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The Most Important ThingUncommon Sense for the Thoughtful Investor$
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Howard Marks

Print publication date: 2011

Print ISBN-13: 9780231153683

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231153683.001.0001

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PRINTED FROM COLUMBIA SCHOLARSHIP ONLINE (www.columbia.universitypressscholarship.com). (c) Copyright University of Minnesota Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CUPSO for personal use.date: 25 September 2021

The Most Important Thing Is … Recognizing Risk

The Most Important Thing Is … Recognizing Risk

(p.46) 6 The Most Important Thing Is … Recognizing Risk
The Most Important Thing

Howard Marks

Columbia University Press

This chapter describes something else which is crucial for successful investing: recognizing risk. Great investing requires both generating returns and controlling risk. Investment risk comes primarily from too-high prices that often come from excessive optimism and inadequate skepticism and risk aversion. Recognizing risk is an absolute prerequisite for controlling it. Recognizing risk often starts with understanding when investors are paying it too little heed, being too optimistic and paying too much for a given asset as a result. High risk, in other words, comes primarily with high prices. Participating when prices are high rather than shying away is the main source of risk. The value investor thinks of high risk and low prospective return as nothing but two sides of the same coin, both stemming primarily from high prices. Thus, awareness of the relationship between price and value—whether for a single security or an entire market—is an essential component of dealing successfully with risk.

Keywords:   risk, investment, price, investors, return, value

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