September 22, 2023

"You can't predict, but you can prepare"

Howard Marks, a renowned investor and co-founder of Oaktree Capital Management, is known for his insightful investment philosophy and emphasis on risk management. The quote "You can't predict, but you can prepare" encapsulates one of his fundamental principles in investing. Here's a breakdown of what he means by this statement:

  1. You can't predict: Marks acknowledges that the future is uncertain, and it's impossible to predict every twist and turn in financial markets accurately. Too many variables, external factors, and unpredictable events can influence investment outcomes. Attempting to make precise predictions about market movements or specific events is often futile.
  2. But you can prepare: While predicting the future is challenging, Marks emphasizes that investors can take proactive steps to prepare for various potential outcomes. This involves being aware of the inherent risks in the market, understanding one's risk tolerance, and having a well-thought-out investment strategy. Preparation also includes diversifying one's portfolio to spread risk, setting realistic expectations, and being mentally prepared for market fluctuations.

In essence, Marks is advocating for a risk-conscious approach to investing. Instead of relying on predictions or attempting to time the market perfectly, investors should focus on risk management, portfolio construction, and being prepared for various scenarios. Doing so can increase their chances of achieving their financial goals and weathering market volatility more effectively.

Marks' approach aligns with the idea of being a prudent, long-term investor who doesn't get overly caught up in short-term market fluctuations and uncertainties but takes a disciplined and prepared approach to investment decisions.

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