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.
This story is from the {{IssueName}} edition of {{MagazineName}}.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the {{IssueName}} edition of {{MagazineName}}.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber? Sign In
PRUDENT PRACTICES
Banks worldwide navigate a complex balancing act, steering economies toward growth while safeguarding financial stability through thoughtful management of interest rates and credit risks
RETAIN ROULETTE
Inexperienced investors spin the market wheel, chasing dizzying valuations and risking a bubble burst
UNRAVELED THREADS
Bangladesh's crisis disrupts global textiles, offering India a potential opportunity, but production constraints limit its gains
PASSING THE BATON
Succession planning helps ensure uninterrupted leadership
RISKY BUSINESS?
SEBI's efforts to protect retail investors from derivatives market risks could inadvertently dampen market volumes
INFLATION-PROOF YOUR CHILD'S FUTURE
Inflation might be stealing your child's future, but children's mutual funds can be their superhero
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”
IMPORTANT JARGON
70% OF INDIVIDUAL INTRADAY TRADERS IN THE EQUITY CASH SEGMENT MAKE LOSSES, FINDS SEBI STUDY
AN ASCENT T'O NEW HEIGHTS
The IMF predicts India's economy to reach 55 trillion by 2047, driven by various economic indicators showing positive growth and government initiatives
CARRY TRADE CRASH: GLOBAL MARKETS REEL
Japan’s Policy Shift Sends Shockwaves Through Global Markets, Including India, as Yen Carry Trade Disintegrates
