The latest client note by Howard Marks, the co-founder and co-chair of Oaktree Capital, an alternative investment manager focussing on distressed debt, on The Illusion of Knowledge about the futility of forecasting to drive investment decisions, inspired me to revisit what I had already written on this subject.1 Particularly so given the extreme moves in economic activity, inflation and interest rates associated with the pandemic and its aftermath, along with increasing geopolitical issues, all at a time of increasing access to information, and opinion via social media, and the flow on of all this to investment markets.
I am regularly called on to provide forecasts for economic and investment variables like growth, interest rates, currencies and shares. These usually come in the form of point forecasts as to where the variable will be in, say, a year’s time or its rate of return. Such point forecasts are part & parcel of the investment industry. In fact, forecasts – from the environment to economics to politics to coronavirus – have become part of everyday life.