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, co-chairman of Oaktree Capital Management.
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YouTube / Talks at Google

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 members of the media – who have been unable to correctly predict the rise of Donald Trump, Brexit, and other unexpected events.

Marks said 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. Buffett 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 failure to predict the geopolitical events of the past year – and the market reaction to those events.

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Warren Buffett, chairman and CEO of Berkshire Hathaway.
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Thomson Reuters

“Of course, there are no ‘facts’ regarding most future events, just opinions,” Marks said. “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 has become fractured and 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,” Marks said. “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 by Ryan Holiday at the Observer published November 16, 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:

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

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

And by not couching predictions as just that – predictions – the trust in their knowledge has eroded, Marks added:

“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 »