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The Most Important Thing by Howard Marks

Contrarianism

"To buy when others are despondently selling, and to sell when others are euphorically buying, takes the greatest courage but provides the greatest profit" – Sir John Templeton

 

Most investors are trend followers. Superior investors are the exact opposite.

 

Market extremes represent inflection points.

 

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. Attempting to do so should be an important component of any investor’s approach.

 

Markets can be overpriced or underpriced and stay that way for years. It can be extremely painful when the trend is going against you.

 

Large amounts of money are not made by buying what everyone likes, they are made by buying what everybody underestimates.

 

Two elements required in superior investing:

1.Seeing some quality that others don’t see or appreciate, and that isn’t reflected in the price.
2.Having it turn out to be true.

 

The section below is primarily from the October 15, 2008 memo “The Limits to Negativism.”

 

If you believe the story everyone else believes, you’ll do what they do, you will buy at high prices and sell at low prices.

 

The author defined skepticism as not believing what you’re told or what “everyone” considers true. In his opinion, it’s one of the most important requirements for successful investing.

 

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 herd applies optimism at the top and pessimism at the bottom. Thus, to benefit, we must be skeptical of the optimism that thrives at the top, and skeptical of the pessimism that prevails at the bottom.

 

Sometimes skepticism requires us to say“No, that’s too bad to be true.”

 

A hugely profitable investment that doesn’t begin with discomfort is usually an oxymoron.

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Jeremy Silva

Jeremy Silva lives near San Francisco with his wife and son. He is a writer, blogger, and personal investor. He is passionate about education, personal development, project management, and investing. His blog has over 100 book summaries on many topics including investing, self-help, and business. You can click on the link to read some interesting book summaries on Jeremy’s website (https://jsilva.blog/book-summaries/).