Investing is a crucial journey we undertake to secure a better future. However, this journey is always accompanied by unforeseen risks. You may have wondered, “How can I grow my money reliably?” Howard Marks offers a clear answer to this question. He emphasizes the importance of the unpredictability of market forecasts, the correlation between high returns and high risks, and the need to think differently from the crowd.
The market is an unpredictable unknown world
Howard Marks states, “The market is unpredictable and constantly changing, so you should never be overconfident in your forecasts.” What this means is simple: the market does not move according to our expectations.
For example, a strategy that was successful in the past may not work now. This is much like the weather. You can predict the weather, but it’s never 100% accurate, just like the market. Therefore, being overly confident in your judgment can be dangerous. Flexibility and caution are paramount in investing.
The allure of high returns, and the risks hidden behind them
Pursuing high returns is natural. However, Marks points out an important fact: “High returns come with higher risks.” This is a lesson that every investor should take to heart.
For example, imagine an investment product that guarantees a 20% annual return. In this case, we must carefully consider the potential risks that the product carries. There’s no such thing as a free lunch. Many people tend to forget the formula “high return = high risk” and focus only on the returns. This often leads to significant losses.
You need to think differently from the crowd to achieve superior investment results
Lastly, Howard Marks stresses that “to achieve superior investment results, you must think differently from the majority.” This means that we need to make decisions in investing that diverge from the crowd mentality.
Most investors tend to buy stocks that are rising and sell those that are falling. However, such behavior only leads to average results. If you want to achieve above-average results, you need to choose a different path. For example, when the crowd is enthusiastic about a particular stock, we should question whether that stock is overvalued.
Conclusion: Essential guidelines for stable investing
Howard Marks’ three key principles are essential guidelines for stable and successful investing. By not overconfidently trusting the market, carefully evaluating the balance between returns and risks, and thinking differently from the crowd, we can achieve better long-term investment outcomes.
May you engrave these principles in your heart as you continue your investment journey. Wishing you success in your investments!
Reference: TAM, “Howard Marks: 3 Investment Essentials For All Investors”