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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: 20 September 2021

The Most Important Thing Is … Awareness of the Pendulum

The Most Important Thing Is … Awareness of the Pendulum

Chapter:
(p.73) 9 The Most Important Thing Is … Awareness of the Pendulum
Source:
The Most Important Thing
Author(s):

Howard Marks

Publisher:
Columbia University Press
DOI:10.7312/columbia/9780231153683.003.0009

This chapter discusses what is also needed for successful investing: awareness of the pendulum-like swing of the investment markets. The pendulum swings between euphoria and depression, between celebrating positive developments and obsessing over negatives, and thus between overpriced and underpriced. The pendulum also swings with regard to risk tolerance versus risk aversion. Like a pendulum, the swing of investor psychology toward an extreme causes energy to build up that eventually will contribute to the swing back in the other direction. The swing back from the extreme is usually more rapid—and thus takes much less time—than the swing to the extreme. Those who believe that the pendulum will move in one direction forever—or reside at an extreme forever—eventually will lose huge sums. Those who understand the pendulum's behavior can benefit enormously.

Keywords:   pendulum, investment, risk tolerance, risk aversion, psychology, risk

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