Earning high returns is something that every investor wants. After all, that is
what investing boils down to. But as we have stressed over and over again, it is
the philosophy you adopt that matters the most. In this regard it is always
interesting to read on the philosophies and investment approaches adopted by
gurus. These are, after all, people who have amassed big fortunes in their long
years of investing. One such individual is Mr Howard Marks, the founder
of Oaktree Capital Management.
In his book, "The most important thing" he has outlined his key learnings from over 40 years of successful investing. Rather than giving formulae and numbers, the book uses examples to describe his most important learning in the world of investing. The most important thing in the book is the importance of value investing over growth investing. Mr Marks states that "consistency trumps over drama". Using the philosophy of value investing, one can identify stocks with strong fundamentals that deliver superior returns over a long period of time.
Having identified such a stock, the next thing that an investor wonders is when to buy and when to sell. The book talks about the cyclicality in stock markets which present opportunities for doing exactly this. This cyclicality is caused by human behaviour which tends to magnify itself both during good times as well as during bad. The returns so earned have to be understood in conjunction with the risk. Here Mr Marks defines risk as the potential loss of capital and most importantly the permanent loss of capital. Understanding, recognizing and controlling risk is perhaps as important as identifying the stock itself.
Following the philosophy of value investing, understanding the risks of investing is not really something everyone can do. But those who manage to do so earn superior returns over the long term.
In his book, "The most important thing" he has outlined his key learnings from over 40 years of successful investing. Rather than giving formulae and numbers, the book uses examples to describe his most important learning in the world of investing. The most important thing in the book is the importance of value investing over growth investing. Mr Marks states that "consistency trumps over drama". Using the philosophy of value investing, one can identify stocks with strong fundamentals that deliver superior returns over a long period of time.
Having identified such a stock, the next thing that an investor wonders is when to buy and when to sell. The book talks about the cyclicality in stock markets which present opportunities for doing exactly this. This cyclicality is caused by human behaviour which tends to magnify itself both during good times as well as during bad. The returns so earned have to be understood in conjunction with the risk. Here Mr Marks defines risk as the potential loss of capital and most importantly the permanent loss of capital. Understanding, recognizing and controlling risk is perhaps as important as identifying the stock itself.
Following the philosophy of value investing, understanding the risks of investing is not really something everyone can do. But those who manage to do so earn superior returns over the long term.
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