Finance
by Howard Marks
What do the best investors see?
Howard Marks, co-founder of Oaktree Capital, spent decades writing memos to his clients, and Warren Buffett has said they're the first thing he reads when they arrive. This book gathers their lessons. Each chapter names a different 'most important thing', because Marks thinks you need all of them at once.
Hear a sample · read by Laura
First-level thinking says a company is good, so buy the shares. Second-level thinking asks what everyone else already believes, whether the price reflects it, and what happens if they're wrong. Marks argues you can only beat the market by thinking differently from it, and being right.
Marks borrows a line from the economist Elroy Dimson, that risk means more things can happen than will happen. The future is a range of possibilities, and only one of them arrives. A careful investor prepares for the whole range, including the bad end.
Marks pictures investor mood as a pendulum, swinging between greed and fear and rarely resting at the sensible midpoint. When it's out at greed, people feel safest and pay the highest prices. He doesn't try to predict the next swing. He tries to know where the pendulum is now.
Marks would rather avoid losers than hunt for winners. Oaktree's rule, he says, is that if you avoid the losers, the winners take care of themselves. Over time, he argues, the investor who dodges disasters tends to beat the one who swings for glory and sometimes blows up.
Second-level
To beat the market you have to think differently from the crowd, and be right.
Price
Price decides the return. A so-so asset bought cheap can beat a great one bought too dear.
Risk
Risk is the chance of losing money, and it's highest when everyone feels safe.
The pendulum
Markets swing between greed and fear, and rarely rest in the sensible middle.
Bargains
When everyone loves an investment, it's usually too expensive. Look for bargains in what others avoid.
Hot take · true or myth?
The best investors make their money by forecasting the economy.
Myth. Marks counts himself in what he calls the 'I don't know' school. He argues that very few people can forecast the economy or markets well enough to profit from it.
One thing to try
This week, pick one market you have money in or are tempted by. Write down whether lenders are eager and whether people around you are boasting about easy gains. If both are true, Marks would say the pendulum is out at greed and it's time for more caution.
Knotd has the key ideas from 250+ non-fiction books, each in a few minutes, in plain words. The Most Important Thing comes with a Hot Take round and a Spot the Trap case to make it stick.
Get the whole book on KnotdOpen in the appWhat do the best investors see? Howard Marks, co-founder of Oaktree Capital, spent decades writing memos to his clients, and Warren Buffett has said they're the first thing he reads when they arrive. This book gathers their lessons. Each chapter names a different 'most important thing', because Marks thinks you need all of them at once.
Second-level thinking; More can happen than will; The pendulum; Defence first.
This week, pick one market you have money in or are tempted by. Write down whether lenders are eager and whether people around you are boasting about easy gains. If both are true, Marks would say the pendulum is out at greed and it's time for more caution.
Yes. Knotd has the key ideas from The Most Important Thing in a few minutes, in plain words, plus a Hot Take round and a Spot the Trap case to test them. It's one of 250+ non-fiction books in the app.
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