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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.

The Most Important Thing

The Most Important Thing

by Howard Marks


2.65K reads


Everything should be made as simple as possible, but not simpler.

  • Even the best investors don’t get it right every time. The reasons are simple. No rule always works.
  • Psychology plays a major role in markets, and because it’s highly variable, cause-and-effect relationships aren’t reliable.
  • Because investing is at least as much art as it is ...

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...


In theory there’s no difference between theory and practice, but in practice there is.

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 ...

  • Investment success doesn’t come from ‘buying good things,’ but rather from ‘buying things well.’
  • Deciding on an investment without carefully considering the fairness of its price is just as silly.
  • There’s no such thing as a good or bad idea regardless of price!
  • Well b...

  • Investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity.
  • The safest and most potentially profitable thing is to buy something when no one likes it. Given time, its popularity, and thus its price, can only go one way: up.

Possible routes to investment profit:

  • Benefiting from a rise in the asset’s intrinsic value.
  • Applying leverage.
  • Selling for more than your asset’s worth.
  • Buying something for less than its value.

Dealing with risk is an essential element in investing. There are three reasons for this:

  • First, risk is a bad thing, and most level-headed people want to avoid or minimize it.
  • Second, when you’re considering an investment, your decision should be a function of the risk entaile...


Risk means more things can happen than will happen.

Risk is – first and foremost – the likelihood of losing money.

The possibility of permanent loss is a risk to worry about.

  • Falling short of one’s goal
  • Underperformance
  • Career risk
  • Unconventionality
  • Risk that could jeopardize return to an agent’s fi...

  • First, risk of loss does not necessarily stem from weak fundamentals.
  • Second, risk can be present even without weakness in the macroenvironment.
  • Third, risk is deceptive.

  • Skillful investors can get a sense of the risk present in a given situation. They make that judgment primarily based on (a) the stability and dependability of value and (b) the relationship between price and value.
  • The fact that something – in this case, loss – happened doesn’t mean ...

  • Risk cannot be measured. Certainly it cannot be gauged on the basis of what ‘everybody’ says at a moment in time.
  • Risk can be judged only by sophisticated, experienced second-level thinkers.
  • Investment risk is largely invisible before the fact – except perhaps to people with ...


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.

  • No matter how good fundamentals may be, humans exercising their greed and propensity to err have the ability to screw things up.
  • Great investing requires both generating returns and controlling risk. And recognizing risk is an absolute prerequisite for controlling it.
  • Recogni...

  • Risk tolerance is antithetical to successful investing.
  • A prime element in risk creation is a belief that risk is low, perhaps even gone altogether.
  • Better safety gear can entice climbers to take more risk – making them in fact less safe.
  • Risk cannot be eliminated; it...

  • Outstanding investors, in my opinion, are distinguished at least as much for their ability to control risk as they are for generating a return.
  • Loss is what happens when risk meets adversity. Risk is the potential for loss if things go wrong. As long as things go well, the loss does ...

  • The manager’s value added comes not through higher return at a given risk, but through reduced risk at a given return.
  • The intelligent bearing of risk for profit, the best test for which is a record of repeated success over a long period of time.
  • So in most things, you can’t ...

  • Nothing goes in one direction forever.
  • 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.
  • The basic reason for the cyclicality in our world is the involve...

  • The first, when a few forward-looking people begin to believe things will get better.
  • The second, when most investors realize improvement is actually taking place.
  • The third, when everyone concludes things will get better forever.

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...


Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true.

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.

  • Nobody has all the answers; we’re all just human.
  • No strategy can produce high rates of return without r...

  • Buy low; sell high is the time-honored dictum, but investors who are swept up in market cycles too often do just the opposite.
  • Once-in-a-lifetime market extremes seem to occur once every decade or so.
  • Most typical of market victims: the six-foot-tall man who drowned crossing ...

Nobody goes to that restaurant anymore; it’s too crowded.

  • If you believe the story everyone else believes, you’ll do what they do.
  • Only a skeptic can separate the things that sound good and are from the things that sound good and aren’t.
  • Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when p...

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...

  • Patient opportunism – waiting for bargains – is often your best strategy.
  • You’ll do better if you wait for investments to come to you rather than go chasing after them.
  • An opportunist buys things because they’re offered at bargain prices. There’s nothing special about buying ...


The market’s not a very accommodating machine; it won’t provide high returns just because you need them

  • One of the great things about investing is that the only real penalty is for making losing investments. There’s no penalty for omitting losing investments, of course, just rewards.
  • The dumbest thing you can do is to insist on perpetuating high returns – and give back your profits in ...


We have two classes of forecasters: Those who don’t know – and those who don’t know they don’t know.

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 ...


An investor needs to do very few things right as long as he avoids big mistakes.

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