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To the outsider, the world of investing can seem daunting to enter—if not outright impossible. But, according to investment professional Howard Marks, this intimidating appearance couldn’t be further from the truth. On the contrary, he argues that anyone can learn the basics needed to invest successfully by implementing the lessons he’s learned from a lifetime of investing.

In his 2011 book The Most Important Thing, Marks outlines the key tenets of his approach to investing. He argues that the best approach to investing in securities—any financial asset with monetary value, like stocks and bonds—is value investing, which involves determining securities’ intrinsic value and purchasing below it. To practice it successfully, you must learn the nature of market cycles to find opportunities for purchasing mispriced securities, while also learning how to mitigate the risk entailed by investing. Moreover, Marks contends that you must avoid the pitfalls that ensnare many...

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The Most Important Thing Summary The Fundamentals of Value Investing

According to Marks, value investing—the practice of purchasing securities below their intrinsic value—is the cornerstone of successful investing. In this section, we’ll detail value investing in greater depth, outlining Marks’s reasons for recommending it over growth investing and offering concrete strategies for finding underpriced securities.

Value Investing vs. Growth Investing

As Marks relates, value investing and growth investing represent different investing approaches based on securities’ fundamentals—that is, information that reflects the financial health of a security, such as revenue, cash flow, and profit margins. He argues that value investing is superior to growth investing because it yields more consistent and dependable returns.

(Shortform note: Although Marks applies value investing more broadly to all securities—not just stocks—experts traditionally discuss value investing in the context of stock market investing alone. That is, they focus on purchasing stocks that are underpriced relative to their intrinsic value, rather than (say) purchasing underpriced corporate bonds.)

To...

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The Most Important Thing Summary The Nature of Investing Cycles

According to Marks, one reason why securities’ prices can diverge from their intrinsic value is that investing markets undergo cycles—pricing fluctuations often driven by factors beyond the business fundamentals that determine intrinsic value. In this section, we’ll examine Marks’s account of the origins of investing cycles, their implications, and how investors can exploit them for their own gain.

Investing Cycles and Their Origins

Marks explains that securities’ markets are cyclical—they oscillate between highs and lows in the wake of psychological changes among investors. In light of these cycles, Marks argues that investors should avoid extrapolating from recent trends because these trends are often upended when cycles shift.

To understand Marks’s argument, it helps to first understand the origins of investing cycles. According to Marks, cycles occur as investors alternate between excessive risk tolerance and excessive risk aversion. Excessive risk tolerance generates cyclical highs as investors become too optimistic and overpay for securities under the assumption that prices can only increase. Excessive risk aversion yields cyclical lows as investors grow...

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The Most Important Thing Summary How to Mitigate Investing Risk

Even rigorous analysis of securities’ value, however, can’t entirely shield investors from risk. On the contrary, Marks contends that risk is an unavoidable aspect of investing. In this section, we’ll outline Marks’s conception of risk, his warning signs of a risky market, and his recommendations for controlling risk by practicing defensive investing.

Marks’s View of Risk vs. the Academic View of Risk

According to Marks, any approach to investing requires an understanding of risk. He defines risk as the probability that you’ll lose money because that is investors’ greatest concern.

To see the novelty of Marks’s definition, it helps to understand the main alternative that he rejects—namely, the standard academic view that equates risk with portfolio volatility, the extent to which the portfolio experiences swings in value. As Marks relates, this view is based on the assumption that more volatile investments are less reliable, increasing risk for investors.

(Shortform note: In The Warren Buffett Way, Robert G. Hagstrom clarifies that academics equate risk with volatility because of their...

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The Most Important Thing Summary Psychological and Intellectual Pitfalls to Avoid

While investing grounded in the margin of safety sounds straightforward in theory, investing is more complicated in practice. As Marks points out, that’s because investors often succumb to emotional or intellectual pitfalls when investing. In this section, we’ll consider the primary investing mistakes that you must avoid to maximize your success.

Common Psychological Pitfalls

While Marks admits that investing markets might be perfectly efficient if investors were fully objective and rational, he contends that the opposite is true: Psychological influences affect investors’ decisions, cutting into potential profits. And though Marks lists an array of such influences, we’ll focus on the effects of three key ones: greed, fear, and the desire to conform.

Pitfall #1: Greed

First, Marks argues that greed leads investors to make suboptimal decisions as it causes them to abandon caution. He points out that when investors are overcome by their desire to earn money, they cast aside risk aversion in hopes of earning an outsized profit. For instance, a greedy investor might spend an exorbitant amount of money investing in an unproven cryptocurrency, leaving them...

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Shortform Exercise: Reflect on Your Investing Habits

Marks contends that the key to successful investing is value investing, which involves finding disparities between securities’ prices and their intrinsic value. In this exercise, reflect on your own experience and consider ways that you could integrate Marks’s recommendations going forward.


Write down the securities that you’ve invested in, and pick a handful of them. What reasons led you to invest in these securities?

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