Ideas, facts & insights covering these topics:
42 ideas
·39K reads
104
Explore the World's Best Ideas
Join today and uncover 100+ curated journeys from 50+ topics. Unlock access to our mobile app with extensive features.
420
3.28K reads
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 powerful and at a higher level.
What is second-level thinking?
First-level thinking says, ‘It’s a good company; let’s buy the stock.’ Second-level thinking says, ‘It’s a good company, but everyone thinks it’s a great company, and it’s not. So the stock’s overrated and overpriced; let’s sell.’
429
2.44K reads
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? What makes you think so?
The problem is that extraordinary performance comes only from correct non-consensus forecasts.
The upshot is simple: to achieve superior investment results, you have to hold non-consensus views regarding value, and they have to be accurate. That’s not easy.
420
1.99K reads
417
2.49K reads
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 ‘you can’t beat the market.’
The greatest ramifications of the Chicago theory has been the development of passive investment vehicles known as index funds.
401
1.45K reads
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?
Second-level thinkers know that to achieve superior results, they have to have an edge in either information or analysis or both. They are on the alert for instances of misperception.
400
1.22K reads
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. Attempting to outperform in a perfectly efficient market is like flipping a fair coin: the best you can hope for is fifty-fifty.
For investors to get an edge, there have to be inefficiencies in the underlying process – imperfections, mispricings – to take advantage of.
397
1.01K reads
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 basic choices: gauge the security’s underlying intrinsic value and buy or sell when the price diverges from it, or base decisions purely on expectations regarding future price movements.
398
863 reads
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 – you probably shouldn’t read the rest of this content.
Two approaches, both driven by fundamentals: value investing and growth investing.
399
862 reads
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 thing as an investor. But it’s impossible to consistently do the right thing at the right time.
Being too far ahead of your time is indistinguishable from being wrong.
396
768 reads
395
726 reads
395
667 reads
Possible routes to investment profit:
393
728 reads
Dealing with risk is an essential element in investing. There are three reasons for this:
390
563 reads
Risk is – first and foremost – the likelihood of losing money.
The possibility of permanent loss is a risk to worry about.
394
961 reads
391
902 reads
390
559 reads
Only the things that happened, happened.
388
531 reads
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.
389
609 reads
387
463 reads
390
425 reads
389
391 reads
389
376 reads
392
394 reads
What the wise man does in the beginning, the fool does in the end.
392
402 reads
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 economic and market cycles.
Extreme market behaviour will reverse.
388
382 reads
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 – these factors are near universal.
Inefficiencies – mispricings, misperceptions, mistakes that other people make – provide potential opportunities for superior performance. Exploiting them is, in fact, the only road to consistent outperformance.
390
342 reads
Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true.
389
555 reads
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.
387
395 reads
389
384 reads
388
347 reads
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 intrinsic value,
(c) a sense for how their prices compare with their intrinsic value
(d) an understanding of the risks involved in each, and of the effect their inclusion would have on the portfolio being assembled.
The starting point for portfolio construction is unlikely to be an unbounded universe.
386
328 reads
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. Those mistakes create bargains for second-level thinkers capable of seeing the errors of others.
387
331 reads
394
338 reads
The market’s not a very accommodating machine; it won’t provide high returns just because you need them
386
403 reads
387
312 reads
We have two classes of forecasters: Those who don’t know – and those who don’t know they don’t know.
388
401 reads
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 randomness, and those words do sound more sophisticated than luck.
A great deal of the success of everything we do as investors will be heavily influenced by the roll of the dice.
387
321 reads
389
460 reads
IDEAS CURATED BY
CURATOR'S NOTE
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.
“
Curious about different takes? Check out our The Most Important Thing Summary book page to explore multiple unique summaries written by Deepstash users.
Learn more about moneyandinvestments with this collection
How to make good decisions
How to manage work stress
How to manage email effectively
Related collections
Different Perspectives Curated by Others from The Most Important Thing
Curious about different takes? Check out our book page to explore multiple unique summaries written by Deepstash curators:
4 ideas
155 ideas
Discover Key Ideas from Books on Similar Topics
7 ideas
Margin of Safety
Seth A. Klarman
4 ideas
Investing in One Lesson
Mark Skousen
8 ideas
5 Differences between Investing and Trading
motilaloswalmf.com
Read & Learn
20x Faster
without
deepstash
with
deepstash
with
deepstash
Personalized microlearning
—
100+ Learning Journeys
—
Access to 200,000+ ideas
—
Access to the mobile app
—
Unlimited idea saving
—
—
Unlimited history
—
—
Unlimited listening to ideas
—
—
Downloading & offline access
—
—
Supercharge your mind with one idea per day
Enter your email and spend 1 minute every day to learn something new.
I agree to receive email updates