The Most Important Thing – A Review

“When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something, and that goes double for his book” ~ Warren Buffett

Howard Marks, investor, co-founder and chairman of Oaktree Capital Management, has compiled his letters, notes and thoughts of investment management over the years into this succinct volume for anyone to pick up and ponder over.

Known in the investment community as the “Oaktree Memos”, this compilation done by Marks is a summary of his thoughts about money management for the long term, his insights into the economy and investor psychology.

Written originally for his colleagues at Oaktree and his clients, Marks has organized all of his letters and notes into topical subjects, and each chapter in ‘The Most Important Thing’ contains his notes that he organized and categorized from his years of experience in the investment business.

The topics (chapters) that are covered in the book includes some of the following:

• Philosophy of Value Investing
• Market Efficiency
• Nature of Risk
• Risk Management
• Market Cycles
• Patience in Investing
• Understanding Uncertainty
• Contrarian Psychology
• Defensive Investing

Readers must note that this book contains no models and formulas – unlike many investment books. It is entirely focused on investment philosophy and psychology and fundamental concepts. There are no ‘case studies’ whereby the author talks about his investment experience in certain situations – it is solely Marks’ thoughts about different scenarios whereby he was undergoing and examining at various points of time. For example, there are countless notes about his thoughts on the 2007-2008 Global Financial Crisis when he was experiencing its unfolding following the wake of the sub-prime meltdown.

Since the book is a compilation of his notes and memos, there maybe times when readers would feel that there might be a lack of transitions between some of the different paragraphs.

Marks, having spent time with Citibank and TWC Group before he co-founded Oaktree Capital, has garnered experience in equity research, high yield fixed income and distressed debt investing, is pretty much against the idea of short term trading. Readers must therefore take note that Marks is an investor, and not a trader. This book contains nothing on short term trading or speculation, and is very much against the idea of trading in the short term.

However, this succinct collection of notes would greatly delight and refresh the motivated value investor, and would probably be a great value-add to contrarian investors. With his background in distressed debt investing, his insights on market (in)efficiency and as well as contrarian instincts are spilled all over his memos. Marks’ thoughts on the nature of risk and reward and handling uncertainty greatly reflects the thoughts of many investors who found the models from academia too irrelevant.

His thoughts about the hard work and effort needed to generate alpha and the importance of what he calls: ‘Second Level Thinking’ is interesting and brings to life what Benjamin Graham used to famously declare decades ago: “The art of investment has one characteristic that is not generally appreciated. A creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability; but to improve this easily attainable standard requires much application and more than a trace of wisdom.”

Overall, a good book that is succinct and very readable – a great add-on to the serious investor’s library!

Rating: 4/5

A short interview with the billionaire himself: