The Most Important Thing Illuminated by Howard Marks

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The Most Important Thing Is … Second-Level Thinking
The art of investment has one characteristic that is not generally
appreciated. A creditable, if unspectacular, result can be achieved by
the lay investor with a minimum of effort and capability; but to improve
this easily attainable standard requires much application and more than
a trace of wisdom.
BEN GRAHAM, THE INTELLIGENT INVESTOR
Everything should be made as simple as possible, but not simpler.
ALBERT EINSTEIN
It’s not supposed to be easy. Anyone who finds it easy is stupid.
CHARLIE MUNGER
Few people have what it takes to be great investors. Some can be
taught, but not everyone … and those who can be taught can’t be
taught everything. Valid approaches work some of the time but not all.
And investing can’t be reduced to an algorithm and turned over to a
computer. Even the best investors don’t get it right every time.
The reasons are simple. No rule always works. The environment
isn’t controllable, and circumstances rarely repeat exactly. Psychology
plays a major role in markets, and because it’s highly variable, cause-

and-effect relationships aren’t reliable. An investment approach may
work for a while, but eventually the actions it calls for will change the
environment, meaning a new approach is needed. And if others
emulate an approach, that will blunt its effectiveness.
Investing, like economics, is more art than science. And that means
it can get a little messy.
One of the most important things to bear in mind today is that
economics isn’t an exact science. It may not even be much of a
science at all, in the sense that in science, controlled
experiments can be conducted, past results can be replicated
with confidence, and cause-and-effect relationships can be
depended on to hold.
“WILL IT WORK?” MARCH 5, 2009
Because investing is at least as much art as it is science, it’s never
my goal—in this book or elsewhere—to suggest it can be routinized. In
fact, one of the things I most want to emphasize is how essential it is
that one’s investment approach be intuitive and adaptive rather than
be fixed and mechanistic.
At bottom, it’s a matter of what you’re trying to accomplish. Anyone
can achieve average investment performance—just invest in an index
fund that buys a little of everything. That will give you what is known as
“market returns”—merely matching whatever the market does. But
successful investors want more. They want to beat the market.
SETH KLARMAN: Beating the market matters, but limiting risk matters just as much.
Ultimately, investors have to ask themselves whether they are interested in relative or
absolute returns. Losing 45 percent while the market drops 50 percent qualifies as
market outperformance, but what a pyrrhic victory this would be for most of us.
In my view, that’s the definition of successful investing: doing better
than the market and other investors.
CHRISTOPHER DAVIS: The subtext here is that you must be patient and give yourself
ample time—you’re not looking for short-term windfalls but for long-term, steady
returns.
To accomplish that, you need either good luck or superior insight.
Counting on luck isn’t much of a plan, so you’d better concentrate on
insight. In basketball they say, “You can’t coach height,” meaning all
the coaching in the world won’t make a player taller. It’s almost as hard
to teach insight. As with any other art form, some people just

The Most Important Thing Illuminated by Howard Marks