Book Review: The Most Important Thing Illuminated

Since I love the investment memos from Howard Marks from Oaktree Capital, I decided to read The Most Important Thing Illuminated from Marks as my next investment book.

Not even through chapter one, I already love the book and I am sure it was worth to spend € 20 for the kindle version instead of reading an (easy to find) free pdf version on the web.

The books structure is very conclusive, since each chapter discusses a clearly defined topic. Sometimes several chapters discuss various sub topics of one higher-level topic, such as risk. An obvious advantage is, that it is easy to find the searched for section if you want to re-read a certain part of the book – which I already started after finishing the book a few days ago.

Annotations from other well know investment folks in The Most Important Thing Illuminated is the difference compared to The Most Important Thing, if I understood correctly. Overall, I perceived the annotations mostly interfer with my reading flow, sometimes (but rarely) they add some value, though.

Marks addresses a bunch of topics in the book and adds great insights and perspective. All chapters are easy and fun to read. I want to share a few highlights below.


Second level thinking takes into account a great many things before coming to a conclusion and it is very important if you want to achieve above average returns. I.e. first-level thinkers might sell a stock on bad news, whereas second level thinkers might ask what kind of forecast is priced in and can I build an informed opinion on the business (forecast). Does it deviate from the mainstream forecast?

To achieve superior investment results, you have to hold nonconsensus views regarding value, and they have to be accurate. That’s not easy.

Market effciency is taught is every modern financial economics class. If you believe in its totality, you do not believe in the value investing philosophy or in above average returns. The ending of the section summarizes Marks (and my current) believes about the market efficiency very well. He makes use of the image of the efficient-market-believing finance professor who takes a walk with a student:

Isn’t that a $10 bill lying on the ground? asks the student.
No, it can’t be a $10 bill answers the professor. If it were, someone would have picked it up by now.
The professor walks away, and the student picks it up and has a beer.

Risk is a topic Marks discusses in various sections of the book and makes it very clear that when investing, one should focus on risk management first and return second. As investors we can try to do the right things or we can try not to do the wrong things. I liked his references to sports (offense and defense in american football, one team for both in european football or soccer). He emphazises that measuring risk is very difficult (or even impossible).

Market cycles is another repeating topic in the book. On the one hand he states that forecasting the future is not possible. On the other hand he states that one should try to get a rough guess where we might stand with regard to the market cycle.

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