To avoid the topic and speak in a roundabout manner.You can use it when someone is avoiding talking about an important topic and trying to talk around it.

Beat Around the Bush

This idiom was coined to describe a rare or infrequent event.

Once in a Blue Moon

facing the consequences of your deeds

Face the Music

feel sick or unwell

under the weather

The term is used to describe something that happens suddenly and unexpectedly

a bolt from the blue

To end the conflict and make peace.

Bury the hatchet

a pointless or hopeless pursuit.

Wild goose chase

used to express for something thats costly or expensive

Cost an arm and a leg

used to point out something that's get done at the very last moment or almost too late.

At the eleventh hour

To brag about one's own achievements

Blow one's own trumpet

To remove the tension at a first meeting, at the opening of a party, etc.

Break the ice

To get into trouble or difficult situation

Get into hot water

To describe exactly what's causing a situation or problem

Hit the nail on the head

To have a grievance against someone or a personal reason for complaining or being involved in something

Have an axe to grind

To suspect that something is wrong or that someone is being dishonest.

Smell a rat

To stop working for the day or to stop doing something

call it a day

someone who is gifted by the ability to talk

Gift of the gab

The phrase is used to describe when someone agrees with another person or views something in the same way.

See eye to eye

To keep talking about something that's already been resolved or is no longer relevant or to waste effort on something that is unlikely to succeed

Flog/Beat a dead horse

To do something immediately, without any hesitation

At the drop of a hat

To do everything possible to achieve something

Leave No stone unturned

to accidentally reveal a secret

Let the cat out of the bag

To go out and enjoy something flamboyantly

Paint the town red

To reveal true character or intentions

Show your true colors

To reveal a secret

spill the beans

These are some most repeated idioms and phrases.. you can you these to improve your communication skills 

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the renowned indian investor mr chandrakant sampat's investment philosophy <ul><li>he looks for durability </li><li>entry barriers</li><li>positive cash flow </li><li>negative working capital </li><li>asset turnover ration of not less than 3.50</li></ul>

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The art of investment has one characteristic that is not generally appreciated. A creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability; but to imrove this easily attainable standard requires much application and more than a trace of wisdom

Everything should be made simple as possible, but not simpler

It's not supposed to be easy, anyone who finds it easy is stupid.

<ul><li class="ql-align-justify">Second-level thinking</li><li class="ql-align-justify">Understanding market efficiency(and its limitations)</li><li class="ql-align-justify">Value</li><li class="ql-align-justify">The relationship between price and value</li><li class="ql-align-justify">understanding risk</li><li class="ql-align-justify">recognizing risk </li><li class="ql-align-justify">controlling risk </li><li class="ql-align-justify">being attentive to cycles</li><li class="ql-align-justify">awareness of the pendulum</li><li class="ql-align-justify">combating negative influences</li><li class="ql-align-justify">contrarianism</li><li class="ql-align-justify">Finding bargains</li><li class="ql-align-justify">pateint opportunism </li><li class="ql-align-justify">knowing what you dont know </li><li class="ql-align-justify">having sense for where we stand </li><li class="ql-align-justify">appreciating the role of luck</li><li class="ql-align-justify">investing defensively </li><li class="ql-align-justify">Avoiding pitfalls</li><li class="ql-align-justify">adding value </li></ul>

The  most important thing is.....

Few people have what it takes to be a great investors. some can be taught, but not everyone... and those who can be taught can't be taught everything.No rule always works.

