7 Investment Lessons from Howard Marks
The only real penalty in investing is for making losing investments
In 2011, Oaktree founder and investor Howard Marks published his book ‘The Most Important Thing.’
We can learn a lot from Howard Marks insights.
Grab a coffee and learn from these insights
“A good business is like a strong castle with a deep moat around it. I want sharks in the moat. I want it untouchable” — Warren Buffett.
Lesson 1: Patient Opportunism is important. The market's is not an accommodating machine, it won't provide high returns to you just because you need them.
You tend to get better buys if you select from the list of things sellers are motivated to sell rather than start with a fixed notion as to what you want to own.
Lesson 2 : Knowing what you don't know. Overestimating what you're capable of knowing or doing can be extremely dangerous in investing.
When you can acknowledge the boundaries of what you can know and working within those limits rather than investing beyond, you can be sure to have a great advantage in your investment career.
Lesson 3 : Nothing goes on forever. Market cycles ups and downs are unpredictable and inevitable.
Resist the herd behavior that renders many investors dead wrong at tops and bottoms.
When others are recklessly confident and buying aggressively, you should be highly cautious.
When others are frightened into panic selling, you should become aggressive.
“Those who cannot remember the past are condemned to repeat it.” — Santayana
Lesson 4 : Appreciate the role of LUCK. Until you identify the true source of success, one will be fooled by randomness.
‘Being in the right place at the right time aids in investing.’
Investors might be right for the wrong reason and vice versa. You mustn't let this frustrate you and convince you your good decisions were mistakes.
Most investment success happens because of luck and boldness and rarely depends on skill.
Lesson 5: Invest Defensively. Defensive investment is through the avoidance of minuses than through inclusion of pluses.
A checklist for defensive investment:
Exclusion of losers from portfolios.
Conducting extensive due diligence and applying high standards when researching equities worth investing in.
Demanding a low price and generous margin for error.
Be less willing to bet continually on rosy forecasts and developments that may be uncertain.
Have a thoughtful portfolio diversification.
Minimize exposures to meltdowns during crashes.
Investing offensively through risk bearing can bring the gains you seek or a pronounced disappointment.
Risk control is more likely to create a solid foundation for a strong long-term track record.
Lesson 6 : Avoiding Pitfalls. An investor needs to do very few things right as long as he avoids big mistakes.
Resist the herd psychology.
If the desire to make money causes you to buy even though price is too high, in the hope that the asset will continue appreciating or your tactics will keep working you're setting yourself up for disappointment.
Here's a checklist to avoid pitfalls:
A combination of greed and optimism repeatedly leads people to pursue strategies they hope will produce high returns without high risk. This is a dangerous tactic.
Never pay high prices for equities that are in vague.
Don't hold things after they have become highly priced in the hope there's still some appreciation left for the equity.
“If you buy when price exceeds intrinsic value, you'll have to be extremely lucky that the asset will have to go from overvalued to even more overvalued in order to experience gain rather than losses.” – Howard Marks
Lesson 7: Have a reasonable expectations. Your investment returns must be reasonable. Anything else will get you into trouble, usually through the acceptance of greater risk than is perceived.
A 8%, 10% or 12% returns on invested capital after inflation and volatility has been accounted for represents a reasonable expectation.
“Investors know thyself. How much pain can you take on the downside?”
Questions such as this, should inform you on the size of your initial portfolio allocations to specific investments and investment categories in your career.
That’s it. To end up with a beautiful quote of Howard Marks:
“Investment success doesn’t come from “buying good things,” but rather from “buying things well.”