In one of his famous "memos" released on March 4, Howard Marks (Trades, Portfolio), co-chairman of multibillion-dollar asset management firm Oaktree Capital, looked back at the investing and economic environment in 2020.
The paper, titled "2020 in Review," began with a comparison of the events of the past year to Charles Dickens' famous opening lines of "A Tale of Two Cities."
After briefly discussing the major events and other highlights of the past year, the guru moved on to explain his positioning for 2021 as well as potential risks. He wrote:
"Investors often imagine there are two distinct macro environments: times when the future is clear and times when it isn't. In reality, though, these periods are all pretty much the same, since perceived clarity regarding the future often turns out to have been illusory. Most macro forecasting consists of extrapolating current levels and recent trends with minor tinkering. While predictions of "no change" are often right – as continuation is the general rule – they give rise to little in terms of profit. Only forecasts of major deviation from trend can be highly profitable. But to be so, they also must be correct, and they rarely are. That's why profitable macro forecasts (and successful forecasters) are few and far between. This negative view on forecasting is a major theme running through Oaktree's culture and the reason we don't base our investments on macro forecasts."
Marks then went on to discuss valuations and determined whether or not, given the current conditions, investors should be at the usual risk positions.
In his conclusion, Marks noted the past year "challenged many preconceived notions about the economy, markets and policy – and even changed the way we live."
Read Marks' full memo here.
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