The Most Important Thing by Howard Marks
Knowing What You Don’t Know
“There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know” ― John Kenneth Galbraith
The more we concentrate on smaller picture things, the more it is possible to gain a knowledge advantage. With hard work and skill, we can consistently know more than the next person about individual companies and securities. That is much less likely with regard to markets and economies.
People should try to know the knowable.
Content of this chapter comes primarily from these two memos:
- The Value of Predictions, February 15, 1993
- The Value of Predictions II, July 22, 1996
It is possible to be right about the macro future once in a while, but not on a regular basis.
On balance, forecasts are of very little value.
The key question is not “Are forecasters sometimes right?” But rather, “Are forecasters as a whole, or any one person’s forecasts, consistently actionable and valuable?”
Nobody should bet much on an affirmative answer.
Acknowledging the boundaries of what you can know, and working within those limits rather than venturing beyond, can give you a great advantage.