In one of his famous “memos” released earlier this week, Howard Marks (Trades, Portfolio), co-chairman of multibillion-dollar asset management firm Oaktree Capital, wrote about some things people think they know but may not.
The paper, titled “Knowledge of the Future,” starts with a discussion of the Covid-19 outbreak and Harvard epidemiologist Marc Lipsitch’s observation that “there are (a) facts, (b) informed extrapolations from analogies to other viruses and (c) opinion or speculation.” While this statement was originally in reference to the coronavirus, Marks applied these concepts to investing and how we don’t truly know anything about what the future will hold. He wrote:
“We use extrapolation from the past as the best way to deal with the future. If not for the ability to research past patterns and apply them to decisions regarding the future, we’d have to reach a new conclusion every day about every future possibility. So, for example, in investing we study typical past cycles, the exceptions from the norm, and details like the up-and-down pattern that’s part of most rallies, as described last week in ‘Calibrating.’
But blind faith in the relevance of past patterns makes no more sense than completely ignoring them. There has to be good reason to believe the past can be extrapolated to the future; as Lipsitch says, it has to be informed extrapolation. And that brings me to the current episode.”
While there is no way of knowing for certain what lies in store, he then goes on to speculate what could be ahead for the virus itself, the economy and society as a whole.
Read Marks’ full memo here.
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