Howard Marks latest memo just dropped and here are my key takeaways:
(Link to memo at the end of my notes)
➡️ Investors who aim to be the top is any given year usually shoot themselves in the foot. Instead, aim to be a little better than average every year, across a long period of time.
➡️ If you can avoid losers (and losing years), the winners will take care of themselves.
➡️ An investor is rewarded for controlling risks (we can’t avoid them if we want returns). And risk control consists of declining to take risks that (a) exceed the quantum of risk you want to live with and/or (b) you wouldn’t be well rewarded for bearing.
➡️ You can profit and be compensated for bearing risks if the risk is:
• risk you’re aware of,
• risk you can analyze,
• risk you can diversify, and
• risk you’re well paid to assume.
➡️ The question isn’t whether you’re going to have losers, but rather how many and how bad relative to your winners.
➡️ Charlie Munger once said that the bulk of Warren Buffett’s wealth came from four winners. And the ingredients to their great performance comes from:
• a lot of investments in which they did decently,
• a relatively small number of big winners that they invested in heavily and held for decades,
• relatively few big losers
➡️ No one should expect to have – or expect their money managers to have – all big winners and no losers. In fact, the only way to have no losers it by not taking on any risk. Even then, you run the risk of taking too little risk.
➡️ The willingness to live with some losses is an essential ingredient in investment success.
➡️ A handful of winners will account for bulk of the gains. You see this happening over and over again, with the tech giants accounting for bulk of the market returns today, or the oil companies in the past, or the Nifty 50 in the 60s.
>> Click here to read Howard Marks memo Fewer Losers, or More Winners?
Hope you found this useful.
Cheers,
Thomas