The most important thing is...second-level thinking

one of the most important things to bear in mind today is that economics isn't and exact science. it may not even be much of a science at all,in the sense that in science, controlled experiments can be conducted, past results can be replicated with confidence, and cause-and effect relationships can be depended on to hold."One of the things i most want to emphasize is how essential it is that one's investment approach be intuitive and adaptive rather than be fixed and mechanistic.""The defitnition of successful investing is doing better than market and other investors"

"The defitnition of successful investing is doing better than market and other investors" and to accomplish that you need either good luck or superior insights.Remember your goal in investing isn't to earn average returns; you want to do better than average. Thus, your thinking has to be better than others

<ul><li class="ql-align-justify">First-level thinking says, "it's a good company; lets 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 or overpriced; let's sell.</li><li class="ql-align-justify">First-level thinking says, "The outlook calls for low growth and rising inflation. Let's dump our stocks." Second-Level-thinking says, "The outlook stinks,but everyone else is selling in panic. Buy!"</li><li class="ql-align-justify">First=level-thinking says, "I think the company's earnings will fall; sell."</li></ul>

What is second level thinking?

Second-level thinking says, "I think the company's earnings will fall less than people expect, and the pleasant surprise will lift the stock; Buy."First-level-thinking is simplistic and superficial; and just about everyone can do it(a bad sign for anything involving an attempt at superiority.) All the first-level thinker needs is an opinion about the future, as in " The outlook for the company is favorable, meaning the stock will go up".

Second-Level Thinker take a great many things into account:<ol><li class="ql-align-justify">What is the range of likely future outcome?</li><li class="ql-align-justify">Which outcome do i think will occur?</li><li class="ql-align-justify">What's the probability I'm right?</li><li class="ql-align-justify">What does the consensus think?</li><li class="ql-align-justify">How does my expectation differ from the concensus?</li><li class="ql-align-justify">How does the current price for the asset comporr with the consensus view of the future, and with mine?</li><li class="ql-align-justify">Is the consensus psychology that's incorporated in the price too bullish or bearish?</li><li class="ql-align-justify">What will happen to the asset's price if the consensus turns out be right, and what if i'm right?</li></ol>

First level thinkers look for simple formulas and easy answers, second level thinkers know that success in investing is the antithesis of simple. "Brokerage firms want you to think everyone's capable of investing-- at 10$ per trade. Mutual fund companies don't want you tp think you can do it; they want youto think they can do it. In the case, you'll put your money into actively managed funds and pay associated high fees.

If your behaviour is conventional, you're likely to get conventional results- either good or bad. Only if your behaviour is unconventional is your performance likely to be unconventional, and only if your judgements are superior is your performance likely to be above average--- "DARE TO BE GREAT", SEPTEMBER 7,2006

The upshot is simple: To achieve superior investment results, you have to hold nonconsensus views regarding value, and they have to be accurate. That's not easy. The attractiveness of buying something for less than it’s worth makes eminent sense. So how is one to find bargains in efficient markets? You must bring exceptional analytical ability, insight or foresight. But because it’s exceptional, few people have it.“Returns and How They Get That Way,” November 11, 2002"

Those who consider the investment process simple generally aren’t aware of the need for— or even the existence of—second- level thinking. Thus, many people are misled into believing that everyone can be a successful investor. Not everyone can. But the good news is that the prevalence of first- level thinkers increases the returns available to second- level thinkers. To consistently achieve superior investment returns, you must be one of them.

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

The Most Important Thing Is . . . 
Understanding Market Efficiency (and Its Limitations)

The theory included concepts that went on to become important elements in investment dialogue: risk aversion, volatility as the definition of risk, risk- adjusted returns, systematic and nonsystematic risk, alpha, beta, the random walk hypothesis and the effi cient market hypothesis.

