The most important thing 

The discipline that is most important is not accounting or

economics, but psychology.

The key is who likes the investment now and who doesn’t.

Future price changes will be determined by whether it comes to be

liked by more people or fewer people in the future.

Investing is a popularity contest, and the most dangerous thing

is to buy something at the peak of its popularity. At that point, all

favorable facts and opinions are already factored into its price, and

no new buyers are left to emerge.

                                                        HOWARD MARKS: The second key theme isn’t “the most important thing,” but “the riskiest

things.” The book, preoccupied with risk as it is, describes a large number of things that

make investing perilous. Pulling them together through these annotations should help you

recognize them and thus avoid them. The biggest losers—be they Nifty-Fifty stocks in

1969, Internet stocks in 1999, or mortgage vehicles in 2006—had something in common:

no one could find a flaw. There are lots of ways to describe this condition: “priced for

perfection,” “on the pedestal of popularity,” and “nothing can go wrong.” Nothing’s perfect,

however, and everything eventually turns out to have flaws. When you pay for perfection,

you don’t get what you expected, and the high price you pay exposes you to risk of loss

when reality comes to light. This is truly one of the riskiest things.

The safest and most potentially profitable thing is to buy

something when no one likes it. Given time, its popularity, and thus

its price, can only go one way: up.

“RANDOM THOUGHTS ON THE IDENTIFICATION OF INVESTMENT OPPORTUNITIES,”

JANUARY 24, 1994

Clearly, this is yet another area that is (a) of critical importance and

(b) extremely hard to master

PAUL JOHNSON: This comment is particularly important for students, as they tend to have

limited experience

limited experience.