The Most Important Thing: Uncommon Sense for the Thoughtful Investor by Howard Marks

Summary
  1. Not a how to guide for investing but Howard’s investing philosophy, his guideposts
Key Takeaways
  1. Focus on risk over returns
  2. Goal is to have people say, “huh, I never thought of it like that before”
  3. Experience is what you got when you didn’t get what you wanted. The most powerful lessons come in tough times
  4. No idea can be any better than the action taken on it
  5. Some influencers and mentors: Galbraith, Buffett, Taleb, Munger, Greenblatt, Rothschild
  6. Getting average results is easy, simply invest in an index fund. But, to be successful and best the market and other investors, it takes a deep commitment. To understand business models, psychology, history and a whole host of other disciplines
  7. Second level thinking requires you to see past the short term, see how other are thinking and see the effects of that, takes into account second order consequences, it is deep, complex, convoluted, uses probabilities to see future outcomes, takes many things into account, knows the consensus opinion
  8. Do you have the confidence to be above average? Can you use second order thinking? In order to be successful, you have to hold on consensus views and be correct
  9. Second most important thing is understanding market efficiency and its limitations. Howard’s take us that markets are efficient in that they quickly incorporate new information but they are not necessarily right
  10. Everything moves in cycles, including accepted wisdom
  11. When you have a great idea or thesis on an investment, ask “and who doesn’t know that?”
  12. The starting point and foundation for all investing is an accurate calculation of intrinsic value. Easier said than done
  13. Understanding risk is key. Risk is not volatility but the fact that more things can happen than will happen. He three steps are understanding it, knowing when its high and then controlling it. Risk is different for every investor so creating a broad stroke for it is not possible but the Sharpe ratio may be the best alternative
  14. The greatest investors are subject to some of the greatest periods of underperformance because of their unconsensus views and methods
  15. Improbable things happen and probably things don’t happen all the time
  16. People expect the future to resemble the past which sometimes it does but it leads to be people expecting change to be less impactful than it often is
  17. The most dire and negative situations can in fact be the most riskless as all optimism has been drive out of the price. Quality is not tied to risk. A high quality company can be very risky above a certain price
  18. “This time is different” should cause you to pay extreme attention
  19. Combative negative influences such as desire for more, desire for a sure thing, biases, fear of missing out, greed, fear, comparing self to others, ego and poor psychology is vital. This may be one of the greatest sources of advantage one can achieve
  20. It is essential to find bargains by being willing to invest in what others are seemingly over pessimistic about. Boil it all down in order to find bargains perception house sitter of work in reality for whatever number of
  21. Investing is the discipline of relative selection
  22. Should not go out and try to find out investments – let them find you
  23. Most people, although they have many holdings, are not truly diversified. Own is only diversified if you can expect the holdings to perform differently in changing environments. It is the rare investor who understands these correlations
What I got out of it
  1. One of my favorite investing books – focus on risk rather than return, understand how difficult the game is if you decide to play, must be a second/third level thinker…