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Kindle Notes & Highlights
by
Howard Marks
Read between
August 15 - August 25, 2025
in hot markets, people worry about missing out, not about losing money,
In heady times, capital is devoted to innovative investments, many of which fail the test of time.
Hidden fault lines running through portfolios can make the prices of seemingly unrelated assets move in tandem.
Psychological and technical factors can swamp fundamentals.
Markets change, invalidating models.
Leverage magnifies outcomes but doesn’t add value.
Excesses correct.
Most of these eleven lessons can be reduced to just one: be alert to what’s going on around you with regard to the supply/demand balance for investable funds and the eagerness to spend them.
business can slow throughout the economy. It’s called a credit crunch.
the opposite deserves to receive no less attention. There’s no official term for it, so “too much money chasing too few ideas” may have to do.
Loss of confidence and resolve can cause investors to sell at the bottom, converting downward fluctuations into permanent losses and preventing them from participating fully in the subsequent recovery.
avoiding pitfalls and identifying and acting on error aren’t susceptible to rules, algorithms or roadmaps. What I would urge is awareness, flexibility, adaptability and a mind-set that is focused on taking cues from the environment.
There are times in investing when the likely mistake consists of: • not buying, • not buying enough, • not making one more bid in an auction, • holding too much cash, • not using enough leverage, or • not taking enough risk.
this year’s mistake is going to turn out to be: • buying too much, • buying too aggressively, • making one bid too many, • using too much leverage, and • taking too much risk in the pursuit of superior returns.
that in addition to times when the errors are of commission (e.g., buying) and times when they are of omission (failing to buy), there are times when there’s no glaring error.
When investor psychology is at equilibrium and fear and greed are balanced, asset prices are likely to be fair relative to value. In that case there may be no compelling action, and it’s important to know that, too. When there’s nothing particularly clever to do, the potential pitfall lies in insisting on being clever.
It’s not hard to perform in line with the market in terms of risk and return. The trick is to do better than the market: to add value.
Pro-risk, aggressive investors, for example, should be expected to make more than the index in good times and lose more in bad times.
According to theory, then, the formula for explaining portfolio performance (y) is as follows: y = α + βx
What’s clear from these tables is that “beating the market” and “superior investing” can be far from synonymous—see
It’s not just your return that matters, but also what risk you took to get it.
In a bad year, defensive investors lose less than aggressive investors. Did they add value? Not necessarily. In a good year, aggressive investors make more than defensive investors. Did they do a better job? Few people would say yes without further investigation.
risk taker achieves a high return in a rising market, or that a conservative investor is able to minimize losses in a decline. The real question is how they do in the long run and in climates for which their style is ill suited.
The best foundation for a successful investment—or a successful investment career—is value.
You must have a good idea of what the thing you’re considering buying is worth.
The relationship between price and value holds the ultimate key to investment success.
Buying below value is the most dependable route to profit. Paying above value rarely works out as well.
Outstanding buying opportunities exist primarily because perception understates reality.
The superior investor never forgets that the goal is to find good buys, not good assets.
buying when price is below value is a key element in limiting risk.
The relationship between price and value is influenced by psychology and technicals, forces that can dominate fundamentals in the short run. Extreme swings in price due to those two factors provide opportunities for big profits or big mistakes.
the psychology of the investing herd moves in a regular, pendulum-like pattern—from optimism to pessimism; from credulousness to skepticism; from fear of missing opportunity to fear of losing money; and thus from eagerness to buy to urgency to sell.
being part of the herd is a formula for disaster, whereas contrarianism at the extremes will help to avert losses and lead eventually to success.
Most trends—both bullish and bearish—eventually become overdone, profiting those who recognize them early but penalizing the last to join.
“What the wise man does in the beginning, the fool does in the end.”
It’s impossible to know when an overheated market will turn down, or when a downturn will cease and appreciation will take its place.
When other investors are unworried, we should be cautious; when investors are panicked, we should turn aggressive.
Not even contrarianism, however, will produce profits all the time. The great opportunities to buy and sell are associated with valuation extremes,
Buying based on strong value, low price relative to value, and depressed general psychology is likely to provide the best results.
Underpriced is far from synonymous with going up soon.
“Being too far ahead of your time is indistinguishable from being wrong.”
the risk that matters most is the risk of permanent loss.
Most investors think diversification consists of holding many different things; few understand that diversification is effective only if portfolio holdings can be counted on to respond differently to a given development in the environment.
While aggressive investing can produce exciting results when it goes right—especially in good times—it’s unlikely to generate gains as reliably as defensive investing.
Risk control lies at the core of defensive investing. Rather than just trying to do the right thing, the defensive investor places a heavy emphasis on not doing the wrong thing.
Margin for error is a critical element in defensive investing.
An investor can obtain margin for error by insisting on tangible, lasting value in the here and now; buying only when price is well below value;
Risk control and margin for error should be present in your portfolio at all times.
Few people if any know more than the consensus about what’s going to happen to the economy, interest rates and market aggregates.
the investor’s time is better spent trying to gain a knowledge advantage regarding “the knowable” : industries, companies and securities. The more micro your focus, the greater the likelihood you can learn things others don’t.
