#12 My biggest learnings from The Most Important Thing by Howard Marks
“The markets can remain irrational longer than you can remain solvent.”
A quick thread on my biggest learnings from The Most Important Thing by Howard Marks:
Most things are cyclic: Everything has progress and deterioration. The best investment opportunities come along when investors forget this simple rule.
Observe and understand the present: One does not have to forecast the future in order to make good investments. An investor must keep their eyes open to what is happening around us and understand its implications. Let everything around you drive your actions.
Forecasters: Being a forecaster might make you a great dinner host and get you a WSJ story when you get it right. But embracing the fact that you don’t know will save you a great deal of money which could be lost by investing based on overrated knowledge of the future.
Price is the deciding factor: Great companies can be risky, and bad companies can be safe on the basis of the price they are offered at.
Risk-adjusted returns: Returns only tell half the story. Riskier investments cannot be counted upon to deliver higher returns. The investments wouldn't be risky if they reliably produced high returns.
Nassim Taleb's idea of alternative histories: Investors should not confuse a good outcome with success. As Taleb argues, investors should judge the decision by how the events could have unfolded rather than how they actually did.
Mistakes are driven by investors' emotions: Many people will reach similar cognitive conclusions from their analysis but what they do with it depends on the investor’s psychology. greed is the strongest emotion. Greed is strong enough to overcome common sense, prudence, & logic.
Pendulum: Investor attitudes are like a pendulum that swings between euphoria and depression. It spends very little time at its average: The midpoint. Emotions cannot continue to swing towards an extreme. The occurrence of this pattern is the most dependable market phenomenon.