The Investor’s Dilemma in an Unknowable World
In investing, there are few enduring truths, but one towers above the rest: nobody knows the future. Whether facing the 2008 Global Financial Crisis, the COVID-19 pandemic, or today’s geopolitical upheavals and trade tensions, history repeatedly demonstrates that certainty is an illusion.
Drawing on insights from Howard Marks’ latest memo, “Nobody Knows (Yet Again),” we explore why embracing uncertainty, rather than fearing it, remains the most rational investment strategy. Investors searching for timeless lessons in navigating volatility, uncertainty, complexity, and ambiguity will find powerful guidance here.
The Nature of Uncertainty: Lessons from 2008 and 2020
In 2008, as financial institutions collapsed like dominoes, panic engulfed markets. Yet, even in the eye of the storm, Marks argued that predicting a full financial collapse was beyond anyone’s capabilities. He advised investors to move forward not with confidence, but with reasoned logic: most of the time, the world does not end.
Similarly, in 2020 during the COVID-19 pandemic, expert opinions were replaced by speculation. Without historical analogues or reliable data, investors had to make decisions based purely on imperfect information.
Key lesson: In moments of upheaval, acting without full certainty, while uncomfortable, is often necessary to achieve superior long-term returns.
Acting in the Face of Uncertainty: The Courage to Invest
One of Marks’ most profound insights is the recognition that “the refusal to act is itself a decision.” Investors cannot sit on the side-lines waiting for uncertainty to resolve. By the time clarity emerges, opportunities will have disappeared.
Buying into fear, when others are paralysed by it, historically offers outsized rewards. As Walter Deemer aptly titled his book, “When the Time Comes to Buy, You Won’t Want To.” Fear is often greatest precisely when prices offer the most attractive future returns.
Thus, embracing calculated risk-taking in uncertain times is not reckless; it is essential.
For more on how disciplined buying during periods of market fear can set the foundation for long-term success, see Investment Wisdom: Buying Well.
The Futility of Forecasting: Why Expert Predictions Often Fail
Marks emphasises that even seasoned economists, business leaders, and policymakers operate in an environment of complexity too vast for reliable forecasting. Models built on historical data fail when unprecedented events occur.
“Analysing the future” is, he argues, an oxymoron. The future is unwritten, shaped by millions of unpredictable human decisions. Those who demand certainty before acting are likely to be left behind.
Investor takeaway: humility and flexibility should replace false confidence.
Second-Order Effects: The Complicated Consequences of Policy Actions
Another major theme from “Nobody Knows (Yet Again)” is the importance of considering second and third-order consequences, especially around tariffs and trade wars.
While tariffs might aim to reshore manufacturing and reduce trade deficits, the unintended consequences are numerous:
- Higher prices and rising inflation
- Declining consumer purchasing power
- Supply shortages and economic dislocation
- Retaliation from trading partners
These ripple effects can cause far more harm than policymakers anticipate. Investors must consider not just the direct impacts of political or economic actions, but their cascading effects across industries and societies.
The Fragility of Globalisation: Risks to Peace and Prosperity
Globalisation has been a major driver of global peace and prosperity since World War II, raising living standards around the world. Marks cautions that protectionist policies could unravel decades of economic progress, weaken global alliances, and create new systemic risks.
If international trade and cooperation decline, investors should anticipate higher costs, lower growth, and greater geopolitical instability—a complex backdrop requiring selective, risk-aware investing.
For a deeper exploration of macroeconomic risks and the outlook for markets, see A Bear Market Rally or Blue Skies Ahead?.
Practical Lessons for Investors: Navigating Uncertain Markets
- Accept Uncertainty: Recognise that complete knowledge is impossible. Make peace with investing in an environment of incomplete information.
- Focus on Probabilities, Not Certainties: Evaluate potential outcomes and their likelihoods rather than seeking black-and-white answers.
- Maintain Disciplined Portfolio Construction: Diversify thoughtfully. Allocate capital with an awareness of risk exposures.
- Act Countercyclically: Be willing to invest when others are fearful, and cautious when others are exuberant.
- Value Resilience Over Prediction: Favour businesses with strong balance sheets, durable competitive advantages, and adaptive leadership.
TAMIM’s own small cap investment team shares how this thinking shapes portfolio construction in Lessons from a Small Cap Portfolio Manager.
TAMIM Takeaway
Investing in uncertain times demands more than forecasting skills; it demands courage, humility, and discipline.
The greatest opportunities often arise when fear dominates markets. However, they require investors to move forward with rational analysis, not certainty. As Howard Marks reminds us, it is in the moments when “nobody knows” that the seeds of future outperformance are sown.
For Tamim investors, the focus remains on identifying resilient businesses, maintaining valuation discipline, and leaning into opportunities when risk premia are elevated.
Nobody knows what tomorrow holds but history has shown those who act thoughtfully during uncertainty are those who ultimately prevail.