Uncommon Sense for the Thoughtful Investor
9353022797
Howard Marks
Notes
Bottom line: Inefficiency is a necessary condition for superior investing. I concluded that because the notion of market efficiency has relevance, I should limit my efforts to relatively inefficient markets where hard work and skill would pay off best.
…it’s essential to arrange your affairs so you’ll be able to hold on—and not sell—at the worst of times. John Maynard Keynes pointed out, “The market can remain irrational longer than you can remain solvent.”
…high quality assets can be risky, and low quality assets can be safe. It’s just a matter of the price paid for them…Investment bargains needn’t have anything to do with high quality. In fact, things tend to be cheaper if low quality has scared people away.
The mood swings of the securities markets resemble the movement of a pendulum. Although the midpoint of its arc best describes the location of the pendulum “on average,” it actually spends very little of its time there.
You must do things not just because they’re the opposite of what the crowd is doing, but because you know why the crowd is wrong.
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 list of potential investments
- estimates of their intrinsic value
- a sense for how their prices compare with their intrinsic value
- an understanding of the risks involved in each, and of the effect their inclusion would have on the portfolio being assembled
…there aren’t always great things to do, and sometimes we maximize our contribution by being discerning and relatively inactive. You’ll do better if you wait for investments to come to you rather than go chasing after them.
The sum of this discussion suggests that, on balance, forecasts are of very little value…you can’t know the future; you don’t have to know the future; and the proper goal is to do the best possible job of investing in the absence of that knowledge.
Leverage magnifies outcomes but doesn’t add value…An investor can obtain margin for error by insisting on tangible, lasting value in the here and now; buying only when price is well below value; eschewing leverage; and diversifying.
…few understand that diversification is effective only if portfolio holdings can be counted on to respond differently to a given development in the environment.