The Most Important Thing: Uncommon Sense for The Thoughtful Investor

by Howard Marks

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

An accurate opinion on valuation, loosely held, will be of limited help. An incorrect opinion on valuation, strongly held, is far worse. This one statement shows how hard it is to get it all right.

Over the years leverage has been associated with high returns, but also with the most spectacular meltdowns and crashes.

“The market can remain irrational longer than you can remain solvent.”

It’s simple: if riskier investments reliably produced higher returns, they wouldn’t be riskier!

This is one of the reasons why I say risk and the risk/return decision aren’t “machinable,” or capable of being turned over to a computer.

Now that investing has become so reliant on higher math, we have to be on the lookout for occasions when people wrongly apply simplifying assumptions to a complex world.

Regardless of what’s designed into market structures, risk will be low only if investors behave prudently.

loss is what happens when risk meets adversity.

risk control is invisible in good times but still essential, since good times can so easily turn into bad times.

People who might be perfectly happy with their lot in isolation become miserable when they see others do better. In the world of investing, most people find it terribly hard to sit by and watch while others make more money than they do.

To avoid losing money in bubbles, the key lies in refusing to join in when greed and human error cause positives to be wildly overrated and negatives to be ignored.

necessary condition for the existence of bargains is that perception has to be considerably worse than reality.

Rather than doing the right thing, the defensive investor’s main emphasis is on not doing the wrong thing.

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

This simple description of the requirements for successful investing—based on understanding the range of possible gains and the risk of untoward developments—captures the elements that should receive your attention.