The Most Important Thing: Uncommon Sense for the Thoughtful Investor (Columbia Business School Publishing)

by Howard Marks

disservice.

Importantly, a philosophy like mine comes from going through life with your eyes open.

You must be aware of what’s taking place in the world and of what results those

events le...

“Experience is what you got when you didn’t get what you wanted.”

formative,

“The Loser’s Game”

A Short History of Financial Euphoria,

Taleb’s Fooled by R...

foibles;

Bruce Newberg

creditable,

Psychology plays a major role in markets, and because it’s highly variable, cause-and-effect relationships aren’t reliable.

how essential it is that one’s investment approach be intuitive and adaptive rather than be fixed and mechanistic.

As with any other art form, some people just understand investing better than others.

perspiration,

stamina

perce...

the second...

But only a few of them will achieve the superior insight, intuition, sense of value and awareness of psychology that are required for consistently above-average results. Doing so requires second-level thinking.

In short, being right may be a necessary condition for investment success, but it won’t be sufficient. You must be more right than others . . . which by definition means your thinking has to be different.

superficial,

convoluted.

antithesis

“proselytizers.”

You can’t do the same things others do and expect to outperform.

Unconventionality shouldn’t be a goal in itself, but rather a way of thinking.

Different and better:

But the good news is that the prevalence of first-level thinkers increases the returns available to second-level thinkers.

new theory

“Chicago School”

risk aversion, volatility as the definition of risk, risk-adjusted returns, systematic and nonsystematic risk, alpha, beta, the random walk hypothesis and the efficient market hypothesis.

efficient market hypothesis

efficient,

mean it in the sense of “speedy, quick to incorporate information,” not “right.”

idiosyncratic,

That’s what makes the mainstream markets awfully hard to beat—even if they aren’t always right.

upshot

buttressed

First, one or two good years prove nothing; chance alone can produce just about any result.

ramifications

index funds.

adherents.

fallback

lull

that to get higher returns, all they have to do is make riskier investments. But they ignore something that is easily forgotten in good times: this can’t be true, because if riskier investments could be counted on to produce higher returns, they wouldn’t be riskier.

indiscriminate

dependably.

Second-level thinkers know that, to achieve superior results, they have to have an edge in either information or analysis, or both. They are on the alert for instances of misperception. My son Andrew is a budding investor, and he comes up with lots of appealing investment ideas based on today’s facts and the outlook for tomorrow. But he’s been well trained. His first test is always the same: “And who doesn’t know that?”

high-flown