Top learnings from HM’s latest memo, Nobody Know (Yet Again)
This week on LEARNING OF THE WEEK, like few others in the past is inspired by the latest Memo of Howard Marks, Nobody Knows (Yet Again). Investing wisdom imparted by Mr Marks has in many ways shaped our own approach to investing.
In this memo, in his signature style, Howard Marks revisits timeless investing principles, truths we often acknowledge but rarely act upon, especially when fear takes hold. As you read on, you’ll see why these lessons are especially urgent today, in an environment shaped by unpredictable leadership in the US and global shifts that could redefine the world order.
We’ve distilled this memo into 6 most crucial takeaways for investors. Let’s get started.
Learning 1: Usually, it’s not the end of the world
When headlines turn grim, markets often react as if catastrophe is imminent. Think back to the dot-com bust, the 2008 financial crisis, the COVID crash, or the shockwaves from the current tariff war. Panic gripped investors each time, and it felt like the global order was unravelling. Yet, Howard Marks reminds us that these moments demand a clear-headed approach grounded in a few essential truths:
- We can’t reliably predict the end of the world.
- Even if we somehow knew it was coming, we wouldn’t know how to act on that knowledge.
- Preparing for disaster can backfire if the worst doesn’t materialize.
- Most importantly, history shows that the world almost never ends.
In periods of turmoil, the most honest and often most useful admission is, “I don’t know.” Rather than freeze or chase certainty, the rational path is to trust that conditions will eventually improve, just as they have in the past, and to continue investing for the long term.
Lesson 2: Future can’t be analysed
Howard Marks challenges the idea that anyone can “analyze the future”, calling it one of investing’s great contradictions. Analysis, by definition, is rooted in the study of what has already happened. The future, on the other hand, is shaped by countless unpredictable and unknowable variables that no amount of study can fully capture.
As investors, our role isn’t to analyze what hasn’t occurred, but to thoughtfully consider what might unfold. Since the future offers nothing concrete to dissect, our decisions are built on three pillars:
- Facts
- Informed extrapolations from similar past experiences
- Opinions or speculation
When markets throw up extreme or unprecedented events, facts and comparable experiences are often absent. In such moments, speculation becomes the only tool at our disposal. This is why, they say, markets rarely react to the same news in the same way twice, the context and prevailing sentiment are always shifting.
Ultimately, successful investing isn’t about predicting the future with precision. It’s about acknowledging uncertainty, staying humble in the face of the unknown, and making decisions that balance risk and reward in a world where tomorrow will always surprise us.
Lesson 3: Is having a forecast enough?
Investors often turn to models, analytical frameworks, and established theories in an effort to predict what lies ahead. Yet, as Howard Marks highlights, these tools rarely yield conclusions that can be acted upon with genuine conviction, especially during periods of upheaval or when facing unprecedented situations. There are simply no experts with a reliable playbook for every scenario; the future remains fundamentally unknowable.
A forecast, by itself, is insufficient. What truly matters is developing a realistic sense of how likely your forecast is to be correct. The greater the uncertainty, the lower the odds that any prediction will prove accurate. If we insist on waiting for absolute certainty before making decisions, we risk being paralysed into inaction because, in such moments, certainty is nowhere to be found.
It’s equally vital to recognise that choosing not to act in the face of uncertainty is a decision in itself. This “do nothing” stance should be evaluated with the same rigour as any other potential course of action. In uncertain times, the discipline to thoughtfully consider both action and inaction becomes a critical part of sound investing.
Lesson 4: Economics is not Physics
One of the most fundamental errors in economic forecasting is to assume that economies operate with the same predictability as physical systems. In physics, actions and reactions are typically direct and measurable, flip a switch, and the bulb lights up.
Economics, by contrast, unfolds in a world of second- and third-order effects, where a single action can ripple out in unexpected ways. As Richard Feynman famously quipped, “Imagine how much harder physics would be if electrons had feelings.” Unlike particles, economies are driven by people, full of emotions, bias, and unpredictable responses.
Stopping at first-order thinking is a recipe for misjudgment. Every economic decision sparks a chain of reactions, each shaped by human behaviour and the interplay of countless actors.
Lesson 5: In all probability, stepping up manufacturing in the USA will be painful and unviable
In his memo, Howard Marks mentions that the total inflation in the USA between 1995 and 2020 averaged just 1.8%. Additionally, the price of consumer durables declined by 40%. Can you guess the reason for this positive outcome? The answer is “Low Cost Imports” The cost of manufacturing goods in other countries was lower compared to if they were manufactured in the USA.
Let’s say the current administration is ready to ignore these benefits and wants to push the “Make in USA” initiative indirectly by imposing harsh tariffs, the following four points have to be considered:
- In most industries, the USA doesn’t have sufficient manufacturing capacity installed to take care of a meaningful portion of its captive demand.
- Additionally, it would take years to get permission and build these factories, and these facilities should generate commensurate profits to make the cost of building the same viable.
- Another important question to ask is, even if the facilities are in place, does the USA have enough skilled workers who can manage these factories? In all probability, the answer is NO.
- Lastly and most importantly, a simple question that needs to be answered is, why were US consumers importing stuff in the first place? Simple answer is that they are CHEAPER.
Whatever the case, the bottom line certainly is that if the USA is going to continue imposing stiff tariffs, eventually, it’s the consumer in the USA who will pay higher prices for their/purchases.
Lesson 6: The benefit of “Comparative Advantage”
Globalisation’s most significant contribution is the principle of “Comparative Advantage.” Each nation excels at producing certain goods more efficiently and/or at a lower cost than others. When countries focus on what they do best, whether it’s Italy crafting pasta or Switzerland assembling watches, and trade with one another, everyone benefits from increased efficiency and higher overall welfare.
If, instead, trade barriers forced Italy to manufacture its own watches and Switzerland to produce its own pasta, both populations would pay more for goods they once imported affordably or settle for lower quality. Specialisation and open trade, enabled by comparative advantage, are what allow societies to access better products at better prices, ultimately raising living standards across the board.
Howard Mark’s thoughts on the imposition of tariffs
Howard Marks uses a soccer analogy to describe the U.S. tariff move as a “self-goal”, a policy blunder that ultimately harms its own side. He draws a direct comparison to Brexit, highlighting how the UK’s decision inflicted significant economic and reputational damage on itself. Marks openly admits a preference for the stability he’s witnessed throughout his lifetime, expressing reluctance toward such disruptive changes.
He warns that if Trump’s tariffs are enacted, the U.S. could face a recession sooner than it otherwise would, echoing recent forecasts that put the probability of a U.S. recession at 45%, a sharp rise driven by the risk of escalating trade wars and shaken business confidence. Even if these tariffs are later rolled back, he doubts that America’s trading partners will simply forget the episode. The mere precedent of such aggressive protectionism could leave lasting scars on global trust and future trade relationships.
Ultimately, Howard Marks is sceptical that the U.S. can ever reverse its trade deficit as long as it remains the world’s largest and most prosperous economy. With its greater purchasing power, the U.S. is likely to continue buying more from other countries than it sells, a structural reality that tariffs alone cannot change.
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Happy Investing!!!
Disclaimer: These insights are based on our observations and interpretations, which might not be complete or accurate. This newsletter is for educational purposes only and is not intended to provide any kind of investment advice. Please conduct your own research and consult your financial advisor before making any investment decisions based on the information shared in this newsletter.
🤣MEME OF THE WEEK🤣
