Economics

The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor

The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor

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  • Create Date：2021-04-23 11:55:33
  • Update Date：2025-09-06
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  • Author：Howard Marks
  • ISBN：0231162847
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Summary

Howard Marks's "The Most Important Thing" distilled the investing insight of his celebrated client memos into a single volume and， for the first time， made his time-tested philosophy available to general readers。 In this edition， Marks's wisdom is joined by the comments， insights， and counterpoints of four renowned investors and investment educators: Christopher C。 Davis （Davis Funds）， Joel Greenblatt （Gotham Capital）， Paul Johnson （Nicusa Capital）， and Seth A。 Klarman （Baupost Group）。

These experts lend insight into such concepts as "second-level thinking，" the price/value relationship， patient opportunism， and defensive investing。 Marks also adds his own annotations， expanding on his book's original themes and issues。 A new chapter addresses the importance of reasonable expectations， and a foreword by Bruce C。 Greenwald， called "a guru to Wall Street's gurus" by the "New York Times，" speaks on value investing， productivity， and the economics of information。

***

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。

"This is that rarity， a useful book。"--Warren Buffett

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Reviews

Harry Harman ，

Taught me the distinction between growth and value investing。Turns out I’m a growth investor by his definition。 Betting on technology to grow the stock vs buying an established company selling below its intrinsic value。Both strategies are buy and hold long term nonetheless。

Mark ，

Repetitive but good on risk， value， patience and discipline。 Avoid losses and winners will take care of themselves。

Guilherme Noronha ，

5/10

Reuben ，

Not really any revolutionary ideas。 Seems mostly based around loss avoidance and the events of the GFC

Karunya Reddy ，

Great book written mainly to gain perspective on how one can handle risk。

Caleb Kim ，

2nd order thinking

Amanda ，

Reminds me that I don't want to be an active investor。。。 therefore not a very applicable book to my life。 May be useful to someone interested in actively investing Reminds me that I don't want to be an active investor。。。 therefore not a very applicable book to my life。 May be useful to someone interested in actively investing 。。。more

