Notes to Know: Uncertainty

Updated: May 19


"If I'd have had more time, I'd have written a shorter letter" ~Blaise Pascal


I recently reviewed the periodic market commentary of Howard Marks, Director and Co-Chairman of Oaktree Capital and a highly respected investor. This note is entirely pilfered from his most recent letter, which can be found in its 12-page entirety titled, “Uncertainty” here.

Over the past several weeks, I’ve noticed myself giving different advice to different clients, and this letter really struck home for me. I’ll comment that there are enough quotes and points of interest in this letter that I can probably pilfer from it for the next several weeks. My hope is that my aggressive editing doesn’t change his intended meaning. You can read the whole letter and determine for yourself.


Some key thoughts:


  • The field of economics is muddled and imprecise. Unlike “real” science, like physics, there are no rules that one can count on, as in “if a, then b”. There are only patterns that tend to repeat, and while they may be historical, logical, and often observed, they’re still only tendencies.

  • In my version, there are: ~Facts, ~Logical inferences from past experience, and ~Guesses.

  • Economists and investors make inferences from past patterns, but these are unreliable at best, and I think in many cases their judgments fall under the heading of “guesses”.

  • These days, I’m often asked questions like, “Will the recovery be V-shaped, or a U, or W, or L?” As I’ve said, if you’ve never experienced something before, you can’t say you know how it’s going to turn out!

  • While unique developments like those of today make forecasting unusually difficult, the presence of all four elements (Pandemic, economic contraction, oil, and Fed/government response) at once probably renders it impossible.

A summary:

  • Only correct forecasts of a very different future are valuable,

  • It’s hard to make forecasts like that,

  • Such unconventional predictions are rarely right,

  • Thus, it’s hard to be an above-average forecaster, and

  • It’s only above-average forecasts that lead to above-average returns.

So, there’s a conundrum:


  • Investing is the art of positioning capital to profit from future developments.

  • Most professional investors strive for above-average returns.

  • According to logic, macro forecasts shouldn’t be expected to lead to above-average returns,

  • Yet very few people are content to invest while practicing agnosticism regarding the macro future,

  • And so, they keep trying to predict future events and the investment industry produces a large volume of forecasts.

IN SHORT: IGNORE the “guesses” of the financial pundits, and don’t attempt to predict an unpredictable future. Instead, work with your advisor to develop an approach that is specifically tailored to you, your goals, your cash flow needs, your time-frame, and your need to sleep well at night without worrying over the markets. The only right solution is one that is specifically tailored to you and your family.

That’s why I find myself giving different advice to different people. There is no one solution that is right for us all.

I look forward to having more experience to base my own future guesses on as we work through this all together.

"Doubt is not a pleasant condition, but certainty is absurd" ~Voltaire

Make it a Great Day!

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