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

by Howard Marks

The traditional risk/return graph (figure 5.1) is deceptive because it communicates the positive connection between risk and return but fails to suggest the uncertainty involved.

Our next major task is to define risk.

According to the academicians who developed capital market theory, risk equals volatility, because volatility indicates the unreliability of an investment. I take great issue with this definition of risk.

It’s my view that—knowingly or unknowingly—academicians settled on volatility as the proxy for risk as a matter of convenience.

ascer...

extrap...

because they’re worried about a loss of capital or an unacceptably low return.

Falling short of one’s goal—Investors

Investors have differing needs, and for each investor the failure to meet those needs poses a risk.

Obviously this risk is personal and subjective, as opposed to absolute and objective. A

Underperformance—Let’s

emulating

throw in the towel on

被打击后放弃

Specifically, in crazy times, disciplined investors willingly accept the risk of not taking enough risk to keep up. (See Warren Buffett and Julian Robertson in 1999. That year, underperformance was a badge of courage because it denoted a refusal to participate in the tech bubble.)

Career risk—This

Unconventionality—Along

Illiquidity—If

It’s being unable when needed to turn an investment into cash at a reasonable price. This, too, is a personal risk.

what gives rise to the risk of loss.

First, risk of loss does not necessarily stem from weak

fundame...

A fundamentally weak asset—a less-than-stellar company’s stock, a speculative-grade bond or a building in the wrong part of town—can make for a very successful...

Second, risk can be present even without weakness in the...

wreak

havoc.

souped-up

aloft

“pedestal

They believe high return and low risk can be achieved simultaneously by buying things for less than they’re worth.

tarnished

heap,

the greatest risk in these low-luster bargains lies in the possibility of underperforming in heated bull markets. That’s something the risk-conscious value investor is willing to live with.

how do they measure that risk?

First, it clearly is nothing but a matter of opinion:

Second, the standard for quantification is nonexistent.

Third, risk is deceptive.

much of risk is subjective, hidden and unquantifiable.

consigned

They make that judgment primarily based on (a) the stability and dependability of value and (b) the relationship between

price and value.

Sharpe ratio.

单位risk所带来的额外收益

This is the ratio of a portfolio’s excess return (its return above the “riskless rate,” or the rate on short-term Treasury bills) to the standard deviation of the return.

latent,

defined as the likelihood of loss—can’t

The fact that something—in this case, loss—happened doesn’t mean it was bound to happen, and the fact that something didn’t happen doesn’t mean it was unlikely.

Fooled by Randomness,

congenitally

Most simply put, how often in our business are people right for the wrong reason? These are the people Nassim Nicholas Taleb calls “lucky idiots,” and in the short run it’s certainly hard to tell them from skilled investors.

Certainly the fact that an investment worked doesn’t mean it wasn’t risky, and vice versa.

inescapable