James Ford ，

Great book， very insightful。 Howard Marks also gives very good talks which are worth watching。 One of the best books about investing I have read。 Some highlighted passages I will be referring back to:"Heaven for me would be seven little words: 'I never thought of it that way'。""being right may be a necessary condition for investment success， but it won't be sufficient。 You must be more right than others。。。which by definition means your thinking has to be different。""I agree that because investor Great book， very insightful。 Howard Marks also gives very good talks which are worth watching。 One of the best books about investing I have read。 Some highlighted passages I will be referring back to:"Heaven for me would be seven little words: 'I never thought of it that way'。""being right may be a necessary condition for investment success， but it won't be sufficient。 You must be more right than others。。。which by definition means your thinking has to be different。""I agree that because investors work hard to evaluate every new piece of information， asset prices immediately reflect the consensus view of the information's significance。 I do not， however， believe the consensus is necessarily correct。 In January 2000， Yahoo sold at $237。 In April 2001 it was $11。 Anyone who argues that the market was right both times has his or her head in the clouds; it has to have been wrong on at least one of those occasions。""Most professionals are assigned to particular market niches， as in "I work in equities" or "I'm a bond manager"。 And the percentage of investors who ever sell short is truly tiny。 Who， then， makes and implements the decisions that would drive out relative mispricings between asset classes？""We can buy fifty correlated securities and mistakenly thin we've diversified。""It seems to me the choice isn't 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 value。""In general， the upside potential for being right about growth is more dramatic， and the upside potential for being right about value is more consistent。 In my book， consistency trumps drama。""[quoting others] Being too far ahead of your time is indistinguishable from being wrong。""In the world of investing， 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。 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。""There are two essential ingredients for profit 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。""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。""What goes into the price？ What should a prospective buyer be looking at to be sure the price is right？ Underlying fundamental value of course， but most of the time a security's price will be affected at least as much - and its short term fluctuations determined primarily - by two other factors: psychology and technicals。""Since buyer from a forced seller is the best thing in our world， being a forced seller is the worst。 That means it's essential to arrange your affairs so you'll be able to hold on - and not sell - at the worst of times。 This requires both long-term capital and a strong psychological resources。""A top in a stock group or market occurs when the last holdout who will become a buyer does so。 The timing is often unrelated to fundamental developments""'Prices are too high' is far from synonymous with 'the next move will be downward'""To me， 'I need more upside potential because I'm afraid I could lose money' makes an awful lot more sense than 'I need more upside potential because I'm afraid the price may fluctuate'" （re: volatility as the definition of risk）"Much of the time， the greatest risk in [value stocks] lies in the possibility of underperforming in heated bull markets。 That's something the risk-conscious value investor is willing to live with。""It's hard to be definitive about risk， even after the fact。 You can see that one investor lost less than another in bad times and conclude that that investor took less risk。 Or you can note that one investment declined more than another in a given environment and thus say it was riskier。 Are these statements necessarily accurate？""Return alone - especially over short periods - says very little about the quality of investment decisions。 Return has to be evaluated relative to the amount of risk taken to achieve it。""When everybody believes something is risky， their unwillingness to buy usually reduces its price to the point where its not risky at all。 When everyone believes something embodies no risk， they usually bid it up to the point where it's enormously risky。 This paradox exists because investors think quality， as opposed to price， is the determinant of whether something's risky。 Elevated popular opinion， then， isn't just the source of low return potential， but also of high risk。""Loss is what happens when risk meets adversity。 Risk is the potential for loss if things go wrong。 As long as things go well， loss does not arise。 Risk gives rise to loss only when negative events occur in the environment。""Trees don't grow to the sky and few things go to zero。""Once in a lifetime market extremes seem to occur once every decade or so - not often enough for an investor to build a career around capitalizing on them。 But attempting to do so should be an important component of any investor's approach。""Skepticism and pessimism aren't synonymous。 Skepticism calls for pessimism when optimism is excessive。 But it also calls for optimism when pessimism is excessive。""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， and d） an understanding of the risks involved in each， and of the effect their inclusion would have on the portfolio being assembled。""superior results in investing come from knowing more than other， and it hasn't been demonstrated to my satisfaction that a lot of people know more than the consensus about the time and extent of future cycles。""The keys to profit are aggressiveness， timing and skill""ensuring the ability to survive under adverse circumstances is incompatible with maximizing returns in the good times， investors must choose between the two。""if we avoid losers， the winners will take care of themselves。""Investing scared， requiring good value and a substantial margin for error， and being conscious of what you don't know and can't control are hallmarks of the best investors I know。""There is a big difference between probability and outcome。 Things that aren't supposed to happen do happen。""failure of imagination consists in the first instance of not anticipating the possible extremeness of future events， an in the second instance of failing to understand the knock-on consequences of extreme events。""Bidding more for something is the same as saying you'll take less for our money。 Thus， the bids for investments can be viewed as a statements of how little return investors demand and how much risk they're willing to accept。""A portfolio may appear to be diversified as to asset class， industry and geography， but in tough times， nonfundamental factors such as margin calls， frozen markets and a general rise in risk aversion can become dominant， affecting everything similarly。""What could investors have done [during market bubbles]？ 1） take note of the carefree， incautious behavior of others， 2） prepare psychologically for a downturn， 3） sell more risk-prone assets， 4） reduce leverage， 5） raise cash， 6） tilt portfolios toward increased defensiveness""In periods that are relatively loss free， people tend to think of risk as volatility and become convinced they can live with it。 If that were true， they would experience markdowns， invest more at the lows and go on to enjoy the recovery， coming out ahead in the long run。""Loss of confidence and resolve can cause investors to sell at the bottom， converting downward fluctuations into permanent losses and preventing them from participating fully in the subsequent recovery。 This is the greatest error in investing - the most unfortunate aspect of pro-cyclical behaviour - because of its permanence and because it tends to affect large portions of portfolios。""While its true that you can;t spend relative outperformance， human nature causes defensive investors and their less traumatized clients to derive comfort in down markets when they lose less than others。 This has two very important effects。 First， it enables them to maintain their equanimity and resist the psychological pressures that often make people sell at lows。 Second， being in a better frame of mind and better financial condition， they are more able to profit from the carnage by buying at lows。 Thus， they generally do better in recoveries。""It is important to bear in mind that in addition to times when the errors are of commission and time when they are of omission， there are times when there's no glaring error。 When investor psychology is at equilibrium and fear and greed are balanced， asset prices are likely to be fair relative to value。 In that case there may be no compelling action， and its important to know that， too。 When there's nothing particularly clever to do， the potential pitfall lies in insisting on being clever。""Aggressive investors can increase their portfolios' market sensitivity by overweighting high Beta assets or by utilizing leverage。 Doing these things will increase the "systematic" riskiness of a portfolio （it's Beta）。 However， theory says that while this may increase a portfolio's return， the return differential will be fully explained by the increase in systematic risk borne。 Thus doing these things won't improve the portfolio's risk adjusted return。""A single year says almost nothing about skill， especially when the results are in line with what would be expected on the basis of the investor's style。 It means relatively little that a risk taker achieves a high return in a rising market， or that a conservative investor is able to minimize losses in a decline。 The real question is how they do in the long run and n climates for which their style is ill suited。""The performance of investors who add value is asymmetrical。 The percentage of the market's gain they capture is higher than the percentage of loss they suffer。 Aggressive investors with skill do well in bull markets but don't give it all back in corresponding bear markets， while defensive investors with skill lose relatively little in bear markets but participate reasonably in bull markets。""Everything in investing is a two-edged sword and operates symmetrically， with the exception of superior skill。""Asymmetry - better performance on the upside than on the downside relative to what your style alone would produce - should be every investor's goal。""To achieve superior results， your insight into value has to be superior。 Thus you must learn things others don't， see things differently or do a better job of analyzing them - ideally， all three。""The superior investor never forgets that the goal is to find good buys， not good assets。" 。。。more