“Chicago School Theory”

<ul><li class="ql-align-justify">There are many participants in the markets, and they share roughly equal access to all relevant information. They are intelligent, objective, highly motivated and hardworking. Their analytical models are widely known and employed.</li><li class="ql-align-justify">Thus, market prices represent accurate estimates of assets’ intrinsic value, and no participant can consistently identify and profit from instances when they are wrong.</li></ul>

Efficient market hypothesis

<ul><li class="ql-align-justify">If prices inefficient markets already refl ect the consensus, then sharing the consensus view will make you likely to earn just an average return. To beat the market you must hold an idiosyncratic, or nonconsensus, view.</li><li class="ql-align-justify">although the more efficient markets often misvalue assets, it’s not easy for any one person—working with the same information as everyone else and subject to the same psychological infl uences— to consistently hold views that are different from the consensus and closer to being correct. Th at’s what makes the mainstream markets hard to beat— even if they aren’t always right.</li></ul>

Consensus and non-consensus view

The most important upshot from the efficient market hypothesis is its conclusion that “you can’t beat the market.” One of the greatest ramifi cations of the Chicago theory has been the development of passive investment vehicles known as index funds.According to investment theory, people are risk-averse by nature, meaning that in general they’d rather bear less risk than more.For them to make riskier investments, they have to be induced through the promise of higher returns.“The higher return is explained by hidden risk.”

Index funds and risk

Once in a while we experience periods when everything goes well and riskier investments deliver the higher returns they seem to promise. Those halcyon periods lull people into believing that to get higher returns, all they have to do is make riskier investments. But they ignore something that is easily forgotten in good times: this can’t be true, because if riskier investments could be counted on to produce higher returns, they wouldn’t be riskier.

In fact, some asset classes are quite efficient. In most of these:• the asset class is widely known and has a broad following;• the class is socially acceptable, not controversial or taboo;• the merits of the class are clear and comprehensible, at least on the surface; and• information about the class and its components is distributed widely and evenly.If these conditions are met, there’s no reason why the asset class should systematically be overlooked, misunderstood or underrated

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. second- level thinkers depend on inefficiency. Where might errors come from? Let’s consider the assumptions that underlie the theory of efficient markets:• many investors hard at work.• They are intelligent, diligent, objective, motivated and well equipped.• They all have access to the available information, and their access is roughly equal.• They’re all open to buying, selling or shorting every asset

A market characterized by mistakes and mispricings can be beaten by people with rare insight. Thus, the existence of inefficiencies gives rise to the possibility of outperformance and is a necessary condition for it. It does not, however, guarantee it.

To me, an ineffi cient market is one that is marked by at least one of the following characteristics: • Market prices are often wrong. Because access to information and the analysis thereof are highly imperfect, market prices are often far above or far below intrinsic values.• The risk- adjusted return on one asset class can be far out of line with those of other asset classes. Because assets are often valued at other- than- fair prices, an asset class can deliver a risk- adjusted return that is significantly too high (a free lunch) or too low relative to other asset classes.

• Some investors can consistently outperform others. coz of the existence of(a) significant misvaluations (b) differences among participants in terms of skill, insight and information access, it is possible for misvaluations to be identified and profited from with regularity.Inefficient markets do not necessarily give their participants generous returns. Rather, it’s my view that they provide the raw material— mispricings—that can allow some people to win and others to lose on the basis of differential skill. If prices can be very wrong, that means it’s possible to fi nd bargains or overpay.

One of the great sayings about poker is that “in every game there’s a fish. If you’ve played for 45 minutes and haven’t fi gured out who the fish is, then it’s you.” The same is certainly true of inefficient market investing.

Think of it this way:• Why should a bargain exist despite the presence of thousands of investors who stand ready and willing to bid up the price of anything that’s too cheap?• If the return appears so generous in proportion to the risk, might you be overlooking some hidden risk?• Why would the seller of the asset be willing to part with it at a price from which it will give you an excessive return?• Do you really know more about the asset than the seller does?• If it’s such a great proposition, why hasn’t someone else snapped it up?

Something else to keep in mind: just because efficiencies exist today doesn’t mean they’ll remain forever.Bottom line: Inefficiency is a necessary condition for superior investing. Attempting to outperform in a perfectly effi cient 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 ineffi ciencies in the underlying process— imperfections, mispricings— to take advantage of.

