Greenwald Bruce C. - The most important thing illuminated: uncommon sense for the thoughtful investor

THE MOST IMPORTANT THING ILLUMINATED

For Nancy, Jane, and Andrew With All My Love

Contents

THE MOST IMPORTANT THING IS

For twenty years Howard Marks has been educating investors with his Memos from the Chairman, and in writing The Most Important Thing, Marks drew from these memos to compile the most important lessons he has learned as an investor. That he is an outstanding investor goes without saying; he is also a great teacher and a thoughtful author, and The Most Important Thing is a generous gift to all investors.

In The Most Important Thing Illuminated, readers will benefit not only from Markss hard-earned wisdom, but also from the insights of three seasoned investorsChristopher Davis, Joel Greenblatt, and Seth Klarmanand a Columbia Business School adjunct professor, Paul Johnson. Each annotator in this impressive group brings a unique perspective to Markss work, and an investment style that colors their reaction to Markss text. For Davis, superior investment ability seems to be innate, and his success is amplified by his commitment to a value approach and his disciplined industry focus. Greenblatthimself the author of the bestselling investment book The Little Book That Beats the Markethas gained tremendous success through his keen eye for irrational institutional behavior. His initial insight into corporate spin-offs has been followed up by his more recent focus on overall market anomalies. Klarman has produced almost three decades of extraordinary results while being aggressively risk adverseand his performance is even more remarkable when one learns of his near obsession with down-side protection. Finally, Johnson brings his almost thirty years as an investment professional and twenty years as an adjunct professor to reveal how he has begun to incorporate Markss wisdom into his courses on security analysis and value investing.

Their annotations on the original text add depth and dimension to Markss argument, as these four thinkers discuss how Markss philosophy resonates with, refines, or occasionally differs from their own. Marks even adds his own commentary throughout the text, bringing to light some of the underlying themes that run through the book and articulating the top priorities among his recommended actions. In addition, he offers one extra lesson not covered in the original book, on the importance of reasonable expectations. I like to think of The Most Important Thing Illuminated as a surrogate book group with five of the best investment thinkers alive.

Most important, this new project joins The Most Important Thing as an invaluable contribution to the value investing canon. Value investing began at Columbia with the publication of Benjamin Graham and David Dodds Security Analysis in 1936. In 2001, the Heilbrunn Center for Graham and Dodd Investing was established at Columbia Business School It has since emerged as the academic home of value investing.

I find it fitting and gratifying that the center played a role in the books formation. The Most Important Thing was initially conceived at CSIMA (the Columbia Student Investment Management Association), Heilbrunns annual investment conference. After hearing Marks give a presentation at the conference, Myles Thompson, founder of Columbia Business School Publishing, approached him about doing a book based on his memos and his investment philosophy. Marks was enthusiastic about publishing his investment wisdom at the birthplace of value investing and knew his ideas would be embraced by the Heilbrunn community. The Most Important Thing was launched a year later at the same event; The Most Important Thing Illuminated launched at the 2012 CSIMA meeting.

The Most Important Thing Illuminated continues the value investing communitys tradition of generously sharing its ideas, insights, and investment wisdom. The Heilbrunn Center is delighted to be associated with this innovative publication and truly illuminating new contribution.

BRUCE C. GREENWALD

Director, Heilbrunn Center for Graham and Dodd Investing

Robert Heilbrunn Professor of Finance and Asset Management

For the last twenty years Ive been writing occasional memos to my clientsfirst at Trust Company of the West and then at Oaktree Capital Management, the company I cofounded in 1995. I use the memos to set forth my investment philosophy, explain the workings of finance and provide my take on recent events. Those memos form the core of this book, and you will find passages from many of them in the pages that follow, for I believe their lessons apply as well today as they did when they were written. For inclusion here Ive made some minor changes, primarily to make their message clearer.

PAUL JOHNSON: I never had a single text to use in teaching my investment courses at the Columbia Graduate School of Business until I read Howard Markss The Most Important Thing. I used his book in the fall of 2011 as the primary text in my course on value investing and security analysis. Markss discussion was an excellent complement to my lectures.

What, exactly, is the most important thing? In July 2003, I wrote a memo with that title that pulled together the elements I felt were essential for investment success. Heres how it began: As I meet with clients and prospects, I repeatedly hear myself say, The most important thing is X. And then ten minutes later its, The most important thing is Y. And then Z, and so on. All told, the memo ended up discussing eighteen most important things.

Since that original memo, Ive made a few adjustments in the things I consider the most important, but the fundamental notion is unchanged: theyre all important. Successful investing requires thoughtful attention to many separate aspects, all at the same time. Omit any one and the result is likely to be less than satisfactory. That is why I have built this book around the idea of the most important thingseach is a brick in what I hope will be a solid wall, and none is dispensable.