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Kindle Notes & Highlights
by
Howard Marks
Read between
August 15 - August 25, 2025
there’s no such thing as a good or bad idea regardless of price!
paying more than something’s worth is clearly a mistake;
If your estimate of intrinsic value is correct, over time an asset’s price should converge with its value.
there’s nothing better than buying from someone who has to sell regardless of price during a crash. Many of the best buys we’ve ever made occurred for that reason.
Since buying from a forced seller is the best thing in our world, being a forced seller is the worst.
The discipline that is most important is not accounting or economics, but psychology.
Investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity.
The safest and most potentially profitable thing is to buy something when no one likes it. Given time, its popularity, and thus its price, can only go one way: up.
All bubbles start with some nugget of truth:
people should like something less when its price rises, but in investing they often like it more.
the greater fool theory works only until it doesn’t.
Things can be overpriced and stay that way for a long time . . . or become far more so.
an investment approach based on solid value is the most dependable. In contrast, counting on others to give you a profit regardless of value—relying on a bubble—is probably the least.
buying with borrowed money—doesn’t make anything a better investment or increase the probability of gains.
Over the years leverage has been associated with high returns, but also with the most spectacular meltdowns and crashes.
Buying something for less than its value. In my opinion, this is what it’s all about—the most dependable way to make money.
“The market can remain irrational longer than you can remain solvent.”
That's why the saying “Do not invest the money that you will need in the future” is very important.
Trying to buy below value isn’t infallible, but it’s the best chance we have.
the investor’s second job is to determine whether the return on a given investment justifies taking the risk.
riskier assets appear to offer higher returns.
if riskier investments reliably produced higher returns, they wouldn’t be riskier!
Riskier investments are those for which the outcome is less certain.
“risk” is—first and foremost—the likelihood of losing money.
The possibility of permanent loss is the risk I worry about,
a speculative-grade bond or a building in the wrong part of town—can make for a very successful investment if bought at a low-enough price.
high return and low risk can be achieved simultaneously by buying things for less than they’re worth. In the same way, overpaying implies both low return and high risk.
Fooled by Randomness, by Nassim Nicholas Taleb, is the authority on this subject as far as I’m concerned,
the fact that an investment worked doesn’t mean it wasn’t risky, and vice versa.
“Risk means more things can happen than will happen.”
“There’s a big difference between probability and outcome. Probable things fail to happen—and improbable things happen—all the time.” That’s one of the most important things you can know about investment risk.
Quantification often lends excessive authority to statements that should be taken with a grain of salt. That creates significant potential for trouble.
The performance of your portfolio under the one scenario that unfolds says nothing about how it would have fared under the many “alternative histories” that were possible.
Return alone—and especially return over short periods of time—says very little about the quality of investment decisions.
many of the great financial disasters we’ve seen have been failures to foresee and manage risk.
people usually expect the future to be like the past and underestimate the potential for change.
Maybe “worst-case” means “the worst we’ve seen in the past.” But that doesn’t mean things can’t be worse in the future.
Worst and Best are cases that are immeasurable until they happen.
The received wisdom is that risk increases in the recessions and falls in booms. In contrast, it may be more helpful to think of risk as increasing during upswings, as financial imbalances build up, and materializing in recessions.
High risk, in other words, comes primarily with high prices.
in bull markets—usually when things have been going well for a while—people tend to say, “Risk is my friend. The more risk I take, the greater my return will be. I’d like more risk, please.”
When investors are unworried and risk-tolerant, they buy stocks at high price/earnings ratios and private companies at high multiples of EBITDA
better safety gear can entice climbers to take more risk—making them in fact less safe.”
This is the Peltzman Effect, and its known as Risk Compensation.
Risk cannot be eliminated; it just gets transferred and spread.
The risk-is-gone myth is one of the most dangerous sources of risk, and a major contributor to any bubble.
The recent crisis came about primarily because investors partook of novel, complex and dangerous things, in greater amounts than ever before. They took on too much leverage and committed too much capital to illiquid investments.
Worry and its relatives, distrust, skepticism and risk aversion, are essential ingredients in a safe financial system.
When worry is in short supply, risky borrowers and questionable schemes will have easy access to capital, and the financial system will become precarious. Too much money will chase the risky and the new, driving up asset prices and driving down prospective returns and safety.
Investment risk comes primarily from too-high prices, and too-high prices often come from excessive optimism and inadequate skepticism and risk aversion.
“It’s only when the tide goes out that you find out who’s been swimming naked.”
the herd is wrong about risk at least as often as it is about return.
when everyone believes something embodies no risk, they usually bid it up to the point where it’s enormously risky.