The image here is of the efficient- market- believing fi nance professor who takes a walk with a student.“Isn’t that a $10 bill lying on the ground?” asks the student.“No, it can’t be a $10 bill,” answers the professor. “If it were, someone would have picked it up by now.”The professor walks away, and the student picks it up and has a beer.

Believer vs Non believers of EMH

Th e oldest rule in investing is also the simplest: “Buy low; sell high.” obvious— on the surface: it means that you should buy something at a low price and sell it at a high price. But what, in turn, does that mean? What’s high, and what’s low?On a superficial level, you can take it to mean that the goal is to buy something for less than you sell it for.

The Most Important Thing Is . . . Value

The random walk hypothesis says a stock’s past price movements are of absolutely no help in predicting future movements. In other words, it’s a random pro cess, like tossing a coin. We all know that even if a coin has come up heads ten times in a row, the probability of heads on the next throw is still fifty- fifty.Like￾wise, the hypothesis says, the fact that a stock’s price has risen for the last ten days tells you nothing about what it will do tomorrow.

The random walk 
hypothesis

Another form of relying on past stock price movements to tell you something is so- called momentum investing. It, too, exists in contravention of the random walk hypothesis. I’m unlikely to do it justice. But as I see it, investors who practice this approach operate under the assumption that they can tell when something that has been rising will continue to rise.

Momentum investing

Momentum investing might enable you to participate in a bull market that continues upward, but I see a lot of drawbacks. One is based on econo￾mist Herb Stein’s wry observation that “if something cannot go on forever, it will stop.” What happens to momentum investors then? How will this approach help them sell in time to avoid a decline? And what will it have them do in falling markets?

The way I see it, 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 fl aw in this— that the trader made $3 in a stock that appreciated by $30.

Day traders

value investing and growth investing. In a nutshell, value investors aim to come up with a security’s current intrinsic value and buy when the price is lower, and growth investors try to find securities whose value will increase rapidly in the future.

Value vs growth investing

To value investors, an asset isn’t an ephemeral concept you invest in because you think it’s attractive. It’s a tangible object that should have an intrinsic value capable of being ascertained, and if it can be bought below its intrinsic value, you might consider doing so. Thus, intelligent investing has to be built on estimates of intrinsic value. Th ose esti￾mates must be derived rigorously, based on all of the available information.

Value investing

What is it that makes a security— or the underlying company— valuable? There are lots of candidates: financial resources, management, factories, retail outlets, patents, human resources, brand names, growth potential and, most of all, the ability to generate earnings and cash flow. The emphasis in value investing is on tangible factors like hard assets and cash flows.Intangibles like talent, popular fashions and long- term growth potential are given less weight.

There’s even something called “net- net investing,” in which people buy when the total market value of a company’s stock is less than the amount by which the company’s current assets— such as cash, receivables and inventories— exceed its total liabilities.In this case, in theory, you could buy all the stock, liquidate the current assets, pay off the debts, and end up with the business and some cash. Pocket cash equal to your cost, and with more left over you’ll have paid “less than nothing” for the business.

Net-Net investing

value investing and growth investing. In a nutshell, value investors aim to come up with a security’s current intrinsic value and buy when the price is lower, and growth investors try to find securities whose value will increase rapidly in the future.intelligent investing has to be built on estimates of intrinsic value. Th ose estimates must be derived rigorously, based on all of the available information.

value investing vs growth investing

What is it that makes a security or the underlying company valuable? There are lots of candidates: financial resources, management, factories, retail outlets, patents, human resources, brand names, growth potential and, most of all, the ability to generate earnings and cash flow. • Value investors buy stocks (even those whose intrinsic value may show little growth in the future) out of conviction that the current value is high relative to the current price.

Growth investors buy stocks (even those whose current value is low relative to their current price) because they believe the value will grow fast enough in the future to produce substantial appreciation. Thus, it seems to me, the choice isn’t really between value and growth, but between value today and value tomorrow. Growth investing represents a bet on company performance that may or may not materialize in the future, while value investing is based primarily on analysis of a company’s current worth.Compared to value investing, growth investing centers around trying for big winners.

