In this interview with 3 Takeaways, Howard Marks provides his three investment essentials for all investors. Marks explains that the market is unpredictable and constantly changing, so one should not be overconfident in their predictions.
He states that higher returns generally require higher risks, and that offers promising high returns likely come with hidden risks. Marks also highlights the importance of thinking differently from the majority to achieve superior investment results.
Following the crowd typically leads to buying high and selling low, resulting in conventional performance. He acknowledges that this approach is challenging for non-professionals who have other responsibilities.
Here’s an excerpt from the interview:
Marks: First of all, everybody should realize, and hopefully the vagueness of my answers indicated, that the market is not some kind of machine that works in a predictable way that can be ascertained. Its reaction to things in the environment changes all the time, and the things that worked yesterday may not work tomorrow, so don’t ever be over-confident about the market.
The second is that you generally can’t get higher returns without higher risk. This is just axiomatic. If you could, that would be a free lunch and markets exist largely to eliminate free lunches.
So if you see something where they say you can double your money, you have to assume that there are some risks and you have to find out what they are. And by the way, you can’t make money without bearing risk. But that doesn’t mean that just bearing risk will make you money, it doesn’t work in reverse.
And the final thing is that if you want to do better than the herd, better than the whole investing community, you have to think differently because if you think the way they do, you’ll behave the way they do, you’ll emulate them.
You’ll buy at the top of things that have been doing well, you’ll sell at the bottom of things that have been doing poorly, and you’ll have conventional behavior, whether it’s conventional good or conventional bad.
If you want to be superior, you have to diverge from the herd, and that’s why this is a hard business for non-professionals because they have other things to do than be thinking about how to diverge from the herd.
You can find the entire interview here:
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