The Most Important Thing: Uncommon Sense for the Thoughtful Investor

I like to say, “Experience is what you got when you didn’t get what you wanted.

Prices are too high” is far from synonymous with “the next move will be downward.” Things can be overpriced and stay that way for a long time . . . or become far more so.

There are old investors, and there are bold investors, but there are no old bold investors.

We have to practice defensive investing, since many of the outcomes are likely to go against us. It’s more important to ensure survival under negative outcomes than it is to guarantee maximum returns under favorable ones.

There’s a big difference between probability and outcome. Probable things fail to happen—and improbable things happen—all the time.” That’s one of the most important things you can know about investment risk.

Every once in a while, an up-or-down-leg goes on for a long time and/or to a great extreme and people start to say "this time it's different." They cite the changes in geopolitics, institutions, technology or behaviour that have rendered the "old rules" obsolete. They make investment decisions that extrapolate the recent trend. And then it turns out that the old rules still apply and the cycle resumes. In the end, trees don't grow to the sky, and few things go to zero.

Here’s the key to understanding risk: it’s largely a matter of opinion.

Being too far ahead of your time is indistinguishable from being wrong.” So

little known and not fully understood; fundamentally questionable on the surface; controversial, unseemly or scary; deemed inappropriate for “respectable” portfolios; unappreciated, unpopular and unloved; trailing a record of poor returns; and recently the subject of disinvestment, not accumulation.

Everything you needed to know in the years leading up to the crash could be discerned through awareness of what was going on in the present.

Risk is incredibly important to investors. It’s also ephemeral and unmeasurable. All of this makes it very hard to recognize, especially when emotions are running high. But recognize it we must.

The most dangerous thing is to buy something at the peak of its popularity. At that point, all favourable facts and opinions are already factored into its price and no new buyers are left to emerge

Once in a while, however, the future turns out to be very different from the past. It’s at these times that accurate forecasts would be of great value. It’s also at these times that forecasts are least likely to be correct. Some forecasters may turn out to be correct at these pivotal moments, suggesting that it’s possible to correctly

The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological. Investor

If one is approached with a deal predicated on cycles having ceased to occur, remember that invariably that’s a losing bet.

We conclude that most of the time, the future will look a lot like the past, with both up cycles and down cycles. There is a right time to argue that things will be better, and that's when the market is on its backside and everyone is selling things at giveaway prices. It's dangerous when the market's at record levels to reach for a positive rationalisation that has never held true in the past.

There’s a big difference between probability and outcome. Probable things fail to happen—and improbable things happen—all the time.” That

Most people strive to adjust their portfolios based on what they think lies ahead. At the same time, however, most people would admit forward visibility just isn't that great. That's why I make the case for responding to the current realities and their implications, as opposed to expecting the future to be made clear.

Voltaire: “The perfect is the enemy of the good.” This

SETH KLARMAN: Most of these characteristics are not permanent. Something broadly accepted can become controversial or even taboo. Information can become more or less available. Thus, an asset class deemed close to efficient at one point may become quite inefficient at another. European

when risk bearing doesn’t work, it really doesn’t work, and people are reminded what risk’s all about.

The correctness of a decision can’t be judged from the outcome. Nevertheless, that's how people assess it. A good decision is one that’s optimal at the time it’s made, when the future is by definition unknown. Thus, correct decisions are often unsuccessful, and vice versa.

Risk means uncertainty about which outcome will occur and about the possibility of loss when the unfavorable ones do.

If your behavior is conventional, you’re likely to get conventional results—either good or bad. Only if your behavior is unconventional is your performance likely to be unconventional, and only if your judgments are superior is your performance likely to be above average.

The last four and a half years have been carefree, halcyon times for investors. That doesn’t mean it’ll stay that way. I’ll give Warren Buffett the last word, as I often do: “It’s only when the tide goes out that you find out who’s been swimming naked.” Pollyannas take note: the tide cannot come in forever.

There's only one way to describe most investors: trend followers.

It's worth noting that the assumption that something can't happen has the potential to make it happen, since people who believe it can't happen will engage in risky behaviour, and thus alter the environment.

If everyone likes it, it's probably because it has been doing well. Most people seem to think that outstanding performance to dates presages outstanding future performance. Actually, it's more likely that outstanding future performance to date has borrowed from the future and thus presages subpar performance from her on out.

Selling for more than your asset’s worth. Everyone hopes a buyer will come along who’s willing to overpay for what they have for sale. But certainly the hoped-for arrival of this sucker can’t be counted on. Unlike having an underpriced asset move to its fair value, expecting appreciation on the part of a fairly priced or overpriced asset requires irrationality on the part of buyers that absolutely cannot be considered dependable.