Let’s say you fi gure out that something’s worth 80 and have a chance to buy it for 60. Chances to buy well below actual value don’t come along every day, and you should welcome them. Warren Buffett describes them as “buying dollars for fifty cents.” So you buy it and you feel you’ve done a good thing.

Buying a dollar for cents

There, many people tend to fall further in love with the thing they’ve bought as its price rises, since they feel validated, and they like it less as the price falls, when they begin to doubt their decision to buy.This makes it very diffi cult to hold, and to buy more at lower prices (which investors call “averaging down”), especially if the decline proves to be extensive. If you liked it at 60, you should like it more at 50 . . . and much more at 40 and 30.

An accurate opinion on valuation, loosely held, will be of limited help. An incorrect opinion on valuation, strongly held, is far worse. Th is one statement shows how hard it is to get it all right.

Value investors score their biggest gains when they buy an underpriced asset, average down unfailingly and have their analysis proved out. Thus, there are two essential ingredients for profi t in a declining market: you have to have a view on intrinsic value, and you have to hold that view strongly enough to be able to hang in and buy even as price declines suggest that you’re wrong. Oh yes, there’s a third: you have to be right.

Buy it underpriced

Investment success doesn’t come from “buying good things,” but rather from “buying things well.”

The Most Important Thing Is . . . The 
Relationship Between Price and Value

Let’s say you’ve become convinced of the efficacy of value investing and you’re able to come up with an estimate of intrinsic value for a stock or other asset. Let’s even say your estimate is right. You’re not done. In order to know what action to take, you have to look at the asset’s price relative to its value. Establishing a healthy relationship between fundamentals— value—and price is at the core of successful investing.

When people say flatly, “we only buy A” or “A is a superior asset class,” that sounds a lot like “we’d buy A at any price . . . and we’d buy it before B, C or D at any price.” That just has to be a mistake. No asset class or investment has the birthright of a high return. It’s only attractive if it’s priced right.Bottom line: there’s no such thing as a good or bad idea regardless of price!

What are the companies worth? Eventually, this is what it comes down to. It’s not enough to buy a share in a good idea, or even a good business. You must buy it at a reasonable (or, hopefully, a bargain) price.<ul><li>You can’t make a career out of buying from forced sellers and selling to forced buyers; they’re not around all the time, just on rare occasions at the extremes of crises and bubbles.</li><li>Since buying from a forced seller is the best thing in our world, being a forced seller is the worst. This requires both long- term capital and strong psychological resources.</li></ul>

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.

Buy it when its not known

<ul><li class="ql-align-justify">The positives behind stocks can be genuine and still produce losses if you overpay for them.</li><li>“Prices are too high” is far from synonymous with “the next move will be downward.” Things can be overpriced and stay that way for a long time . . . or become far more so.</li><li>Eventually, though, valuation has to matter.</li></ul>

<ul><li class="ql-align-justify">Benefiting from a rise in the asset’s intrinsic value.</li><li class="ql-align-justify">Applying leverage.</li><li class="ql-align-justify">Selling for more than your asset’s worth.</li><li class="ql-align-justify">Buying something for less than its value.</li></ul>

Consider the possible routes to investment profit:

“The market can remain irrational longer than you can remain solvent.”

Risk means more things can happen than will happen.                                                                          ---ELROY DIMSON

The Most Important Thing Is . . . 
Understanding, Recognizing, and controlling "RISK"

Investing consists of exactly one thing: dealing with the future. And because none of us can know the future with certainty, risk is inescapable.The first step consists of understanding it. The second step is recognizing when it’s high. The critical final step is controlling it. Because the issue is so complex and so important, I devote three chapters to examining risk in depth.people are naturally risk- averse, meaning they’d rather take less risk than more.

