Howard Marks Memo on Expert Opinion

Src: https://www.oaktreecapital.com/docs/default-source/memos/expert-opinion.pdf

Some points from the memo

Thus two key observations can be made based on last week’s developments:

First, no one really knows what events are going to transpire.

And second, no one knows what the market’s reaction to those events will be.

There are no facts about the future, just opinions. Anyone who asserts with conviction what he thinks will happen in the macro future is overstating his foresight, whether out of ignorance, hubris or dishonesty.

Developments in economies, interest rates, currencies and markets aren’t the result of scientific processes. The involvement in them of people – with their emotions, foibles and biases – renders them highly unpredictable.As physicist Richard Feynman put it, “Imagine how much harder physics would be if electrons had feelings!”

It’s one thing to have opinions on these subjects, but something very different to be confident they’re right (and act on them).

Taking bold action based on forecasts of things that are uncertain isn’t just misguided; it’s dangerous. As Mark Twain said, “It ain’t what you don’t know that gets you into trouble.It’s what you know for certain that just ain’t true.”

Everyone at Oaktree has opinions on the macro. And when we see extremes in markets and, especially, capital market behavior, we’re apt to take strong action. But we’re highly aware of what we don’t know, and when conditions are moderate or indistinct, we don’t bet heavily.

First, I had dinner with Warren Buffett about a year ago, and he pointed out that for a piece of information to be worth pursuing, it should be important, and it should be knowable.  These days, investors are clamoring more than ever for insights regarding the macro future, because it’s important: it moves markets.  But there’s a hitch: Warren and I both consider these things largely unknowable.  He rarely bases his investment actions on them, and neither does Oaktree.

Second, I want to include a final paragraph from the Observer article about the media that I mentioned earlier.  I think it’s golden:

“If you wish to improve,” Epictetus [first-century Greek philosopher] once said, “be content to appear clueless or stupid in extraneous matters.”  One of the most powerful things we can do as a human being in our hyperconnected, 24/7 media world is say: “I don’t know.”  Or more provocatively, “I don’t care.”  Not about everything, of course – just most things.  Because most things don’t matter, and most news stories aren’t worth tracking.  (Emphasis added)