Risk Ascent | Exploring the Edges of Risk

I have been an avid reader (and listener) of Howard Marks’ memos since 2020 – they have shaped how I think about markets, risk, and human behavior.

Recently, to celebrate 35 years of his legendary memos, Howard Marks released a special collection of his memos since 1990 – “The Best of …”

To read the full memo collection: Please visit the link – The Best of . . .

Using an LLM, I summarized that collection and distilled 30 timeless investing wisdoms/principles that I can keep coming back to again and again. I hope they will be as valuable to you as they have been to me.

On Mindset & Philosophy

1. Embrace “I Don’t Know” The foundation of wise investing is intellectual humility. Acknowledging you can’t predict the macro-future is a strategic strength, not a weakness.  
2. Master Second-Level Thinking To outperform, your thinking must be different and better. Go beyond the obvious (“It’s a good company; buy the stock”) and ask what the consensus misses and why it might be wrong.  
3. Be a Skeptic If an investment sounds too good to be true, it almost certainly is. There is no “silver bullet” or free lunch in investing; ask tough questions, especially when an opportunity seems easy.  
4. Process Over Outcome You can’t judge a decision’s quality by its outcome. Randomness means good decisions can fail and bad ones can succeed. Focus on a sound process, not short-term results.  
5. Distinguish Skill from Luck In the short run, luck can overwhelm skill. True skill reveals itself not in a single brilliant year, but in a long record of consistent performance.  
6. Investing Isn’t Supposed to Be Easy In a competitive market, there are no easy answers. If it feels easy, you’re likely overlooking the complexity and missing the second-level insights required for success.  

On Strategy & Tactics

7. Play a Defensive Game Long-term success is built on a string of consistent, good years and the absence of disastrous ones. Don’t swing for the fences; aim for a high batting average.  
8. Avoid the Losers The surest path to winning is not losing. Focus on avoiding major errors and permanent capital loss, and the winners will take care of themselves.  
9. The Goal is Asymmetry Strive for returns that are more than commensurate with the risk you bear. The most reliable path is a strategy that limits the downside while still participating in the upside.  
10. Dare to Be Different You cannot achieve superior results by taking the same actions as everyone else. Unconventional behavior is an absolute prerequisite for outperformance.  
11. Price is Paramount Investment success comes not from buying good things, but from buying things well. A great company can be a terrible investment if the price is too high.  
12. Value is the Ultimate Anchor In the long run, an asset’s price will gravitate toward its intrinsic value. Your primary job is to calculate that value and buy the asset for less.  
13. Bargains Require a Mistake To buy a bargain, someone must sell to you at an irrationally low price. Superior investing is about being on the right side of that mistake.  
14. Patience is a Winning Tactic The market is a “weighing machine” in the long run. Resist the urge for hyperactivity. Often, the best move is to “Don’t just do something; sit there”.  

On Risk & Cycles

15. Risk is Not Volatility The true risk isn’t price fluctuation; it’s the permanent loss of capital. Don’t let academic definitions distract you from what truly matters to an investor.  
16. The Perversity of Risk The greatest risk arises when everyone believes there is none. Conversely, when fear is rampant and assets are cheap, risk is often at its lowest.  
17. Recognize the Risk of Taking Too Little Risk While risk control is paramount, complete risk avoidance leads to return avoidance. The goal is not to avoid risk, but to bear it intelligently for profit.  
18. Understand the Pendulum Markets are driven by a pendulum of human emotion, swinging between euphoria and depression. Your job is to know where it is in its arc and act accordingly.  
19. “Trees Don’t Grow to the Sky” Few trends, positive or negative, continue forever. The most dangerous belief in investing is the assumption that a prevailing trend will never end.  
20. History Rhymes The specifics of market cycles change, but the patterns of human psychology—fear, greed, euphoria—are timeless. Ignoring these recurring patterns is perilous.  
21. Leverage is Dynamite The prudent amount of leverage depends entirely on the stability of the underlying asset. The combination of risky assets and excessive leverage can be fatal.  

On Behavior & Psychology

22. Forecasting is Futile Don’t bet on macro forecasts. The consensus view is already reflected in the price, and non-consensus views are rarely correct. It’s an illusion of knowledge.  
23. Know Where You Are You can’t predict the future, but you can prepare for it. The key is to “take the market’s temperature”—assess investor psychology and position your portfolio based on the odds offered today.  
24. Focus on the Long Term Short-term performance is mostly noise, driven by luck and emotion. True success is measured over years and cycles, not quarters.  
25. Be an Intelligent Contrarian The herd is usually wrong at the market’s emotional extremes. But being a contrarian isn’t just doing the opposite; it’s understanding why the crowd is wrong and having the conviction to act on that insight.  
26. Dare to Look Wrong To achieve unconventional success, you must be willing to look wrong in the short term. Conviction in your process is essential to withstand the discomfort of being early or out of favor.  
27. Recognize Bubbles and Busts Learn the symptoms of psychological extremes: herd behavior, the suspension of disbelief during manias, and the capitulatory fear that creates bottoms.  
28. Focus on the Knowable Concentrate your efforts on gaining a knowledge advantage in specific, under-researched companies and securities (the micro), rather than guessing at the unknowable macro-future.  
29. “The wise man does in the beginning, the fool does in the end.” The best opportunities are found when few are paying attention. By the time an investment is popular and comfortable, the big gains are likely in the past.  
30. Control Your Emotions The market’s short-term movements are a barometer of investor sentiment, not a fundamental analyst. Your own analysis should dictate your actions, not the emotional swings of others.