Howard Marks

Survival under negative outcomes is more important than maximizing gains under favorable ones.

The correctness of a decision can’t be judged from the outcome. A good decision is one that’s optimal at the time it’s made, when the future is by definition unknown.

Much of risk is subjective, hidden, and unquantifiable.

The avoidance of losses and terrible years is more easily achieved than repeated greatness, and thus risk control is more likely to create a solid foundation for a superior long-term track record.

You can’t do the same things others do and expect to outperform.

No investment is so good that it can’t be a bad investment at the wrong price.

The most important thing is being aware of the importance of risk.

To outperform the average investor, you have to be able to outthink the consensus.

To buy when others are despondently selling and to sell when others are euphorically buying takes the greatest courage, but provides the greatest profit.

The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.

Risk control is the best route to loss avoidance. Risk avoidance is likely to lead to return avoidance as well.

Being too far ahead of your time is indistinguishable from being wrong.

The greatest risk doesn’t come from low quality or high volatility. It comes from paying prices that are too high.

Cycles always prevail eventually. Nothing goes in one direction forever.

Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive.

The most important thing is being attuned to where we are in the cycle and acting accordingly.

In investing, what is comfortable is rarely profitable.

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

Risk means more things can happen than will happen.

The greatest risk doesn't come from low quality or high volatility; it comes from paying prices that are too high.

The pendulum cannot continue to swing toward an extreme, or reside at an extreme, forever. Those who believe that it will eventually lose huge sums.

The safest and most potentially profitable thing is to buy something when no one likes it.

Monitor Market Cycles

Stay attuned to market sentiment and adjust strategies to align with cyclical trends.

Maintain a Margin of Safety

Invest in assets priced below their intrinsic value to reduce risk and enhance returns.

Practice Patience

Wait for favorable market conditions and avoid impulsive investment decisions.

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

The avoidance of losses is the most important goal of all.

Well bought is half sold.

In times of extreme optimism, greed and self-deceit cause investors to disregard the relationship between value and price.

The key during a crisis is to be (a) insulated from the forces that require selling and (b) positioned to be a buyer instead.

When others are recklessly confident and buying aggressively, we should be highly cautious; when others are frightened into inaction or panic selling, we should become aggressive.

The key to minimizing risk lies in knowing what you don’t know and paying a fair price for not knowing.

If riskier investments reliably produced higher returns, they wouldn’t be riskier!

Ask whether the result you’re expecting is too good to be true. This requires skepticism, a quality that’s absolutely essential for investment success.

Superior investing requires both generating returns and controlling risk. And recognizing risk is an absolute prerequisite for its control.

Even if you do everything right, other investors can ignore your favorite stock; management can squander the company’s opportunities; government can change the rules; or nature can serve up a catastrophe.

Loss avoidance is the hallmark of defensive investing. For that reason, it’s essential that we understand risk and limit it wherever possible.

The most important thing is to be aware of the limitations of our knowledge.

To beat the market, you must hold an idiosyncratic, or non-consensus, view.

Investing scared will prevent hubris; will keep your guard up and your mental adrenaline flowing.

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

The herd buys at high prices and sells at low prices. Thus, being part of the herd is a formula for disaster.

There are few things as risky as the widespread belief that there’s no risk.

A strong sense of intrinsic value is the only way to withstand the psychological influences that affect behavior.

The most important thing is being attentive to cycles.

To achieve superior results, they have to have an edge in either information or analysis, or both.

The herd buys at high prices and sells at low prices. Thus, being part of the herd is a formula for disaster, whereas contrarianism—buying when others are selling and selling when others are buying—will help to avert losses and lead eventually to success.

The avoidance of losses is an important part of providing an excellent return.

The pendulum cannot continue to swing toward an extreme, or reside at an extreme, forever.

Investing scared will prevent hubris; it will keep your guard up and your mental adrenaline flowing.

Good times teach only bad lessons: that investing is easy, that you know its secrets, and that you needn’t worry about risk.

Superior skill is the prerequisite… Only skill can be counted on to add more in propitious environments than it costs in hostile ones.

The most important thing is being attuned to where we stand in cycles and what that implies for our actions.

Second-Level Thinking

Howard Marks emphasizes the necessity of 'second-level thinking' for successful investing. This involves going beyond surface-level analysis to consider deeper implications and contrarian perspectives. For instance, while first-level thinking might conclude that a company is performing well, second-level thinking evaluates whether this success is already reflected in its stock price. Marks states, 'To outperform the average investor, you have to be able to outthink the consensus.' This approach enables investors to identify opportunities overlooked by others.

Understanding Risk

Marks redefines risk as the likelihood of permanent capital loss rather than mere volatility. He argues that true risk assessment requires subjective judgment and a focus on potential downsides. For example, during the 2008 financial crisis, many underestimated the risks of mortgage-backed securities due to overreliance on historical data. Marks writes, 'Risk means more things can happen than will happen,' highlighting the importance of preparing for unexpected outcomes.

The Role of Market Cycles

Recognizing and adapting to market cycles is crucial for investment success. Marks explains that markets oscillate between extremes of optimism and pessimism, driven by investor psychology. He advises adopting a contrarian approach: being cautious during euphoric markets and opportunistic during downturns. 'The pendulum cannot continue to swing toward an extreme, or reside at an extreme, forever,' Marks notes, emphasizing the inevitability of cyclical reversals.

