Sunday, May 4, 2014

The Most Important Thing - Book Review

"The Most Important Thing" by Howard Marks is a bit of a misnomer, it should be entitled the "Most Important Things" since he covers an important investing topic in each chapter. Overall this is a great book for any value investor. Marks does a great job of explaining the philosophy of value investing and understanding investment risk.

The following excerpt succinctly describes value investing:
 "The relationship between price and values holds the ultimate key to investment success. Buying below value is the most dependable route to profit. Paying above value rarely works out as well.

What causes an asset to sell below its value? Outstanding buying opportunities exist primarily because perception understates reality. Whereas high quality can be readily apparent, it takes keen insight to detect cheapness. For this reason, investors often mistake objective merit for investment opportunity. The superior investor never forgets that the goal is to find good buys, not good assets."

And in this paragraph Marks describes investing defensively to minimize risk:
"Risk control and margin for error (when price is below value) should be present in your portfolio at all times. But you must remember that they're "hidden assets." Most years in the markets are good years, but it's only in the bad years-when the tide goes out-that the value of defense becomes evident. Thus, in the good years, defensive investors have to be content with the knowledge that their gains, although perhaps less than maximal, were achieved with risk protection in place...even though it turned out not to be needed."

Here's a brief clip where Marks describes overconfident investing:

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