Risk

Especially in good times, far too many people can be overheard saying, “Riskier investments provide higher returns. If you want to make more money, the answer is to take more risk.” But riskier investments absolutely cannot be counted on to deliver higher returns. Why not? It’s simple: if riskier investments reliably produced higher returns, they wouldn’t be riskier!There are many kinds of risk. . . . But volatility may be the least relevant of them all. Theory says investors demand more return from investments that are more volatile.

do riskier investment give higher returns?

<ul><li>Falling short of one’s goal—</li><li>Underperformance—</li><li>Career risk— </li><li>Unconventionality—</li><li> Illiquidity—</li></ul>Theory says high return is associated with high risk because the former exists to compensate for the latter. But pragmatic value investors feel just the opposite: They believe high return and low risk can be achieved simultaneously by buying things for less than they’re worth. In the same way, overpaying implies both low return and high risk.

Investment risk comes in many forms.

Given the difficulty of quantifying the probability of loss, investors who want some objective measure of risk- adjusted return— and they are many— can only look to the so- called Sharpe ratio. This is the ratio of a portfolio’s excess return (its return above the “riskless rate,” or the rate on short- term Treasury bills) to the standard deviation of the return. This calculation seems serviceable for public market securities that trade and price often; there is some logic, and it truly is the best we have.

Sharpe ratio

“Risk means more things can happen than will happen.”

<ul><li>Risk exists only in the future, and it’s impossible to know for sure what the future holds. </li><li>Decisions whether or not to bear risk are made in contemplation of normal patterns recurring, and they do most of the time. </li><li>Projections tend to cluster around historic norms and call for only small changes. </li><li>We hear a lot about “worst- case” projections, but they often turn out not to be negative enough.</li><li>Risk shows up lumpily.</li><li>People overestimate their ability to gauge risk and understand mechanisms they’ve never before seen in operation. </li><li>most people view risk taking primarily as a way to make money</li></ul>

Here’s my wrap- up on understanding risk:

<ul><li>story of the gambler who lost regularly. One day he heard about a race with only one horse in it, so he bet the rent money. Halfway around the track, the horse jumped over the fence and ran away. </li></ul>Invariably things can get worse than people expect.

The story to remember about a gambler

My belief is that because the system is now more stable, we’ll make it less stable through more leverage, more risk taking.                                                                                            MYRON SCHOLES

Recognizing "RISK"

The received wisdom is that risk increases in the reces￾sions and falls in booms. In contrast, it may be more help￾ful to think of risk as increasing during upswings, as fi nan￾cial imbalances build up, and materializing in recessions.

Great investing requires both generating returns and controlling risk. And recognizing risk is an absolute prerequisite for controlling it.Risk means uncertainty about which outcome will occur and about the possibility of loss when the unfavorable ones do. The next important step is to describe the process through which risk can be recognized for what it is.

Recognizing risk oft en starts with understanding when investors are paying it too little heed, being too optimistic and paying too much for a given asset as a result. High risk, in other words, comes primarily with high prices. participating when prices are high rather than shying away is the main source of risk.

buying overpriced assets is RISK

When investors are unworried and risk-tolerant, they buy stocks at high price/earnings ratios and private companies at high multiples of EBITDA (cash flow, defined as earnings before interest, taxes, depreciation and amortization), and they pile into bonds despite narrow yield spreads and into real estate at minimal “cap rates” (the ratio of net operating income to price).

“Jill Fredston is a nationally recognized avalanche expert. . . She knows about a kind of moral hazard risk, where better safety gear can entice climbers to take more risk— making them in fact less safe.” Like opportunities to make money, the degree of risk present in a market derives from the behavior of the participants, not from securities, strategies and institutions. Regardless of what’s designed into market structures, risk will be low only if investors behave prudently.Th e bottom line is that tales like this one about risk control rarely turn out to be true. Risk cannot be eliminated

Risk cannot be Eliminated

The risk- is- gone myth is one of the most dangerous sources of risk, and a major contributor to any bubble. At the extreme of the pendulum’s upswing, the belief that risk is low and that the investment in question is sure to produce profi ts intoxicates the herd and causes its members to forget caution, worry and fear of loss, and instead to obsess about the risk of missing opportunity.Worry and its relatives, distrust, skepticism and risk aversion, are essential ingredients in a safe financial system.

