to consistently make profitable investment decisions.

They may rely on technical analysis, fundamental analysis, or other methods to gain an edge over the market. However, these approaches often overlook the inherent randomness and complexity of financial markets.

He writes, “As I indicated in my memo ‘The Illusion of Knowledge’ (September ‘22), there’s no way a macro-forecaster can produce a forecast that correctly incorporates all the many variables that we know will affect the future as well as the random influences about which little or nothing can be known. It’s for this reason, as I’ve written in the past, that investors and others who are subject to the vagaries of the macro-future should avoid using terms such as “will,” “won’t,” “has to,” “can’t,” “always,” and “never.”“

Market movements are influenced by a multitude of factors, many of which are beyond an individual investor’s control. Economic indicators, geopolitical events, and investor sentiment can all have a significant impact on stock prices.