In one of his famous “memos” released on Sept. 8, Howard Marks (Trades, Portfolio), co-chairman of multibillion-dollar asset management firm Oaktree Capital, discussed macro forecasts.
The paper, titled “The Illusion of Knowledge,” began with Marks commenting that he has often his expressed his disregard for forecasts in his memos over the years. However, he has never fully explained “why making helpful macro forecasts is so difficult.”
With the help of quotes from several famous economists, executives, historians, scientists and even authors, the guru went on to discuss “the reasons why forecasts are rarely helpful.” He wrote:
“In order to produce something useful – be it in manufacturing, academia, or even the arts – you must have a reliable process capable of converting the required inputs into the desired output. The problem, in short, is that I don’t think there can be a process capable of consistently turning the large number of variables associated with economies and financial markets (the inputs) into a useful macro forecast (the output).”
The investor also examined different models forecasts are based on, other factors that impact these projections and if they add value, among other topics.
Read Marks’ full memo here.
