Howard Marks on the Price Is Right

Most investors lose money because they believe the future is more reliable and predictable than it actually is. Self-made billionaire Howard Marks wants to help you avoid that fate.

We have to practice defensive investing, since many of the outcomes are likely to go against us. It’s more important to ensure survival under negative outcomes than it is to guarantee maximum returns under favorable ones.
– Howard Marks

This is the mindset of what Marks calls the “I don’t know” school of investing. It’s a worldview that sees the future not as guaranteed but as a fog of probabilities.

On the other hand, most investors, what Marks calls the “I know” crowd, make decisions as if they had perfect foresight. In reality, the future is more like a poker hand: you can make smart moves, but you can’t control what cards turn up.

That’s why Marks urges us to buy only when we’re getting value on our side. That means having a well-reasoned view of what something is worth, and then insisting on a discount before putting money at risk. He's a true value investor who insists on a margin of safety.

Marks echoes Nassim Taleb’s approach to uncertainty: build resilience, expect randomness, and never bet the farm. Once we understand how much luck and chaos shape investment results, we realise how important it is to invest defensively.

The goal isn’t to be right all the time, but to be unharmed almost no matter what the future holds, and to avoid being wiped out when we are really wrong. You have to stay in the game if you're going to win.

Learn more from Marks with his highly recommended book, The Most Important Thing: Uncommon Sense for the Thoughtful Investor.

And watch for tomorrow's My Daily Oracle, which will be the second of three Howard Marks-focused missives from this week. You can also catch up on Monday and Tuesday's items on the investment implications of Niccolò Machiavelli's world view at www.mydailyoracle.com.

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