The Folly of Certainty

In a July 2024 memo, Oaktree's Howard Marks argues that expressing certainty about outcomes in politics, economics, or markets is a fundamental error. Triggered by a Biden campaign official's claim that 'Joe Biden is going to win, period,' Marks uses the statement as a launching point to examine why confident forecasts so consistently fail. He cites the 2016 election, where near-universal certainty of a Clinton victory and a subsequent market collapse proved wrong on both counts, with the S&P 500 rising more than 30% over the 14 months following Trump's win. On monetary policy, Marks notes that the consensus view in mid-2022 that Fed rate hikes would cause a recession never materialized, while the subsequent expectation of six rate cuts in 2024 also proved wrong — yet equity markets continued hitting new highs. He presents data showing the 40-year standard deviation of annual S&P 500 price changes at 13.1%, versus 1.8% for GDP and 9.4% for corporate profits, attributing the gap to investor psychology overwhelming fundamentals. Marks invokes John Kenneth Galbraith's concept of the 'specious association of money and intelligence' to caution against treating wealthy investors as reliable forecasters outside their domain. His core prescription is intellectual humility — acknowledging uncertainty rather than projecting false confidence — citing Voltaire: 'Doubt is not a pleasant condition, but certainty is absurd.'