The Most Important Thing by Howard Marks

Author:Howard Marks
Language: eng
Format: epub
Publisher: Columbia University Press
Published: 2011-03-22T16:00:00+00:00

These things aren’t sure to do the job, but they can give you a fighting chance.

11

The Most Important Thing Is . . . 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

There’s only one way to describe most investors: trend followers. Superior investors are the exact opposite. Superior investing, as I hope I’ve convinced you by now, requires second-level thinking—a way of thinking that’s different from that of others, more complex and more insightful. By definition, most of the crowd can’t share it. Thus, the judgments of the crowd can’t hold the key to success. Rather, the trend, the consensus view, is something to game against, and the consensus portfolio is one to diverge from. As the pendulum swings or the market goes through its cycles, the key to ultimate success lies in doing the opposite.

This is the core of Warren Buffett’s oft-quoted advice: “The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.” He is urging us to do the opposite of what others do: to be contrarians.

Doing the same thing others do exposes you to fluctuations that in part are exaggerated by their actions and your own. It’s certainly undesirable to be part of the herd when it stampedes off the cliff, but it takes rare skill, insight and discipline to avoid it.

“THE REALIST’S CREED,” MAY 31, 2002

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