Subject: Expert opinion (Nov’16)
In his latest memo, Howard Marks ponders on his distrust in forecasting exercise. He mocks the term ‘expert opinion’ as oxymoron.
We normally give more weight to expert opinions. But they are still opinions and not facts. Some experts tend to present opinions as facts.
Based on NFL football season shows that expert opinions were correct by just more than 50% – only marginally better than a coin toss.
Predicting the macro is something which a lot of experts try to do. Technological developments, disruption, demographic change, political instability and media trends has led to an ever-changing environment, as well as to cycles that no longer necessarily resemble those of the past. This makes macro forecasting more challenging than ever. This is evident from the under-performance of macro hedge funds, compared to overall hedge fund performance. A lot of people tend to focus on macro forecasting, rather than the fortunes of individual companies.
While the macro movements are important, they are not knowable. Warren Buffett told Howard Marks that for a piece of information to be worth pursuing, it should be important, and it should be knowable. Nobody predicted the fall in oil prices between 2014-16.
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. – Mark Twain
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.
Imagine how much harder physics would be if electrons had feelings! – physicist Richard Feynman
Howard laments about the disappearance of real facts (facts are dismissed as opinions, such as climate change), as well as elevation of non-facts (fake news).
Today’s media outlets tend to be biased to one side. Further, people tune into those which favour their side, and do not get exposed to the other side of the argument. It has become an addiction for many of us to actively follow events, expert opinions on them, and as a result falsely think that they are well-informed. While this is entertaining, it is a waste of time intellectually.
A lot of people’s lives would be more tranquil and more productive if they accepted that what the media says about an upcoming event – and whether you watch or not – won’t have any impact on the outcome.
Most things don’t matter, and most news stories aren’t worth tracking. Hence, we should be able to say “I don’t know” or even, “I don’t care.”
Howard Marks concludes the memo with his top five favourite quotes on forecasts:
We have two classes of forecasters: Those who don’t know – and those who don’t know they don’t know. – John Kenneth Galbraith
No amount of sophistication is going to allay the fact that all of your knowledge is about the past and all your decisions are about the future. – Ian Wilson (former GE executive)
Forecasts create the mirage that the future is knowable. – Peter Bernstein
Forecasts usually tell us more of the forecaster than of the future. – Warren Buffett
I never think of the future – it comes soon enough. – Albert Einstein
Howard Marks memo: Expert opinion
Ryan Holiday’s article in Observer: Want to Really Make America Great Again? Stop Reading the News.
Featured image: Oaktree