# The Most Important Thing **Howard Marks**  --- _Investment success doesn't come from buying good things. It comes from buying things well._ No asset class has the birthright of high returns. Attractiveness is entirely a function of price. Price, not quality, determines whether something is a good investment. This is the point Marks returns to throughout: buying a great business at the wrong price is a worse error than it looks, and buying a mediocre business at a sufficiently low price is a better bet than most people's instincts suggest. Risk only manifests when it collides with negative events. This matters because it means you can't judge risk control by looking at returns in good times. You can only judge it when things go wrong. The quality of a decision, similarly, is not determined by the outcome: events that follow are often beyond anticipating, which is why process matters more than results, and why Marks is so insistent on distinguishing [[Unknown and unknowable]] randomness from genuine analytical failure. --- **First-level thinking is simplistic and superficial.** "It's a good company; let's buy the stock." Second-level thinking is harder: "It's a good company, but everyone thinks so. The stock is overrated and overpriced. I'll sell." To beat a market, your thinking has to be better than that of others, both more powerful and operating at a higher level. Being correct about something isn't synonymous with being proved correct right away. Being too far ahead of your time is indistinguishable from being wrong. The key to value assessment isn't accounting or economics. It's psychology. The most dangerous thing is to buy something at the peak of its popularity. Investing is a popularity contest, and skilful investors judge risk primarily on the stability and dependability of value relative to price, not on narrative quality. "Well bought is half sold." --- **Risk is largely a matter of opinion, and it's unobservable until loss occurs.** There's a big difference between probability and outcome. Probable things fail to happen and improbable things happen all the time. The [[Variance]] between what should happen and what does happen is the territory investors must learn to inhabit without either ignoring it or being paralysed by it. High quality assets can be risky, and low quality assets can be safe. It's just a matter of the price paid. Two main risks exist in investing: losing money and missing opportunity. It's possible to largely eliminate either one, but not both. Risk control is the best route to loss avoidance. Risk avoidance, by contrast, leads to return avoidance as well. The goal is to bear risk when well paid to do so, especially when others are averse in the extreme. --- **Most things will prove to be cyclical.** Some of the greatest opportunities for gain and loss come when people forget this. The more time you spend in investing, the more you appreciate the underlying cyclicality of things. In the world of investing, nothing is as dependable as cycles. A small fluctuation in the economy produces a large fluctuation in the availability of credit, which cascades into asset prices, and back into the economy itself. The necessary condition for bargains is that perception has to be considerably worse than reality. Good places to look: things that are little known and not fully understood, fundamentally questionable on the surface, controversial, deemed inappropriate for respectable portfolios, unappreciated, unpopular, or recently the subject of disinvestment. The goal is to find underpriced assets, and the discipline is to stay in that territory even when it's deeply uncomfortable to do so. In good years, average is good enough. In bad years, it's essential to beat the market, and that's where risk control decides everything. ---