During his recent interview with the 3 Takeaways Podcast, Howard Marks argues that economic forecasting is largely unhelpful for investors. He points out that even renowned investors like Warren Buffett avoid relying on economic or market predictions when making investment decisions.
Instead, Buffett emphasizes the value of information that is both important and knowable, noting that while it’s crucial to understand the economy, accurate forecasting is impossible.
Marks highlights that most investors possess only average knowledge, which is already reflected in stock prices. For investors to outperform, they would need above-average insights—a rare achievement. Consequently, great investors focus on factors other than macroeconomic forecasts.
Here’s an excerpt from the interview:
Marks: Not only would I say forecasting is not helpful for most people as they invest. I would say it’s not helpful for almost anybody. When you look around, where are the people who got famous for being great investors because they could forecast the economy or the markets? You just don’t find them. Everybody uses the example of [Warren] Buffett. You mentioned his name earlier.
Buffett conspicuously rejects economic forecasting. And when he decides to make an investment, it has nothing to do with his forecast of what the economy or the markets are going to do over the next two, three, five years. And I think that’s the right way.
He once said to me, for a piece of information to be valuable, it has to satisfy two criteria. It has to be important, and it’s important to know what the economy is going to do. It would be great if we knew what the market was going to do.
But he said, it has to be knowable. And it’s not knowable, which is to say, it’s not possible to achieve superior knowledge. It’s easy to have average knowledge and to be about as right as the consensus about what’s going to happen.
But of course, everybody has average knowledge. And average knowledge is already baked into the prices of things. So when you buy a stock today, it incorporates everybody’s average forecast.
You can only outsmart the market if you have an above-average forecast in terms of accuracy, and almost nobody does. So I’m not involved in macro forecasting. Buffett is not involved in macro forecasting.
And none of the great investors that I know condition their investment decisions on what they think is going to happen in the macro future.
You can listen to the entire interview here:
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