Chapter 93: Howard Marks’s Investment Code: Eight Principles Behind Success

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[James Origin and Today] Chapter 93 - [Howard Marks’ Investment Code: The Eight Principles Behind Success! 】(12/26/2023)

Howard Marks mentioned some important investing principles:

1. Second-Level Thinking: Learn to think deeper, beyond superficial information to gain more comprehensive insights. Everyone says it is a good company to buy, and in second-level thinking, everyone thinks that the stock price of a good company should be much higher than its value, and sell it. This is an example of second-level thinking. Of course, second-level thinking is not that simple. Only through personal insight and continuous practice can you understand whether you have the ability to think at the second level.

2. The price of high-quality stocks may be too high: Some excellent companies may not be worth investing in because their stock prices are too high. On the contrary, some ordinary companies may become good investment opportunities because their stock prices are low. When investing, don't buy just because the stock price is low. If you can't understand a company's business model, calculate and evaluate the true value of a company, don't invest in individual stocks rashly.

3. Understand, identify, and control risks: Risks do not necessarily bring rewards. Investors should seek low-risk, medium-return or medium-risk, high-return investment strategies. It is difficult for investors to judge risks when the market is booming. Only when the market falls can their ability to identify risks be truly reflected.

4. Master the market cycle: The investment cycle is very important. Ignoring the investment cycle can lead to dangerous investment behavior. Investors must be able to identify the fearful lows of the market and buy bravely. In a greedy position after the market has risen for many years, they should retain a larger cash position and wait until the market corrects to avoid the pain of a market decline. They can also buy more on dips. This is not a prediction of a turning point, but a capital allocation based on understanding the market position, allowing assets to reduce volatility and achieve a more stable and smooth rise.

5. Contrarian investing: Good companies are not necessarily good investment opportunities. Investors should learn to think contrarianly and find potential companies that are undervalued by the market. Most people really don’t have the ability to invest in individual stocks, so a relatively simple way is to invest in U.S. large-cap index funds. Coupled with reverse thinking and cycles, you can achieve the effect of stable asset appreciation, or even go further to surpass the market.

6. Wait patiently for opportunities: Good investment opportunities are not found actively, but appear while waiting patiently. Don't rush to buy, let the good opportunities come to you on their own. We recommend buying U.S. large-cap index funds if you have money and patiently waiting for the assets to appreciate. Ordinary investors cannot identify opportunities. Even if an opportunity comes, investors cannot receive the message of this opportunity. Therefore, the best way for ordinary investors is to invest in U.S. large-cap index funds. Through patient waiting, everyone will get rich through long-term investment.

7. The limitations of prediction and the importance of luck: It is difficult to achieve long-term stable profits using technical analysis and prediction. Forecasts play a small role in investment success, and investors should pay more attention to strategies such as diversification, low leverage, and capital structure adjustments. Be prepared and don’t rely too much on forecasts.

8. Luck of successful investors: The role of luck in investment success cannot be ignored. Even with the best strategies and thoughtful decisions, investment results are affected by market fluctuations and other factors. Especially when you buy when you have money, this shows the luck part of investment. You don't know when the price will be a good price, so money has its own destiny. Sometimes your money this year will buy at the lowest price, and next year's money may buy it at a higher price. But it doesn't matter. After long-term investment of 10 or 20 years, it will bring you rich wealth. As time goes by, the element of luck can be eliminated. There may seem to be a bit of luck in the short term, but it is the same in the long term. Luck has no effect in the long term.

These principles remind investors to think deeper, master risks, identify opportunities, and wait patiently. At the same time, it also reminds people that investment success often involves luck. If you want to learn more about Howard Marks' investment principles, you can read Howard and Marx's book "The Most Important Thing in Investing."

In this uncertain world of investing, Howard Marks reminds us to think about and approach investing from multiple perspectives. His investment principles provide us with some suggestions and guidance to find investment opportunities and control risks in uncertain market environments.

If you want to learn how to succeed in the world of investing, you can’t miss Howard Marks’ Investing Principles! These valuable strategies will help you think deeply, uncover undervalued investment opportunities, and learn to control risk.