{"id":38164,"date":"2013-05-08T13:09:45","date_gmt":"2013-05-08T17:09:45","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=38164"},"modified":"2013-05-08T13:09:45","modified_gmt":"2013-05-08T17:09:45","slug":"review-the-most-important-thing","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/05\/08\/review-the-most-important-thing\/","title":{"rendered":"Review: The Most Important Thing"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

\"\"<\/a>\"\"
\nIf Warren Buffett, Christopher Davis, Joel Greenblatt and Seth Klarman recommend a book, it might\u2014just might\u2014be worth reading.\u00a0\u00a0 It certainly got my attention.<\/p>\n

Warren Buffett calls Howard Marks\u2019 The Most Important Thing <\/i><\/a>\u201cthat rarity, a useful book.\u201d \u00a0And as a researcher with a library of a couple hundred books myself, I couldn\u2019t agree more.<\/p>\n

For those unfamiliar with Howard Marks, he is the Chairman and cofounder of Oaktree Capital Management, an investment firm with $77 billion under management.\u00a0 The Most Important Thing Illuminated<\/i>, published in 2013, is an update to Marks\u2019 original, published in 2011, though in Illuminated <\/i>Marks has help.\u00a0 Greenblatt, managing partner of Gotham Capital and author of The Little Book That Beats the Market<\/i><\/a>, offers his own commentary throughout the pages, as do Christopher Davis, portfolio manager of the Davis Large Cap Value fund, and Seth Klarman, president of The Baupost Group and a well-respected value investor.\u00a0 Marks keeps good company.<\/p>\n

I had high expectations when I picked up The Most Important Thing Illuminated, <\/i>and I wasn\u2019t disappointed.\u00a0 This isn\u2019t yet another \u201chow to invest\u201d book or a tired rehashing of received investment \u201cwisdom\u201d that looks more like something found in a fortune cookie and which rarely seems to hold up in practice.<\/p>\n

Instead, Marks gives us the insightful thoughts of a man who struggles with his own investing decisions on a daily basis.\u00a0 There are no shortcuts, formulas, or easy tricks.\u00a0 But there is a wealth of experience and thoughtful contemplation from a real \u201cin the trenches\u201d investor who has been doing this a long time.<\/p>\n

Marks starts the book with a chapter on \u201csecond-level thinking,\u201d and I consider this one of the most valuable lessons in the entire book.\u00a0 Having a good understanding of this chapter alone will put you head and shoulders above most of your peers.<\/p>\n

Mechanical trading rules work really well\u2026right up until the point that they don\u2019t.\u00a0 And why don\u2019t they work consistently over time?\u00a0 As Marks explains,<\/p>\n

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The reasons are simple.\u00a0 No rule always works.\u00a0 The environment isn\u2019t controllable, and circumstances rarely repeat exactly.\u00a0 Psychology plays a major role in markets, and because it\u2019s highly variable, cause-and-effect relationships aren\u2019t reliable. An investment approach may work for a while, but eventually the actions it calls for will change the environment, meaning a new approach is needed.\u00a0 And if others emulate an approach, that will blunt its effectiveness.<\/i><\/p>\n

Investing, like economics, is more art than science.\u00a0 And that means it can get a little messy.<\/i><\/p>\n<\/blockquote>\n

\u201cMessy\u201d is not a technical term, but it is accurate and descriptive hear.\u00a0 Markets are driven by people and by ever-changing real-world events.\u00a0 Trying to cram this into a mechanical trading model or a black box is a recipe for disaster.\u00a0 And frankly, it\u2019s mentally lazy and reflects and unwillingness (or inability!) to grasp complexity.<\/p>\n

This brings me to Marks\u2019 points about second-level thinking.\u00a0 What exactly is \u201csecond-level thinking.\u201d\u00a0 Perhaps it is best explained by example:<\/p>\n