In his book, The Most Important Thing, Howard Marks explains that strategic decisions in various fields, such as driving, golfing, or dressing, are influenced by current conditions.
Similarly, he argues that investment actions should reflect the present investing climate rather than uncertain future predictions. While many investors attempt to adjust portfolios based on their outlook, Marks points out that forward visibility is often limited and unreliable.
Instead of speculating about the future, he advocates focusing on current realities and their implications to guide investment decisions. This pragmatic approach acknowledges the inherent unpredictability of markets and the importance of responding effectively to the present environment.
Here’s an excerpt from the book:
There are few fields in which decisions as to strategies and tactics aren’t influenced by what we see in the environment. Our pressure on the gas pedal varies depending on whether the road is empty or crowded.
The golfer’s choice of club depends on the wind. Our decision regarding outerwear certainly varies with the weather. Shouldn’t our investment actions be equally affected by the investing climate?
Most people strive to adjust their portfolios based on what they think lies ahead. At the same time, however, most people would admit forward visibility just isn’t that great.
That’s why I make the case for responding to the current realities and their implications, as opposed to expecting the future to be made clear.
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