Mastering The Market Cycle: Getting the Odds on Your Side

by Howard Marks

Other investors—the smarter, more self-aware ones, I think—understand that the future isn’t knowable with certainty. They may form opinions regarding future events, but they don’t bet heavily that those opinions will prove correct. Since (a) investing consists of dealing with the future but (b) the future isn’t knowable, that’s where the risk in investing comes from. If future events were predictable, investing would be easy and profit would be sure. (The general level of returns might be low in that case because so little risk is involved; that’s a topic for another day.) But the fact that events aren’t predictable introduces risk. Because the events that actually occur may be different than those that were predicted, or the market’s reaction to events may differ from what was expected, a portfolio may be positioned incorrectly for the future that unfolds.