Howard Marks Memo (Dated 13th Jan ’20) titled You Bet!
Since his teenage years, Howard Marks has been deeply influenced by a book called Decisions Under Uncertainty: Drilling Decisions by Oil and Gas Operators by C. Jackson Grayson, Jr.
In his memo Howard Marks writes:--
As Grayson explained, you make the best decision you can based on what you know, but the success of your decision will be heavily influenced by (a) relevant information you may lack and (b) luck or randomness. Because of these two factors, well thought-out decisions may fail, and poor decisions may succeed. While it might seem counter intuitive, the best decision-maker isn’t necessarily the person with the most successes, but rather the one with the best process and judgment. The two can be far from the same, and especially over a small number of trials, it can be impossible to know who’s who.”
The above does not mean that one should stop taking decisions. Since decision is a prediction about an uncertain future, there are bound to be times when the decision may not be successful even though it was the most informed decision given the available data and the prevailing environment. Similarly, investing in the markets is of two kinds.
If one is satisfied with an average return from the market, there is not much of a decision-making skill required as one can just invest on a benchmark index. It is only when one aims for “above-average” returns do the decision-making skills come in. It is important to make the most informed decision given the available data and the macro-economic scenario prevailing.
While it may or may not give the desired outcome, yet it is the one, which is most likely to succeed. Thus, irrespective of the outcome, which depends on many known and unknown factors including the role of luck, the quality of an investment decision should be judged by the quality of process followed to make such decisions.
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