Worry and its relatives

Investment risk comes primarily from too- high prices, and too- high prices oft en come from excessive optimism and inadequate skepticism and risk aversion.

<ul><li>When everyone believes something is risky,their unwillingness to buy usually reduces its price to the point where it’s not risky at all. Broadly negative opinion can make it the least risky thing, since all optimism has been driven out of its price</li><li>And, of course, as demonstrated by the experience of Nift y Fifty investors, when everyone believes something embodies no risk, they usually bid it up to the point where it’s enormously risky. No risk is feared, and thus no reward for risk bearing— no “risk premium”— is demanded or provided. That can make the thing that’s most esteemed the riskiest</li></ul>

Outstanding investors, in my opinion, are distinguished at least as much for their ability to control risk as they are for generating return.What ever few awards are presented for risk control, they’re never given out in good times. Th e reason is that risk is covert, invisible. Risk— the possibility of loss— is not observable. What is observable is loss, and loss generally happens only when risk collides with negative events.Germs cause illness, but germs themselves are not illness. We might say illness is what results when germs take hold.

Controlling "RISK"

The important thing here is the realization that risk may have been present even though loss didn’t occur. Th erefore, the absence of loss does not necessarily mean the portfolio was safely constructed.Reality is far more vicious than Russian roulette.

First, it delivers the fatal bullet rather infrequently, like a revolver that would have hundreds, even thousands of chambers instead of six. Aft er a few dozen tries, one forgets about the existence of a bullet, under a numbing false sense of security. . . . Second, unlike a well- defi ned precise game like Russian roulette, where the risks are visible to anyone capable of multiplying and dividing by six, one does not observe the barrel of reality. . . . One is thus capable of unwittingly playing Rus sian roulette— and calling it by some alternative “low risk” name...

Russian roulette

I think it’s essential to remember that just about everything is cyclical. There’s little I’m certain of, but these things are true: Cycles always prevail eventually. Nothing goes in one direction forever. Trees don’t grow to the sky. Few things go to zero. And there’s little that’s as dangerous for investor health as insistence on extrapolating today’s events into the future.

The Most Important Thing Is . . . 
Being Attentive to Cycles

• 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.

2 rules

The basic reason for the cyclicality in our world is the involvement of humans. Mechanical things can go in a straight line. Time moves ahead continuously. So can a machine when it’s adequately powered. But processes in fi elds like history and economics involve people, and when people are involved, the results are variable and cyclical. Th e main reason for this, I think, is that people are emotional and inconsistent, not steady and clinical.

• The economy moves into a period of prosperity.• Providers of capital thrive, increasing their capital base.• Because bad news is scarce, the risks entailed in lending and investing seem to have shrunk.• Risk averseness disappears.• Financial institutions move to expand their businesses— that is, to provide more capital.• They compete for market share by lowering demanded returns (e.g., cutting interest rates), lowering credit standards, providing more capital for a given transaction and easing covenants.

The process is simple

• Losses cause lenders to become discouraged and shy away.• Risk averseness rises, and along with it, interest rates, credit restrictions and covenant requirements.• Less capital is made available— and at the trough of the cycle, only to the most qualifi ed of borrowers, if anyone.• Companies become starved for capital. Borrowers are unable to roll over their debts, leading to defaults and bankruptcies.• This pro cess contributes to and reinforces the economic contraction.We conclude that most of the time, the future will look a lot like the past, with both up cycles and down cycles.

When this point is reached, the up-leg described above— the 
rising part of the cycle— is reversed.

