In this Insight Conversation with Annie Duke, Howard Marks reflects on a key lesson he learned from his early studies in investment: the quality of a decision cannot be judged by its outcome.
Success can result from poor decisions, and many investors are often “right for the wrong reasons.” He emphasizes that success depends on aggressiveness, timing, and skill—where timing can sometimes overshadow skill.
Marks warns against confusing luck with intelligence, noting that risky choices can sometimes pay off undeservedly. Long-term consistency, rather than isolated wins, is the true measure of skill, helping to distinguish between reality and mere noise in investment decision-making.
Here’s an excerpt from the conversation:
Marks: Well, I said at the very beginning of the memo that the first book I remember reading when I went to Wharton 60 years ago, September 1963, was Drilling Decisions Under Uncertainty by C. Jackson Grayson.
The most important lesson I took away, because it made the biggest impression on me, was the statement that you can’t tell the quality of a decision from the outcome.
Poor decisions end in success often. And we all know people, especially in the investment business, where we say, “Well, he was right for the wrong reasons.” That’s what that means.
Or I always say that our industry is full of people who got famous for being right once in a row. Being right once says nothing about the decision-making ability of an investor.
And in fact, another thing I say not so often is that for success, there are three ingredients: aggressiveness, timing, and skill. And if you have enough aggressiveness at the right time, you don’t need that much skill. But you also have to understand the difference. There’s an old saying in the investment business:
“Never confuse brains with a bull market.”
You do something risky, it works. Smart or dumb? I can’t tell you. Maybe smart because you made a lot of money, maybe dumb because you took big risks that really could have subjected you to intolerable outcomes, and yet it worked.
And you tend to pat yourself on the back, as do many others. So if you think that every success is because of your brilliance and every failure is because of your ineptitude, as Annie says, if you reach that conclusion in the short run based on one trial or five trials, it may be the wrong conclusion.
But once you do it over many trials and it holds, then you start thinking, “Well, maybe it’s reality and not noise.”
You can watch the entire conversation here:
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