Yi-Ting ，

Don’t buy in every opinion he throws at you because not every argument behind it is well elaborated。 However， it is still a good book and allows us to re-think some investment dogmas and probably adjust how we do investment。

Bruno Provencher ，

Would recommend for anyone that has never read one of Howard Marks' famous memo。 However， for someone that has diligently followed his memos， it's quite expensive for the limited new content。 Would recommend for anyone that has never read one of Howard Marks' famous memo。 However， for someone that has diligently followed his memos， it's quite expensive for the limited new content。 。。。more

Eseink Kuo ，

自己投資一年多之後才深刻體會到這本書裡總結的投資心法是如此深刻。

Hiệp Lê Tuấn ，

Không hổ danh là cuốn sách Warren Buffett khuyên đọc。 Mình nhìn thấy tư tưởng chủ đạo， những suy nghĩ về sự chắc chắn trong đầu tư chứng khoán。 Có một số phần diễn dịch hơi lan man đòi hỏi người đọc phải có kinh nghiệm trên thị trường và lượng kiến thức tương đối để có thể hiểu được cuốn sách này。

Liang Gang Yu ，

This is a book about thoughtful investing， talking the principles and general guidelines that authors believe in。 Without paying attention to the stock investing before， you might think the book is dry and filled with memos without meaty details of specific data。 If so， you get a wrong book。 Otherwise， the book is a must read for any stock investors。There are old investors， and there are bold investors， but there are no old bold investors。 This saying works double for wold pilots and bold pilots This is a book about thoughtful investing， talking the principles and general guidelines that authors believe in。 Without paying attention to the stock investing before， you might think the book is dry and filled with memos without meaty details of specific data。 If so， you get a wrong book。 Otherwise， the book is a must read for any stock investors。There are old investors， and there are bold investors， but there are no old bold investors。 This saying works double for wold pilots and bold pilots。 。。。more

Amanpreet Singh ，

Good set of letters covering a central point of Value from different vantage point to drive home this important concept to the reader。

André Henriques ，

Great tool。 Although Marks type of investment （value investment） is not my cup of tea， his principles and guidelines are remarkable， especially nowadays with all the frenzy around the stock market。 This is the type of book every single person should have a read before they even think in asking what's S&P 500。。。 Great tool。 Although Marks type of investment （value investment） is not my cup of tea， his principles and guidelines are remarkable， especially nowadays with all the frenzy around the stock market。 This is the type of book every single person should have a read before they even think in asking what's S&P 500。。。 。。。more

Jason Holloway ，

This book is mostly a collection of the author's memos that he wrote to the clients who invested in his funds。 I found the wisdom contained in these memos to be useful and important。 I'm glad I had the chance to read them。 However， because this book was not a concise summation of the author's investing philosophy it did become a little tedious。 This book is mostly a collection of the author's memos that he wrote to the clients who invested in his funds。 I found the wisdom contained in these memos to be useful and important。 I'm glad I had the chance to read them。 However， because this book was not a concise summation of the author's investing philosophy it did become a little tedious。 。。。more

Tyler ，

A great look into the mindset of a legendary value investor。 While I still think growth investing has legitimate merits， this book has convinced me of the potential that value investing holds。 After reading this book， I’ve come to understand value vs growth investing as more of a spectrum。 I will be looking for books that teach how to actually estimate value in the future as a direct result of this book。 In short， a great mindset book， but don’t expect a detailed look into value investing estima A great look into the mindset of a legendary value investor。 While I still think growth investing has legitimate merits， this book has convinced me of the potential that value investing holds。 After reading this book， I’ve come to understand value vs growth investing as more of a spectrum。 I will be looking for books that teach how to actually estimate value in the future as a direct result of this book。 In short， a great mindset book， but don’t expect a detailed look into value investing estimation。 。。。more

