Howard Marks: The Greatest Formula For Long-Term Wealth Creation Is…

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One of our favorite investing books here at The Acquirer’s Multiple is The Most Important Thing by Howard Marks.

There’s one passage in particular in which Marks discusses how keeping ones ego in check is the greatest formula for long-term wealth creation. Here’s an excerpt from the book:

The sixth key influence is ego. It can be enormously challenging to remain objective and calculating in the face of facts like these:

• Investment results are evaluated and compared in the short run.

• Incorrect, even imprudent, decisions to bear increased risk generally lead to the best returns in good times (and most times are good times).

• The best returns bring the greatest ego rewards. When things go right, it’s fun to feel smart and have others agree.

In contrast, thoughtful investors can toil in obscurity, achieving solid gains in the good years and losing less than others in the bad. They avoid sharing in the riskiest behavior because they’re so aware of how much they don’t know and because they have their egos in check. This, in my opinion, is the greatest formula for long-term wealth creation— but it doesn’t provide much ego gratification in the short run. It’s just not that glamorous to follow a path that emphasizes humility, prudence and risk control. Of  course, investing shouldn’t be about glamour, but often it is.

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