Howard Marks released his latest memo this week about focusing on what’s knowable and doing your best to ignore what’s not. Put simpler, stick with the things you can control and stop trying to predict future events. Everyone has an opinion on what happens next, but having an opinion and knowing are not the same thing.
Since I’ve discussed these things at great length over the years, I‘ll try here to sum up succinctly:
- 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).
- 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.
I’ll end this section by sharing my latest epiphany on the macro. I realized recently that in my early decades in the investment business, change came so slowly that people tended to think of the environment as a fixed context in which cycles played out regularly and dependably. But starting about twenty years ago – keyed primarily by the acceleration in technological innovation – things began to change so rapidly that the fixed-backdrop view may no longer be applicable.
Now forces like technological developments, disruption, demographic change, political instability and media trends give rise to an ever-changing environment, as well as to cycles that no longer necessarily resemble those of the past. That makes the job of those who dare to predict the macro more challenging than ever.
The problem with 24-hour news channels is that there’s never enough news in a day to fill the 24-hour time slot, so “experts” fill the rest. Most of the media today – financial, political, and sports – revolves around these experts and their opinions disguised as facts. They create controversy. They argue irrelevance. And it works.
Thanks to the internet and social media, we have more outlets than ever vying for our attention (thanks to technology we have more ways than ever to reach it). It draws eyeballs. It sucks you in because it’s designed to elicit a response – emotion (outrage or fear), a click, a share, or whatever it takes to drive traffic. And before you know it, you’ve wasted several hours glued to the nonsense. Or worse, reacted to it as if it will somehow change the outcome.
Don’t believe me. Think back a few years to the most important “news event” that consumed you. How important is it today?
Time is one of the few things we have that has limits. Our life is a giant hourglass trickling down. How much of it has been wasted on truly unimportant things that seemed so important at the time?
The best thing you and I can do is to not let it consume us. Stop paying attention. Unplug.
An expert’s opinion – and whether you know about it or not – has no effect on what happens next. Opinions are just opinions, sorry to say. Besides, even when something comes up that is truly important, the news channels and social media only provide a superficial explanation. You can take the time and effort to fully understand it but don’t mistake watching a 30-second sound bite as understanding it.
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.
Marks Memo: Expert Opinion
- How I got My Attention Back – BackChannel
- A Chat With Daniel Kahneman – Collaborative Fund
- Charlie Munger: How to Guarantee a Life of Misery – Medium
- Narrative and Numbers: How a Number Cruncher Learned to Tell Stories! – Musings on Markets
- Ray Dalio Interview on Bridgewater – Business Insider
- Peter Thiel Explains Himself – NY Times
- Stocks Are No Longer the Most Actively Traded Securities in Stock Markets – Bloomberg
- Why Trump Doesn’t Tweet About Automation – HBR
- Poker Is the Latest Game to Fold Against Artificial Intelligence – MIT Tech Review