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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: 18 September 2021

The Most Important Thing Is … Avoiding Pitfalls

The Most Important Thing Is … Avoiding Pitfalls

(p.153) 18 The Most Important Thing Is … Avoiding Pitfalls
The Most Important Thing

Howard Marks

Columbia University Press

This chapter presents another vital requirement for successful investing: avoiding pitfalls. Trying to avoid losses is more important than striving for great investment successes. The latter can be achieved some of the time, but the occasional failures may be crippling. The former can be done more often and more dependably—and with consequences when it fails that are more tolerable. With a risky portfolio, a downward fluctuation may make the investor lose faith or be sold out at the low. A portfolio that contains too little risk can make them underperform in a bull market, but no one ever went bust from that; there are far worse fates. To avoid losses, we need to understand and avoid the pitfalls that create them. This chapter highlights some of the pitfalls attributable to psychology that investors need to avoid, including the so-called “failure of imagination”—not anticipating the possible extremeness of future events—and the failure to recognize market cycles and manias and move in the opposite direction.

Keywords:   pitfalls, loss, investment, risk, portfolio, psychology, investors, failure of imagination, market cycles

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