Price and Value Relationship

Investment success hinges on understanding the relationship between price and intrinsic value. Marks stresses that buying assets below their intrinsic value provides a 'margin of safety,' reducing risk and enhancing potential returns. He illustrates this with the 'Nifty Fifty' stocks of the 1960s, which, despite being high-quality companies, led to poor returns due to overvaluation. 'Investment success doesn’t come from buying good things, but from buying things well,' Marks asserts.

The Importance of Patience

Patience is a strategic advantage in investing. Marks advocates waiting for favorable conditions rather than chasing returns in overheated markets. He states, 'The market’s not a very accommodating machine; it won’t provide high returns just because you need them.' This principle underscores the value of disciplined, long-term thinking over impulsive actions.

Contrarian Thinking

Marks highlights the value of contrarianism—acting against prevailing market trends. This requires emotional discipline to buy when others are fearful and sell when others are greedy. He writes, 'To buy when others are despondently selling and to sell when others are euphorically buying takes the greatest courage, but provides the greatest profit.' This approach leverages market inefficiencies created by collective sentiment.

The Role of Luck and Skill

Marks acknowledges the interplay of luck and skill in investment outcomes. He cautions against attributing success solely to skill, as randomness often plays a significant role. 'The correctness of a decision can’t be judged from the outcome,' he notes, emphasizing the importance of sound decision-making processes over results. This perspective encourages humility and continuous learning.

Adopt Second-Level Thinking

Challenge conventional wisdom by analyzing deeper implications and considering contrarian perspectives.

Focus on Risk Management

Prioritize understanding and mitigating potential downsides over chasing high returns.

Survival under negative outcomes is more important than maximizing gains under favorable ones.

The correctness of a decision can’t be judged from the outcome. A good decision is one that’s optimal at the time it’s made, when the future is by definition unknown.

Much of risk is subjective, hidden, and unquantifiable.

The avoidance of losses and terrible years is more easily achieved than repeated greatness, and thus risk control is more likely to create a solid foundation for a superior long-term track record.

You can’t do the same things others do and expect to outperform.

No investment is so good that it can’t be a bad investment at the wrong price.

The most important thing is being aware of the importance of risk.

To outperform the average investor, you have to be able to outthink the consensus.

To buy when others are despondently selling and to sell when others are euphorically buying takes the greatest courage, but provides the greatest profit.

The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.

Risk control is the best route to loss avoidance. Risk avoidance is likely to lead to return avoidance as well.

Being too far ahead of your time is indistinguishable from being wrong.

The greatest risk doesn’t come from low quality or high volatility. It comes from paying prices that are too high.

Cycles always prevail eventually. Nothing goes in one direction forever.

Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive.

The most important thing is being attuned to where we are in the cycle and acting accordingly.

In investing, what is comfortable is rarely profitable.

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

Risk means more things can happen than will happen.

The greatest risk doesn't come from low quality or high volatility; it comes from paying prices that are too high.

The pendulum cannot continue to swing toward an extreme, or reside at an extreme, forever. Those who believe that it will eventually lose huge sums.

The safest and most potentially profitable thing is to buy something when no one likes it.

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

The avoidance of losses is the most important goal of all.

Well bought is half sold.

In times of extreme optimism, greed and self-deceit cause investors to disregard the relationship between value and price.

The key during a crisis is to be (a) insulated from the forces that require selling and (b) positioned to be a buyer instead.

When others are recklessly confident and buying aggressively, we should be highly cautious; when others are frightened into inaction or panic selling, we should become aggressive.

The key to minimizing risk lies in knowing what you don’t know and paying a fair price for not knowing.

If riskier investments reliably produced higher returns, they wouldn’t be riskier!

Ask whether the result you’re expecting is too good to be true. This requires skepticism, a quality that’s absolutely essential for investment success.

Superior investing requires both generating returns and controlling risk. And recognizing risk is an absolute prerequisite for its control.

Even if you do everything right, other investors can ignore your favorite stock; management can squander the company’s opportunities; government can change the rules; or nature can serve up a catastrophe.

Loss avoidance is the hallmark of defensive investing. For that reason, it’s essential that we understand risk and limit it wherever possible.

The most important thing is to be aware of the limitations of our knowledge.

To beat the market, you must hold an idiosyncratic, or non-consensus, view.

Investing scared will prevent hubris; will keep your guard up and your mental adrenaline flowing.

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

The herd buys at high prices and sells at low prices. Thus, being part of the herd is a formula for disaster.

There are few things as risky as the widespread belief that there’s no risk.

A strong sense of intrinsic value is the only way to withstand the psychological influences that affect behavior.

The most important thing is being attentive to cycles.

To achieve superior results, they have to have an edge in either information or analysis, or both.

The herd buys at high prices and sells at low prices. Thus, being part of the herd is a formula for disaster, whereas contrarianism—buying when others are selling and selling when others are buying—will help to avert losses and lead eventually to success.

The avoidance of losses is an important part of providing an excellent return.

The pendulum cannot continue to swing toward an extreme, or reside at an extreme, forever.

Investing scared will prevent hubris; it will keep your guard up and your mental adrenaline flowing.

Good times teach only bad lessons: that investing is easy, that you know its secrets, and that you needn’t worry about risk.

Superior skill is the prerequisite… Only skill can be counted on to add more in propitious environments than it costs in hostile ones.

The most important thing is being attuned to where we stand in cycles and what that implies for our actions.