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Successful investing requires thoughtful attention to many separate aspects, all at the same time. The Most Important Thing by Howard Marks covers these key aspects in layman language and without a lot of finance jargon though it covers the concepts of investment theory.
by Howard Marks
Only a few of them will achieve the superior insight, intuition, sense of value and awareness of psychology that are required for consistently above-average results. Doing so requires second-level thinking.
Your thinking has to be better than that of others – both more powe...
First-level thinkers think the same way other first-level thinkers do about the same things.
All investors can’t beat the market since, collectively, they are the market.
To outperform the average investor, you have to be able to outthink the consensus. Are you capable of doing so? Wh...
Asset prices immediately reflect the consensus view of the information’s significance. I do not, however, believe the consensus view is necessarily correct.
To beat the market you must hold an idiosyncratic, or nonconsensus, view.
The efficient market hypothesis is its conclusion that...
If riskier investments could be counted on to produce higher returns, they wouldn’t be riskier.
The key question is whether it’s right: Is the market unbeatable? Are the people who try wasting their time? Are the clients who pay fees to investment managers wasting their money?
Efficiency is not so universal that we should give up on superior performance.
Efficiency is what lawyers call a ‘rebuttable presumption’ – something that should be presumed to be true until someone proves otherwise.
Inefficiency is a necessary condition for superior investing. Attemp...
For investing to be reliably successful, an accurate estimate of intrinsic value is the indispensable starting point. Without it, any hope for consistent success as an investor is just that: hope.
Buy at a price below intrinsic value, and sell at a higher price.
An investor has two ba...
Day traders considered themselves successful if they bought a stock at $10 and sold at $11, bought it back the next week at $24 and sold at $25, and bought it a week later at $39 and sold at $40. If you can’t see the flaw in this – that the trader made $3 in a stock that appreciated by $30 – ...
If value investing has the potential to consistently produce favourable results, does that mean it’s easy? No. For one thing, it depends on an accurate estimate of value. Without that, any hope for consistent success as an investor is just that: hope.
It’s hard to consistently do the right ...
Possible routes to investment profit:
Dealing with risk is an essential element in investing. There are three reasons for this:
Risk is – first and foremost – the likelihood of losing money.
The possibility of permanent loss is a risk to worry about.
The received wisdom is that risk increases in the recessions and falls in booms. In contrast, it may be more helpful to think of risk as increasing during upswings, as financial imbalances build up, and materializing in recessions.
What the wise man does in...
it takes analytical ability, objectivity, resolve, even imagination, to think things will ever get better. The few people who possess those qualities can make unusual profits with low risk.
The oscillation of the investor pendulum is very similar in nature to the up-and-down fluctuation of...
Why do mistakes occur? Because investing is an action undertaken by human beings, most of whom are at the mercy of their psyches and emotions.
The desire for more, the fear of missing out, the tendency to compare against others, the influence of the crowd and the dream of the sure thing – t...
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.
The process of intelligently building a portfolio consists of buying the best investments, making room for them by selling lesser ones, and staying clear of the worst.
The raw materials for the process consist of
(a) a list of potential investments,
(b) estimates of their intrin...
Since bargains provide value at unreasonably low prices – and thus unusual ratios of return to risk – they represent the Holy Grail for investors.
It’s obvious that investors can be forced into mistakes by psychological weakness, analytical error or refusal to tread on uncertain ground. Tho...
Every once in a while, someone makes a risky bet on an improbable or uncertain outcome and ends up looking like a genius. But we should recognize that it happened because of luck and boldness, not skill.
The truth is, much in investing is ruled by luck. Some may prefer to call it chance or ...
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