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

by Howard Marks

In basketball they say, “You can’t coach height,” meaning all the coaching in the world won’t make a player taller. It’s almost as hard to teach insight.

A good analogy

In the vocabulary of the theory, second-level thinkers depend on inefficiency.

This is a good way to word it

One of the great sayings about poker is that “in every game there’s a fish. If you’ve played for 45 minutes and haven’t figured out who the fish is, then it’s you.”

I was the fish in 2018

For investors to get an edge, there have to be inefficiencies in the underlying process—imperfections, mispricings—to take advantage of.

First, we have to choose the market

For investing to be reliably successful, an accurate estimate of intrinsic value is the indispensable starting point.

The more i read the more i agree with this phiosophy

Growth investing represents a bet on company performance that may or may not materialize in the future, while value investing is based primarily on analysis of a company’s current worth.

“Being too far ahead of your time is indistinguishable from being wrong.”

This is such a good quote. Buying bitcoin in 2014 might have felt that way

All bubbles start with some nugget of truth:

Stocks would eventually rise

the best investors can have some of the greatest periods of underperformance.

Black Swan

In the investing world, one can live for years off one great coup or one extreme but eventually accurate forecast.

I think this is the case for Catherine Wood

Projections tend to cluster around historic norms and call for only small changes....

I think this is what i see with Rakuten stock

We hear a lot about “worst-case” projections, but they often turn out not to be negative enough.

I think he is talking about 2020

Risk shows up lumpily.

In contrast, it may be more helpful to think of risk as increasing during upswings, as financial imbalances build up, and materializing in recessions.

• Risk can be hedged through long/short and absolute return

The risk-is-gone myth is one of the most dangerous sources of risk, and a major contributor to any bubble.

Index fund is not a risk is a myth

Doing it well is what separates the best from the rest.

I like how this sentence sounds

capable of unwittingly playing Russian roulette—and calling it by some alternative “low risk ” name.

Compare stock market to Russian Roulette

Risk control is the best route to loss avoidance. Risk avoidance, on the other hand, is likely to lead to return avoidance as well.

Cycles always prevail eventually. Nothing goes in one direction forever.

However, there are two concepts we can hold to with confidence: • Rule number one: most things will prove to be cyclical. • Rule number two: some of the greatest opportunities for gain and loss come when other people forget rule number one.

I think i need to always remember this as well

“Everything that was good for the market yesterday is no good for it today.”

I need to be able to see the trends

. . . Look around the next time there’s a crisis; you’ll probably find a lender. Overpermissive providers of capital frequently aid and abet financial bubbles.

I need to search for lenders in 2020

Markets can be over- or underpriced and stay that way—or become more so—for years.

The market could keep going up until 2022

that there are limits on its ability to run the printing press and solve problems

We are running the printing press right now

More often they create a list of investment candidates meeting their minimum criteria, and from those they choose the best bargains.

potential bargains usually display some objective defect.

good place to start is among things that are: • little known and not fully understood; • fundamentally questionable on the surface; • controversial, unseemly or scary; • deemed inappropriate for “respectable” portfolios; • unappreciated, unpopular and unloved; • trailing a record of poor returns; and • recently the subject of disinvestment, not accumulation.

always say the keys to profit are aggressiveness, timing and skill, and someone who has enough aggressiveness at the right time doesn’t need much skill.

The suboptimizers of the “I don’t know” school, on the other hand, put their emphasis on constructing portfolios that will do well in the scenarios they consider likely and not too poorly in the rest.

There are old investors, and there are bold investors, but there are no old bold investors.

Ramo pointed out that professional tennis is a “winner’s game,” in which the match goes to the player who’s able to hit the most winners:

But the tennis the rest of us play is a “loser’s game,” with the match going to the player who hits the fewest losers.

So much is within the control of professional tennis players that they really should go for winners. And they’d better, since if they serve up easy balls, their opponents will hit winners of their own and take points. In contrast, investment results are only partly within the investors’ control, and investors can make good money—and outlast their opponents—without trying tough shots.

The bottom line is that even highly skilled investors can be guilty of mis-hits, and the overaggressive shot can easily lose them the match. Thus, defense—significant emphasis on keeping things from going wrong—is an important part of every great investor’s game.

It’s competitive—some succeed and some fail, and the distinction is clear. • It’s quantitative—you can see the results in black and white. • It’s a meritocracy—in the long term, the better returns go to the superior investors. • It’s team oriented—an effective group can accomplish more than one person. • It’s satisfying and enjoyable—but much more so when you win.

There can be a premium on aggressiveness, which doesn’t serve well in the long run. • Unlucky bounces can be frustrating. • Short-term success can lead to widespread recognition without enough attention being paid to the likely durability and consistency of the record.

don’t think many investment managers’ careers end because they fail to hit home runs. Rather, they end up out of the game because they strike out too often—not because they don’t have enough winners, but because they have too many losers.

So failure of imagination consists in the first instance of not anticipating the possible extremeness of future events, and in the second instance of failing to understand the knock-on consequences of extreme events.

“What the wise man does in the beginning, the fool does in the end.”

Buying based on strong value, low price relative to value, and depressed general psychology is likely to provide the best results.

“Being too far ahead of your time is indistinguishable from being wrong.” It can require patience and fortitude to hold positions long enough to be proved right.

“If we avoid the losers, the winners will take care of themselves,”