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This updated second edition explores basic and fundamental investing concepts in a range of fields outside of economics, including physics, biology, sociology, psychology, philosophy, and literature. It discusses how the theory of evolution disrupts the notion of the efficient market and how reading strategies for literature can be gainfully applied to investing research. Building on Charlie Munger's famous “latticework of mental models” concept, the book argues that it is impossible to make good investment decisions based solely on a strong knowledge of finance theory alone. The concepts are reinforced with additional data and a new chapter on mathematics, and updated text throughout to reflect the developments of the past decade, particularly the seismic economic upheaval of 2008. Additionally, a hundred new titles have been added to the book's reading list.

After four decades spent ascending to the top of the investment management profession, the author of this book is today sought out by the world's leading value investors, and his client memos brim with insightful commentary and a time-tested, fundamental philosophy. Informed by the author's experience and study, this book explains the keys to successful investment and the pitfalls that can destroy capital or ruin a career. Utilizing passages from his memos to illustrate his ideas, the author teaches by example, detailing the development of an investment philosophy that fully acknowledges the complexities of investing and the perils of the financial world. Brilliantly applying insight to today's volatile markets, the book offers a volume that is part memoir, part creed, with a number of broad takeaways. It expounds on such concepts as “second-level thinking,” the price/value relationship, patient opportunism, and defensive investing. The book provides valuable lessons for critical thinking, risk assessment, and investment strategy. Encouraging investors to be “contrarian,” it wisely judges market cycles and achieves returns through aggressive yet measured action. Which element is the most essential? Successful investing requires thoughtful attention to many separate aspects, and each of the book's subjects proves to be the most important thing.

In The Most Important Thing investing insight of this book’s author’s celebrated client memos was distilled into a single text and made his philosophy available to general readers. In this book, this wisdom is joined by the comments, insights, and counterpoints of four renowned investors and investment educators. These experts lend insight into the most important concepts in successful investing, such as “second-level thinking,” the price/value relationship, patient opportunism, and defensive investing. The author also adds his own annotations, expanding on his book’s original themes and issues. A new chapter addresses the importance of reasonable expectations, and a foreword by Bruce C. Greenwald, called “a guru to Wall Street’s gurus” by the New York Times, speaks on value investing, productivity, and the economics of information. The book provides valuable lessons for critical thinking, risk assessment, and investment strategy. Encouraging investors to be “contrarian,” he judges market cycles and achieves returns through aggressive yet measured action. Which element is the most essential? Successful investing requires thoughtful attention to many separate aspects, and each of the book’s subjects proves to be the most important thing.

Using evolution as the template to understand growth, this book takes a first-principles approach to explore the parallels between economic and ecological systems. Not only does the book show how value is born out of tiny sparks of adaptive innovation, but it also explores the full scope of the economy as a complex network. The text borrows from an array of disciplines—including anthropology, psychology, ecology, physics, sociology, and ethics—and, most revealing of all, examines how evolution's processes can help investors avoid risk and improve their allocation decisions. Starting with a look at how innovation creates value for firms, the book considers the economic niches where companies compete and explores how they can create defensive moats to enhance their ability to survive. Throughout, the text demonstrates how this ecological understanding of the economy can help allocators improve their performance, supporting the arguments with data and experience from scientific, social, and economic disciplines.

This text argues that uncertainty is central rather than marginal to finance. Markets don't trade mainly on changes in risk. They trade on changes in beliefs about risk, and in the process, markets unite, stretch, and occasionally defy beliefs. Recognizing this truth would make a world of difference in investing. Belittling uncertainty has created a rift between financial theory and practice and within finance theory itself, misguiding regulation and stoking huge financial imbalances. Sparking a revolution in the mindset of the investment professional, this text recasts the market as a learning machine rather than a knowledge machine. The market continually errs, corrects itself, and makes new errors. Respecting that process, without idolizing it, will promote wiser investment, trading, and regulation. With uncertainty embedded at its core, the book's rational approach points to a finance theory worthy of twenty-first-century investing.

The 1944 Bretton Woods conference created new institutions for international economic governance. Though flawed, the system led to a golden age in postwar reconstruction, sustained economic growth, job creation, and postcolonial development. Yet financial liberalization since the 1970s has involved deregulation and globalization, which have exacerbated instability, rather than sustained growth. In addition, the failure of Bretton Woods to provide a reserve currency enabled the dollar to fill the void, which has contributed to periodic, massive U.S. trade deficits. The latest global financial crisis, in which all these weaknesses played a part, underscores how urgently we must reform the international financial system. Prepared for the G24 research program, a consortium of developing countries focused on financial issues, this book argues that such reforms must be developmental. It reviews historical trends in global liquidity, financial flows to emerging markets, and the food crisis, identifying the systemic flaws that contributed to the recent downturn. It challenges the effectiveness of recent policy and suggests criteria for regulatory reform, keeping in mind the different circumstances, capacities, and capabilities of various economies. The book follows ongoing revisions in international banking standards, the improved management of international capital flows, the critical role of the World Trade Organization in liberalizing and globalizing financial services, and the need for international tax cooperation. It also proposes new global banking and reserve currency arrangements.

Governments often use direct subsidies or tax credits to encourage investment and promote economic growth and other development objectives. Properly designed and implemented, these incentives can advance a wide range of policy objectives (increasing employment, promoting sustainability, and reducing inequality). Yet since design and implementation are complicated, incentives have been associated with rent-seeking and wasteful public spending. This collection illustrates the different types and uses of these initiatives worldwide and examines the institutional steps that extend their value. By combining economic analysis with development impacts, regulatory issues, and policy options, these essays show not only how to increase the mobility of capital so that cities, states, nations, and regions can better attract, direct, and retain investments but also how to craft policy and compromise to ensure incentives endure.

Sovereign Wealth Funds (SWFs) are state-owned investment funds with combined asset holdings that are fast approaching four trillion dollars. Recently emerging as a major force in global financial markets, SWFs have other distinctive features besides their state-owned status: they are mainly located in developing countries and are intimately tied to energy and commodities exports, and they carry virtually no liabilities and have little redemption risk, which allows them to take a longer-term investment outlook than most other institutional investors. This book examines the specificities of SWFs in greater detail and discusses the implications of their growing presence for the world economy. Based on material delivered in 2011 at a major conference on SWFs held at Columbia University, the book discusses the objectives and performance of SWFs, as well as their benchmarks and governance. What are the opportunities for SWFs as long-term investments? How do they fulfill their socially responsible mission? And what role can SWFs play in fostering sustainable development and greater global financial stability? These are some of the crucial questions addressed in this volume.