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If you've ever wondered what it takes to succeed in the stock market, what lessons every investor needs to know, well, White Max has the answer in his book called " The Most Important Thing for Investors." The famous investor presents the main lessons he learned and tested throughout his more than 50-year career.
At first glance, the book's title might suggest the existence of a single " most important" thing, but he quickly clarifies that this doesn't exist. It's not just one thing that will make you a successful investor, but a series of factors he shares based on his investment philosophy. Howard Marks is considered one of the world's greatest investors and one of the managers who has delivered the highest returns on the American stock market.
His book became a bestseller, and he is a reference for other major global investors, including Woofer. The mega-investor says that when he sees Harvard Martins' memos in his email, the first thing he does is... and he even stated that Marx is his investment guru. Well, in this video, I'm going to talk about the seventh lesson from Howard Marks that every investor needs to know to improve their results, so stay tuned.
Stick with me until the end to learn how to invest better according to one of the legends of the financial market and . First of all, welcome to this video. My name is André Fogaça, founding partner of Que Investe, a digital platform that helps people of all ages and social classes to invest and achieve a more vibrant, fulfilling, and happy life.
Before we begin, I ask that you leave your like and subscribe to the channel. This way, you help me distribute content to more and more people. Also, comment below: What was the greatest lesson you've learned in your journey as an investor? Howard Marks' first lesson is to have second-level thinking, the kind that goes beyond the obvious, the kind everyone else is seeing.
Second-level thinking is a deeper and more complex way of thinking and analyzing the scenario. This characteristic will allow you to achieve above- average results because it makes you look at things from a different, more assertive angle. Marx explains that first-level thinking is simple and superficial and only seeks to solve a problem immediately.
This type of thinking, the common thinking that... Everyone does it in any situation, but most investment decisions require a deeper level of intuitive thinking. When a person with first-level thinking decides to buy a stock because the company is good, a person with second- level thinking will ask themselves, "Just because the company is good, should I buy the stock?" With this conditioning, you might conclude that the company is indeed good, but everyone thinks so, and since everyone is buying the stock, it's overvalued.
It 's expensive, so you decide that the best thing to do is sell instead of buying. The investor who manages to build this approach has a better chance of achieving success. Howard Marks' second lesson is about creating a healthy relationship between price and value. Price should be your starting point, since your profitability will depend on it, but you need to evaluate it in relation to its value.
As Marks says, it's not enough to buy a stake in a good business; you must buy it at a reasonable price, or if possible, a bargain. Marks was a value investor, and he followed one of the oldest investment rules: buy an asset below its value and sell it above it. For him to try to buy an old one for prices below its intrinsic value.
It's not foolproof, but it's the best chance he has. This means that of all the possible ways to invest, this is the most reliable for making stable and rational investments that can generate good returns. To buy at the right price, first you need to know what prices are based on. In the long term, prices tend to follow the fundamentals of companies.
In the short term, the price is affected by behavioral factors that influence supply and demand. The third lesson from Howard Marx that every investor needs to know talks about the risk-return relationship. Gross investment: you are making a projection of how this asset will behave in the future. The future is uncertain, so risk is the uncertainty in investments, and that's what investors have difficulty understanding.
When we talk about the risk of an investment, we are talking about the uncertainty about the future, the probability of something not going as planned. And to deal well with risk, Marx suggests first understanding what the risk is, then recognizing it, and finally controlling it in the best way. You've probably heard that the greater the risk, the greater the chances of failure.
Regarding returns, Marcos agrees, but he warns that this phrase leads to major misinterpretations. When you read it or see the traditional graph showing the relationship between risk and return, you might think that to have higher returns you just need to take more risk, since the Capital Markets line is growing, indicating a positive relationship between risk and return.
But this is not necessarily true, as there is no guarantee that a higher return will actually happen. For him, the best way to express the risk-return line is in the same way as the graph, and as expected, it increases as the risk increases, the possible results become broader, both positive and negative.
What he means by this is that the greater the risk, the greater the possible results, and the less certain the return becomes. So, if you want to obtain above-average returns, you need to have the ability to recognize risks and choose those with the best risk-return ratio. Knowing how to manage risk well is what differentiates the intelligent investor from all others.
To increase the security of an investment, Howard Marks bases his decisions on two premises: first, a conviction about the value, and second, a good margin of safety. In other words, he prioritizes... Bandages priced below their intrinsic value because the long-term trend here is for the price to adjust to the value, so the greater this difference between price and value, the lower the risk.
The fourth principle, according to Howard Marks, is to be attentive to market cycles. Understanding how this works gives a great advantage. Marx knows that you can't see the cycles, but it's certain that they will exist, that they will happen. Since people don't make rational decisions, Nikon describes market fluctuations as a pendulum that is always swinging between its extremes, either towards optimism or pessimism, but later on it is forced to vote by its own weight.
As he himself says, probabilities change as your position in the cycle changes. If we don't change our position, we are passive regarding the cycles; in other words, we ignore the chance to tilt the odds in our favor. While most investors simply follow the trend and contribute to the pendulum's movement, good investors do the opposite.
The intelligent investor is the one who knows which extreme the pendulum is at and makes decisions accordingly. In other words, when the pendulum is on the optimistic end, it sells at a higher price; when it's on the pessimistic end, it buys stocks at a lower price. The fifth lesson speaks of the role that luck plays in investments, but this is still poorly understood by most investors.
For him, luck is part of the natural dynamics of the financial market, just like volatility, which is a factor in its results. When you decide to expose yourself to the market, you are also exposing yourself to luck. So, even though skills are important, we cannot underestimate the role of chance. Two decisions can also produce bad results, and bad decisions can also produce good results, since at some point someone bet on a party—this doesn't mean that the person who made a bet considered bad was a genius; they were just lucky.
What you can do is maximize the role of luck and make decisions based on fundamentals. The sixth instrument of stealing, Max says that the biggest mistakes investors make are not related to having or not having the right and sufficient information, but rather to psychological factors. Therefore, be careful with influences, emotions, and behavioral biases, as they can lead to big mistakes.
To succeed, you must fight against negative influences such as acquiescence and... Fear, but be aware of the market needs that these emotions can cause, and you can take advantage of opportunities. The seventh lesson said that you shouldn't be just another sheep in a flock. Be careful of the herd effect; it leads entire populations to make mass decisions.
The most important thing here is to go against the herd and not be just another sheep in the flock. And it's not because the majority is following a current trend that you should follow it too; on the contrary, the best investors decided to do just the opposite. Lorena, you'll see that I already said to be greedy when others are afraid and to be afraid when others are greedy.
I know it's not easy to be on the contrarian team, but if you apply second-level thinking and identify what others aren't seeing, and gain the knowledge and confidence to think that way, you will be able to take advantage of the opportunities in the cycles. So, these were the main teachings of Warmax that every investor needs to know.
If you liked this video, then leave your like and subscribe to the channel so you don't miss the next videos about investments. So, I'll leave it here. A big hug and until next time!
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