May 28, Oaktree Capital Management) founder Howard Marks (Howard Marks) released the latest memo “Uncertainty II” (Uncertainty (2)). In the article, Max made the above statement.
Oak Capital is a leading global alternative investment management company with global clients including 69 of the 100 largest pension plans in the United States, more than 400 companies worldwide, the United States 39 of the 50 major state retirement plans, more than 320 endowment funds and foundations worldwide, and more than 15 sovereign wealth funds. As of the end of March 2020, Oak Tree Capital Management reached US$113 billion.
In Max’s view, human beings are very eager to predict and control the future. The dynamic variable factors have limitations for predicting the future. We influence the ability of the future through our own decisions. The unpredictability of this progress, therefore, prediction is futile. It is very important to accept the objective situation that we know nothing about the future, and therefore, it is of general importance to maintain intellectual humility.
“The behavior of the predictor is as if the future already exists, all we have to do is to be smart enough to discern it. But this ignores the fact that all of us (And many other influencing factors) are constantly creating the future through our collective activities.” Max said.
In predicting future events, Max quoted Mark Lilla, a professor of humanities at Columbia University as saying, “There is no such thing as the so-called new coronary pneumonia epidemic. The future. Only after we have survived the epidemic and created it will the future exist.”
As far as the new coronary pneumonia epidemic is concerned, how many people are sick depends not only on the virus How it behaves, mutates, spreads, responds to warm weather and infections, and it also depends on how fast we restart the economy, how people behave after the restart, and how the virus will develop by then.
Thomas Sowell, an economist and social theorist at the Hoover Institution, once said that people often ask economists to predict the direction of economic development . But predicting the economy requires first predicting what politicians will do-and nothing is more difficult than this. “The unpredictability of politicians is just one of many variables that make the future complicated. Not only can we not predict the impact of people’s actions and other factors on the development of the epidemic and its impact on the economy, nor when will people predict Take these actions-this is equally important.” Max further said.
So, when a big problem like today appears, who will be responsible for solving it? Max believes that the answer cannot be an “expert”.
When considering professional knowledge, Max believes that it is necessary to guard against some dangerous tendencies in society: to confuse general information with knowledge related to facts in a specific field; Facts confuse excellent insights, confuse expertise and insights with the ability to predict the future, think that experts in a certain field can understand all fields of knowledge, and think that the rich and successful people have the above characteristics.
Max said that he has recently been surrounded by a large number of conflicting views about the rapid restart of the US economy. “But I realize that not only is my opinion on this topic of little value, but I also don’t have the appropriate expertise to determine who’s opinion is useful. I only know that the last thing I should do is choose a viewpoint that is consistent with mine. Experts, let the confirmation bias affect my decision.”
He gave an example that doctors or public health officials expressed opposition to the decision to quickly restart the economy. Compared with most people, they know the new coronavirus better than most people in medicine and public health and know how to respond. Their advice may keep most people alive. But on the other hand, since they are not economists, we should assume that they are only considering the issue from the perspective of minimizing the number of deaths. They may not have considered the importance of restarting the economy, or how to strike a balance between the two.
On the other hand, entrepreneurs and economists are talking about the need to restart the economy in order to minimize the damage to the economy caused by the deep shutdown. But how much do they know about the cost of human life? And of course, there are no algorithms or acceptable processes that can be used to make a choice between the two. This is a matter of judgment, not professional knowledge.
From this, Max concluded that real professional knowledge resources are scarce and limited in scope, professional knowledge and predictive ability are completely different, so people should choose carefully Hear what opinions are given and to what degree they attach importance to them.
This also leads to one of the huge problems related to investment. Since we know nothing about the future, we have no choice but to infer based on past patterns. The “pattern of the past” refers to what normally happened in the past and how serious it seems. However, there is no reason to believe that it is impossible to have an event that is not the same as the past, and that the severity and consequences of future events will not be worse than in the past. Although we have guided the “worst case” of the past, there is no reason to limit the future to the past experience. However, if we do not rely on the worst-case scenario known in the past, then we know nothing about how to invest in capital or how to live.
However, Max mentioned the memo he wrote in 2001, “You Can’t Predict. You Can Prepare.”
“At first glance, this seems to be a contradictory statement. If we can’t predict, how should we prepare? In other words, if the most severe extreme events External influence events are unpredictable, how can we prepare for them? We can make preparations by understanding that these events will happen after all, and that the market is more vulnerable to accidents due to economic development and investor behavior. Time, build our portfolio more carefully.” Max concluded.