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An investor mindset to beat the market

Book Review: ‘The Most Important Thing: Uncommon Sense for the Thoughtful Investor’

Image courtesy of Columbia Business School Publishing.

Book Review
Title: “The Most Important Thing: Uncommon Sense for the Thoughtful Investor”
Author: Howard Marks
Publisher: Columbia Business School Publishing, 2011; 200 pages; $29.95

This is a do-it-yourself, consumer-education-and-empowerment-oriented media age. There is a constant flow of simplifying, demystifying tips and how-to guides for those looking to take more control over their personal finances. For some subjects, that makes sense.

But while there is certainly a market for books that break some complex money matters down to eighth-grade level, the fact is that other topics simply cannot be rendered so simple, in good faith.

This is the premise of Howard Marks’ new book, “The Most Important Thing: Uncommon Sense for the Thoughtful Investor.” In fact, the first point Marks makes is his position that there are actually 18 or so “most important things” when it comes to investing for market-beating returns, all of which must be managed at the same time to achieve success.

Marks makes plain from the jump his belief that successful, above-average investing is just not simple, and his belief that “those who try to simplify investing do their audience a great disservice.” Marks also makes clear that this book is not intended to be a how-to guide, but rather a statement of his investment philosophy, a fundamental way of thinking about investing that facilitates good decision-making and the avoidance of money-losing pitfalls.

(If, by chance, you’re wondering what makes Marks, who is the chairman and co-founder of Oaktree Capital Management, qualified to bestow such advice, consider these words of Warren Buffett: “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something.” Yes, that Warren Buffett.

After very little introductory ado, Marks gets straight on with it, drilling through 20 chapters of his most important things and thoughts on putting them all together to achieve superior results.

This book is deep — not “surface level” at all — as are the thinking styles, viewpoints, understanding and priorities it demands readers take in the course and scope of their self-education and investment decision-making processes. It is not at all about math tricks, rules of thumb or algorithms; instead, it is all about acquiring the edge over average investors by taking different approaches and going much, much deeper than the ordinary, simplicity-seeking, highly computerized investor does.

Marks makes no bones about admonishing readers to carry out what he calls “second-level thinking”: starting up the process of analyzing a stock where others leave off, then going several steps further, going “deep, complex and convoluted” to answer a dozen or more questions that average investors rarely, if ever, take the time to consider.

Marks applies this level of depth and unconventional thinking to such matters as market efficiency (and the lack thereof); value investing; understanding, recognizing and controlling risk; market cycles; how to avoid mistakes through mindset management (minimizing the impact of greed and fear, among other powerful emotions; contrarianism; opportunism and more.

Is this the most user-friendly book on investing? No. Does it contain oodles of tips, tricks and sidebars with bullet lists of “million-dollar musts”? Not even close. But if you’ve decided, as I have, to invest the work and effort it takes to be serious, involved and proactive with respect to your investment decision-making and retirement planning, it provides a very deep, rich understanding of the elements that can power you to above-average results.

Will the results of an intense program of self-study and assertive investing results in returns that are worth the extra time and extra work? Only time will tell, but one way to look at it is to consider Marks’ own words: “only if your behavior is unconventional is your performance likely to be unconventional.”

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.