The illusion of knowledge

OaktreeCapital/Howard Marks/9-8-2022

illustration of a 3-D star trek chessboard“It was that lunch that started me thinking about writing yet another memo on the futility of macro forecasting. Soon thereafter a few additional inputs arrived – a book, a piece in Bloomberg Opinion, and a newspaper article – all of which supported my thesis (or perhaps played to my ‘confirmation bias’ – i.e., the tendency to embrace and interpret new information in a manner that confirms one’s preexisting views). Together, the lunch and these items inspired this memo’s theme: the reasons why forecasts are rarely helpful.”

USAGOLD note: Marks makes a strong case for disregarding forecasts citing Boorstin’s observation that “the greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.” Forecasts. We all read them. Most rely on them. But how often do they increase our wealth? Marks, who writes for an audience of mostly money managers, pointedly asserts that “forecasts can’t be right often enough to be worthwhile.” Too often, forecasters apply “one-factor models… they’re playing checkers when they should be playing 3-D chess.” All in all, a very enlightening read at the link……

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Image attribution: OTAVIO1981, CC BY-SA 3.0 <https://creativecommons.org/licenses/by-sa/3.0>, via Wikimedia Commons

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