The Most Important Thing by Howard Marks
An accurate estimate of intrinsic value is the indispensable starting point of successful investing.
The oldest rule in investing is “Buy low; sell high.”
What does that rule actually mean?
Buy at a price below intrinsic value and sell at a higher price.
All approaches to investing in company securities can be divided into two basic types:
1.Those based on analysis of the company’s attributes, known as fundamentals.
2.Those based on a study of the price behavior of the securities themselves.
Howard does not believe in this second method, and calls it “momentum investing.”
Two approaches to investing based on analysis of the company’s fundamentals:
1.Value Investing: aim to come up with the company’s current intrinsic value and buy when the price is lower.
2.Growth Investing:try to find securities whose value will increase rapidly in the future.
The emphasis in value investing is on tangible factors like hard assets and cash flows, intangible factors are given less weight.
The primary goal of value investors is to quantify the company’s current value and buy its securities when they can do so cheaply.
Growth investors buy stocks because they believe the value will grow fast enough in the future to produce a substantial appreciation.
Growth investing centers around big winners. The batting average for growth investors should be lower, but the payoff for doing it well might be higher.
The upside potential for being right about growth is more dramatic, and the upside potential for being right about value is more consistent.
Value investing is Howard’s approach, in his book consistency trumps drama.
In the world of investing, being correct is not synonymous with being proved correct right away.
It is impossible to consistently do the right thing at the right time as an investor.
The most a value investor can hope for is to be right about an asset’s value and buy when it is available for less.
If doing the right thing as a value investor, you will often find that you’ve bought in the midst of a decline that continues. Pretty soon you will be looking at losses.
Being too far ahead of your time is indistinguishable from being wrong.
An accurate opinion on valuation loosely held will be of little help. An incorrect opinion on valuation strongly held is far worse. This shows how hard it is to get it all right.
Two essential ingredients for profit in a declining market:
1.You have to have a view on intrinsic value.
2.You have to hold that view strongly enough to be able to hang-in and buy even as price declines suggest that you are wrong, but you have to be right.