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Howard Marks says a piece of advice from Warren Buffett perfectly sums up the problem with economists, experts, and the media

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Howard Marks has had it with experts predicting the future.

In his most recent memo, released on Wednesday, the billionaire co-chairman of Oaktree Capital Management opined on the troubles facing so-called experts — from money managers to the media — that have been unable to predict the rise of Trump, Brexit, and other unexpected events.

Marks noted that perhaps the best advice he’s gotten on the foolishness of predictions came during a dinner he had with Warren Buffett, the investing legend and CEO of Berkshire Hathaway.

At the dinner, Marks said that Buffett laid out the problem with forecasting: everyone is focused on what’s unknowable. 

From the memo:

“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.”

(It’s worth noting that Buffett is a fan of Marks and his letters. He once said: “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something.”)

This passage of the note perfectly encapsulates Marks’ view on experts and their inability to predict the geopolitical events of the past year, and the market reaction to those events.

Warren Buffett, chairman and CEO of Berkshire Hathaway, speaks at the Fortune's Most Powerful Women's Summit in Washington October 13, 2015.  REUTERS/Kevin Lamarque/File Photo

Thomson Reuters

Buffett, chairman and CEO of Berkshire Hathaway, speaks at the Fortune’s Most Powerful Women’s Summit in Washington

“Of course there are no “facts” regarding most future events, just opinions,” wrote Marks. “Experts – especially people who are paid to be experts – often couch their statements as facts, but that doesn’t mean they’re sure to come true.”

The co-chairman of Oaktree also took aim at the media, saying it had become fractured, and has allowed a sense of distrust to take hold.

“These days the news media shows little resemblance to what it was 30, 40 or 50 years ago,” wrote Marks. “Many outlets are highly biased to one side or the other and make it possible to read, watch and listen all day and never be exposed to all aspects of the issues.  Thus most people find something to complain about in the media coverage of the 2016 presidential election.”

He also recommended an article from November 16 by Ryan Holiday at the Observer titled ‘Want to Really Make America Great Again? Stop Reading the News.’

As for economists and money managers, Marks said all of the ones he’s talked to have focused on the same questions. He cited four:

  • What month will the Fed raise interest rates?
  • What could go wrong in the economy or the market?
  • What inning are we in?
  • And in each country I visit, how’s the outlook for that country?

He said that all of these questions are impossible to answer. The Fed itself doesn’t know when it will raise rates, while it “the surprises no one can anticipate that would move markets most if they were to happen.” 

Essentially, Mark believes that all of these supposedly important groups — money managers, the media, experts — have all allowed their desire to know the unknowable to undermine their ability to analyze the here and now.

And by not couching future predictions as just that, predictions, there has been an eroding of trust in their knowledge, he added. From the memo:

“Any expert who tells you what’s in store from the Trump administration – or from Britain’s departure from the EU; Italy without reform and Renzi; the Indian economy with 85% of its currency cancelled (the highest-denomination notes, 500 and 1000 rupees, were declared no longer legal tender in order to rein in corruption and the underground economy); or the coming elections in France and Germany – is talking through his hat.”

Read the full memo from Marks here»

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