Tuesday, 24 January 2017

Building the Right Investment Temperament - Excerpts from Howard Marks - Part 1

Over the years, I have come to the conclusion that the most critical aspect in investing is to be able to build the right temperament. To me this is the secret sauce that separates the men from the boys and enable some to consistently outperform others, and their benchmarks.

Temperament is something that needs to be learnt through experience. We can augment it by taking a leaf out of the book of the masters. Over the last 15 years, I have tried to read as much as possible about experiences of great investors and fund managers, to try to understand how to improve my temperament.

Let me start a series of posts on this topic over the next few days, with the writings of a great investor who I have followed for the last decade. Not only is he a great investor but he is a fantastic communicator and has that rare gift of making complex subjects appear simple. He also is extremely generous in sharing his knowledge and experience with the general public. He is Howard Marks.
You can read his book "The Most Important Thing Illuminated"


His memos are available at https://www.oaktreecapital.com/insights/howard-marks-memos


Here are some excerpts from his book and some commentary where it is necessary:
To me, risk is the most interesting, challenging and essential aspect of investing.
The real test of investing is not getting returns but ensuring the downside is always protected. As Buffett has said famously, "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1."
You must be aware of what's taking place in the world and of what results those events lead to. Only in this way can you put the lessons to work when similar circumstances materialize again. Failing to do this - more than anything else - is what dooms most investors to being victimized repeatedly by cycles of boom and bust.
History, of markets and in general, is essential to know. You need to understand the causality of consequences of events. Those who do not know history are condemned to repeat it. Which basically means you need to have some mechanism of capturing your past mistakes for posterity and are able to ensure that they are not repeated again.

ACTIONABLE - A checklist of past mistakes and the reason those occurred is a good starting point.

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