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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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The Most Important Thing Is … Investing Defensively

The Most Important Thing Is … Investing Defensively

(p.141) 17 The Most Important Thing Is … Investing Defensively
The Most Important Thing

Howard Marks

Columbia University Press

This chapter looks at a very important requirement for successful investing: investing defensively. The problem with investing is that the investor can't simultaneously go all out for both profit making and loss avoidance. Each investor has to take a position regarding these two goals, and usually that requires striking a reasonable balance. The decision should be made consciously and rationally. The best way to put this decision into perspective is by thinking of it in terms of offense versus defense. And one of the best ways to consider this is through the metaphor of sports, and especially tennis. To establish the groundwork for a discussion on defensive investing, this chapter uses Charles Ellis's article, titled “The Loser's Game,” published in The Financial Analysts Journal in 1975. The point that can be taken from Ellis's article is that defense is an important part of every great investor's game. There are two principal elements in investment defense: the exclusion of losers from portfolios and the avoidance of poor years and, especially, exposure to meltdown in crashes.

Keywords:   offense, defense, sports, defensive investing, Charles Ellis, investment, portfolio

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