Howard Marks Takes On Volatility As Measure Of Risk

Citing John Kenneth Galbraith, who said, “We have two classes of forecasters: Those who don’t know – and those who don’t know they don’t know,” Howard Marks Oaktree Capital recent letter to investors considered various market probabilities as it tackled volatility as an inaccurate measure of risk. [munger] Howard Marks recognizes the difference between volatility and investment loss He first considered the difference between volatility, used to measure risk in the Sharpe Ratio, and permanent loss, which represents real risk. “Permanent loss is very different from volatility or fluctuation,” he noted, then considered the reasons for permanent loss.  Permanent loss…