When things are going well and prices are high, investors rush to buy, forgetting all prudence. Then, when there’s chaos all around and assets are on the bargain counter, they lose all willingness to bear risk and rush to sell. And it will ever be so.

The Most Important Thing Is . . . 
Awareness of the Pendulum

• between euphoria and depression,• between celebrating positive developments and obsessing over negatives, and thus• between overpriced and underpriced.This oscillation is one of the most dependable features of the investment world, and investor psychology seems to spend much more time at the extremes than it does at a “happy medium.”

Investment markets follow a pendulum- like swing:

• 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 foreverWhy would anyone waste time trying for a better description? This one says it all. It’s essential that we grasp its significance.The market has a mind of its own, and it’s changes in valuation parameters, caused primarily by changes in investor psychology, that account for most short- term changes in security prices. Th is psychology, too, moves like a pendulum.

The three stages of bull market

The oscillation of the investor pendulum is very similar in nature to the up- and- down fluctuation of economic and market cycles.• In theory with regard to polarities such as fear and greed, the pendulum should reside mostly at a midpoint between the extremes. But it doesn’t for long.• Primarily because of the workings of investor psychology, it’s usually swinging toward or back from one extreme or the other.

• The pendulum cannot continue to swing toward an extreme, or reside at an extreme, forever (although when it’s positioned at its greatest extreme, people increasingly describe that as having become a permanent condition).• Like a pendulum, the swing of investor psychology toward an extreme causes energy to build up that eventually will contribute to the swing back in the other direction. Sometimes, the pent- up energy is itself the cause of the swing back— that is, the pendulum’s swing toward an extreme corrects of its very weight.

• The swing back from the extreme is usually more rapid— and thus takes much less time— than the swing to the extreme. (Or as my partner Sheldon Stone likes to say, “The air goes out of the balloon much faster than it went in.”)The occurrence of this pendulum- like pattern in most market phenomena is extremely dependable. But just like the oscillation of cycles, we never know:• how far the pendulum will swing in its arc,• what might cause the swing to stop and turn back,• when this reversal will occur, or• how far it will then swing in the opposite direction.

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. Thus they have a profound collective impact on most investors and most markets. The result is mistakes, and those mistakes are frequent, widespread and recurring.

The Most Important Thing Is . . . 
Combating Negative Influences

"This is that rarity, a useful book."--Warren Buffett Howard Marks, the chairman and cofounder of Oaktree Capital Management, is renowned for his insightful assessments of market opportunity and risk. After four decades spent ascending to the top of the investment management profession, he is today sought out by the world's leading value investors, and his client memos brim with insightful commentary and a time-tested, fundamental philosophy. Now for the first time, all readers can benefit from Marks's wisdom, concentrated into a single volume that speaks to both the amateur and seasoned investor. Informed by a lifetime of experience and study, The Most Important Thing explains the keys to successful investment and the pitfalls that can destroy capital or ruin a career. Utilizing passages from his memos to illustrate his ideas, Marks teaches by example, detailing the development of an investment philosophy that fully acknowledges the complexities of investing and the perils of the financial world. Brilliantly applying insight to today's volatile markets, Marks offers a volume that is part memoir, part creed, with a number of broad takeaways. Marks expounds on such concepts as "second-level thinking," the price/value relationship, patient opportunism, and defensive investing. Frankly and honestly assessing his own decisions--and occasional missteps--he provides valuable lessons for critical thinking, risk assessment, and investment strategy. Encouraging investors to be "contrarian," Marks wisely judges market cycles and achieves returns through aggressive yet measured action. Which element is the most essential? Successful investing requires thoughtful attention to many separate aspects, and each of Marks's subjects proves to be the most important thing.

Idioms and phrases

chandrakant sampat entry barriers

The Most Important Thing

Annual letter 2022 by Warren Buffet (Key points to remember)

One Up On Wall Street

pankaj pawar