Matthew M ，

Howard Marks is an incredible writer with an excellent take on balancing investment， risk approach， and awareness of your own behavioural flaws and biases。 A must-read。

Sapphireblue ，

不是商科生需要更久的时间来咀嚼，但是还是看完了。最重要的事，便是以非凡的洞察力，加上在恰当的时间做正确的事与选择

Robert Chang ，

One of the best books that I have read on investing - mostly common sense， very thoughtful。

Adam Benton ，

Fantastic book of you like value investing。 There were many parts that seems repetitive， but I think you sometimes need to hear these points many times over。 Given the current crypto currency craze and high market valuations。 This is a perfect time to review these ideas。

Josephine Amalie ，

Short， simple and incredibly condensed。

Jefferson Costa ，

Amazing bookPratical approach based on value investing and maket timing。 I really enjoyed the book， very easy to understand and you fell right away equip with new investiments skills

Daniel Wei-hsuan ，

I'd never thought of reading an investment book would feel like reading a philosophy book。 It is really more of an art than science。Howard Marks engages in all topics regarding investing such as the concept of risk， the psychology of fear， the invariability of cycles， and how everything eventually comes down to value。 You will find ambiguities in these concepts， the more you read the more blurry the concepts become， and it is when you can start seeing concepts as higher-level abstract then you s I'd never thought of reading an investment book would feel like reading a philosophy book。 It is really more of an art than science。Howard Marks engages in all topics regarding investing such as the concept of risk， the psychology of fear， the invariability of cycles， and how everything eventually comes down to value。 You will find ambiguities in these concepts， the more you read the more blurry the concepts become， and it is when you can start seeing concepts as higher-level abstract then you start defining them at the appropriate low-level context in your own battlefields。 。。。more

Ruyi Chiang ，

This book might be more suitable for people who have had some investing experience。What's highlighted in the book echos what I've learned these days from reading Poor Charlie's Almanack and The Phycology of Money。 I jotted down a few good reminder for the future me: 1） second level thinking2） be mindful of the relationship between price and value。 You're finding a good buy but a good asset。 Buying a good asset in undervalued price increase your chance of profit。3） the biggest profit usually emer This book might be more suitable for people who have had some investing experience。What's highlighted in the book echos what I've learned these days from reading Poor Charlie's Almanack and The Phycology of Money。 I jotted down a few good reminder for the future me: 1） second level thinking2） be mindful of the relationship between price and value。 You're finding a good buy but a good asset。 Buying a good asset in undervalued price increase your chance of profit。3） the biggest profit usually emerge when others are forced to sell and you're on the buyer side。4） the sports anology for investing to explain offense and defense investing。5） focus on "the knowable": industries， companies and securities。 6） don't let yourself be a forced seller， relating to point 3 。。。more

Emily ，

read the Chinese version。 It is worth reading twice。 This book is different from other investing books because it points out the pivotal elements that would effect us when investing。 As an investing beginner， I'm lucky to read this book to realize that my mental stableness is very crucial and what can I do to prevent myself from losing more money or being crazy over myself through the investing road。 read the Chinese version。 It is worth reading twice。 This book is different from other investing books because it points out the pivotal elements that would effect us when investing。 As an investing beginner， I'm lucky to read this book to realize that my mental stableness is very crucial and what can I do to prevent myself from losing more money or being crazy over myself through the investing road。 。。。more

Ron Guay ，

For me， the difference between just reading the 5-10 key quotes or excerpts （ie the winning strategy is to reduce the downside in a market and settling for market average in the up markets） and devoting the time to read the whole book wasn’t a good investment of time。 I give Marks credit for saying at the beginning that you should expect to see many of the key principles repeated many times throughout the book。 I didn’t take away anything that I can practically apply to my own approach to invest For me， the difference between just reading the 5-10 key quotes or excerpts （ie the winning strategy is to reduce the downside in a market and settling for market average in the up markets） and devoting the time to read the whole book wasn’t a good investment of time。 I give Marks credit for saying at the beginning that you should expect to see many of the key principles repeated many times throughout the book。 I didn’t take away anything that I can practically apply to my own approach to investments。 Knowing that you should target investments where price is lower than intrinsic value isn’t of much use without any methodologies or strategies to properly determine intrinsic value。 。。。more

Bailey Francis ，

4。25/5

Pipattra Cheeranan ，

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Reference

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