I finally got to reading the first book in my personal finance goals for 2022 list, and that is The Most Important Thing: Uncommon Sense for the Thoughtful Investor, by Howard Marks. Here is The Most Important Thing Book Review.
Who is Howard Marks?
Howard Marks is an American investor and is the cofounder and chairman of Oaktree Capital, based in Los Angeles. He is a billionaire (times two).
According to Wikipedia, Howard Marks started his career as an analyst at Citigroup, and then went to TCW group which focused on high yield debt and convertible securities. After that, he co-founded Oaktree Capital in 1995. They profited immensely from the 2008 downturn and Oaktree became public in 2012. A majority of Oaktree Capital was acquired by Brookfield Asset Management in 2019.
Oaktree has had an amazing 19% average CAGR for over 20 years (minus fees). Oaktree has over $166 billion in assets under management as of December 2021.
The Most Important Thing Book Review
Howard Marks was well known for sending and sharing his memos about investing, little nuggets of wisdom for the investor. He has compiled these memos into The Most Important Thing to explain the commonalities that great investors have, and how to add these to improve your own personal investing style. These memos were meant for his team at Oaktree Capital.
These memos from Howard Marks are available on the Oaktree Capital website and accessible to anyone.
According to Howard Marks, The Most Important Thing is (20 different important things divided into chapters):
- Second-Level Thinking
- To elevate your thinking beyond what others are thinking and doing
- Understanding Market Efficiency (and its Limitations)
- Realize that even though you may be a rational investor, others are not. Humans are driven by greed, fear, and other emotions and you cannot control what others are doing. Kind of like if you’re a safe driver yourself but there are others around you who are not.
- The Relationship Between Price and Value
- The goal of investing is to purchase the company stock below the intrinsic value.
- Understanding Risk
- Recognizing Risk
- Controlling Risk
- Long term investing success is derived from being able to control risk consistently and not simply having more winning companies in your portfolio
- Being Attentive to Cycles
- Cycles are inevitable in investing. When the markets are down investors think it will never end, when the bull market occurs investors think the bull market will never end too
- Awareness of the Pendulum
- There is no middle ground with the stock market, it is a balance between euphoria and desperation
- Combating Negative Influences
- Investing errors don’t mainly come from analytic error but due to emotions like fear, greed, wanting to follow the pack, and envy.
- Being able to critically think for yourself is very important as an investor, most investors just follow the trend. You can’t buckle and cave, you have to have conviction when others are not following you.
- Finding Bargains
- Patient Opportunism
- In this chapter, Howard Marks talks about an analogy of how investing is like baseball, how investing is the greatest business in the world because you never have to swing. There’s no penalty except opportunity. “All day you wait for the pitch you like”
- Knowing What You Don’t Know
- Having a Sense for Where We Stand
- You can’t invest in a bubble, you have to be aware what’s going on around you and use those to guide your actions.
- Appreciating the Role of Luck
- I liked this quote from the book: “We have to practice defensive investing, since many of the outcomes are likely to go against us. It’s more important to ensure survival under negative outcomes than it is to guarantee maximum returns under favorable ones”
- Investing Defensively
- He is a proponent of defensive investing and reducing risk. “Defence can provide good returns achieved consistently, while offence may consist of dreams that often go unmet”
- Avoiding Pitfalls
- Adding Value
- Pulling it All Together
What I Liked About The Most Important Thing
The Most Important Thing book review will not be complete without going over what I enjoyed and didn’t like about the book.
This book was an easy read and it was easy to understand, it’s not like reading Security Analysis or The Intelligent Investor.
The author has a skill to distill very complicated investing concepts into easy to read and understand lessons.
There were some quotes that I really liked from The Most Important Thing, here they are:
There are old investors, and there are bold investors, but there are no old bold investors.
“If we avoid losers, the winners will take care of themselves.”“Investing scared, requiring good value and a substantial margin for error, and being conscious of what you don’t know and can’t control are hallmarks of the best investors I know.”
What I Did Not Like About The Most Important Thing
I found the book a little repetitive, like he was saying the same thing but in a different way for a number of chapters. Even the chapter titles have similar subjects.
Other than that, I liked this book.
What’s my final The Most Important Thing book review? Well, if you’re interested in investing, analyzing companies, and not just index investing, I think this book would be great.
If you’re not planning to invest outside of passive investing and index fund investing, it will probably not be of much utility to you, as you won’t need to learn to have a contrarian mindset because you aren’t trying to beat the market.
I would definitely recommend anyone interested in investing (especially if you are serious about learning how to invest or are conflicted and uncertain whether you are a growth investor or a value investor) to read this book.
The Most Important Thing is very reasonably priced on Kindle and free with an Audible trial.
You can also start by reading his insights from the Oaktree Capital website.
Here are some other dividend investing books (value oriented investing) that might be of interest.
What is your The Most Important Thing book review?
GYM is a 30 something millennial interested in achieving financial freedom through disciplined saving, dividend and ETF investing, and living a minimalist lifestyle. Before you go, check out my recommendations page of financial tools I use to save and invest money. Don’t forget to subscribe for blog updates, a free dividend yield spreadsheet, and the free Young Money Bootcamp eCourse.