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The Most Important Thing by Howard Marks

Investing Defensively

You cannot simultaneously go all-out for profit-making and loss-avoidance. Each investor has to take a position regarding these two goals and strike a reasonable balance.


For instance, Oaktree’s preference for defense is clear.

  • In good times it is okay to just keep up with the indices.
  • In bad times they are set up to outperform the markets.

Rather than doing the right thing, the defensive investor’s main emphasis is on not doing the wrong thing.


Defensive investing is an attempt for higher returns more through the avoidance of minuses than the inclusion of plusses, more through consistent but perhaps moderate progress than through occasional flashes of brilliance.


Two principal elements in investment defense:

1. The exclusion of losers from portfolios.
2. The avoidance of poor years, and especially exposure to meltdown in crashes.


The exclusion of losers from portfolios is best accomplished by:

  • Conducting extensive due diligence
  • Applying high standards
  • Demanding a low price and generous margin for error
  • Being less willing to bet on continued prosperity, rosy forecasts, and developments that may be uncertain

The avoidance of poor years, and especially exposure to meltdown in crashes requires:

  • Thoughtful portfolio diversification
  • Limits on the overall riskiness borne
  • A general tilt towards safety

Concentration and leverage are two examples of offense. Low price is the ultimate source of margin for error.

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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/).