“Second-Level Thinking”
Why it’s Critical For Investment Outperformance
From billionaire investor Howard Marks and his book "The Most Important Thing"
= THREAD =
Why it’s Critical For Investment Outperformance
From billionaire investor Howard Marks and his book "The Most Important Thing"
= THREAD =
1.
In his book “The Most Important Thing” Howard Marks dedicates the first chapter to “Second-Level Thinking”.
Marks says “to consistently achieve superior investment returns you must be one of them (a second-level thinker)”.
In his book “The Most Important Thing” Howard Marks dedicates the first chapter to “Second-Level Thinking”.
Marks says “to consistently achieve superior investment returns you must be one of them (a second-level thinker)”.
2.
What is Second-Level thinking?
First-level thinking is simplistic and superficial, and just about everyone can do it.
Second-level thinking is deep, complex and convoluted.
*Example
What is Second-Level thinking?
First-level thinking is simplistic and superficial, and just about everyone can do it.
Second-level thinking is deep, complex and convoluted.
*Example
3.
The ability to look beyond the initial opinion of the market.
First-level thinking - ‘It’s a good company; let’s buy the stock.’
Second-level thinking - ‘it’s a good company, but everyone thinks it’s a great company. So the stock is overrated and overpriced; let’s sell’”.
The ability to look beyond the initial opinion of the market.
First-level thinking - ‘It’s a good company; let’s buy the stock.’
Second-level thinking - ‘it’s a good company, but everyone thinks it’s a great company. So the stock is overrated and overpriced; let’s sell’”.
4.
Why it’s important?
Other investors may be smart, well-informed and highly computerized.
So you must find an edge they don’t have.
You must think of something they haven’t thought of, see things they miss or bring insights they don’t possess.
Why it’s important?
Other investors may be smart, well-informed and highly computerized.
So you must find an edge they don’t have.
You must think of something they haven’t thought of, see things they miss or bring insights they don’t possess.
5.
Second-level thinkers have the ability to be contrarian, to go against the herd.
The only way to beat the market is to think differently from the market, because
“All investors can’t beat the market since, collectively, they are the market”.
Second-level thinkers have the ability to be contrarian, to go against the herd.
The only way to beat the market is to think differently from the market, because
“All investors can’t beat the market since, collectively, they are the market”.
6.
“You can’t do the same thing as others do and expect to outperform”.
The problem is that extraordinary performance comes only from correct non-consensus forecasts.
But non-consensus forecasts are hard to mark correctly and hard to act on.
“You can’t do the same thing as others do and expect to outperform”.
The problem is that extraordinary performance comes only from correct non-consensus forecasts.
But non-consensus forecasts are hard to mark correctly and hard to act on.
7.
If your behaviour is conventional you’re likely to get conventional results.
Only if your behaviour is unconventional is your performance likely to be unconventional.
Only if your judgements are superior is your performance likely to be above average
If your behaviour is conventional you’re likely to get conventional results.
Only if your behaviour is unconventional is your performance likely to be unconventional.
Only if your judgements are superior is your performance likely to be above average
8.
Summary
* Second-level thinking is the ability to look beyond the obvious.
* If you think the same as the market, you will get the same results as the market.
* Being contrarian is difficult, the market is often right, that is why it is difficult to beat the market.
Summary
* Second-level thinking is the ability to look beyond the obvious.
* If you think the same as the market, you will get the same results as the market.
* Being contrarian is difficult, the market is often right, that is why it is difficult to beat the market.
9.
Want to know what stocks Howard Marks, Buffett, Munger and Ackman are buying?
It's one of the tools in our "Toolkit For the Value Investor" with all our favorite resources for finding great companies.
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Want to know what stocks Howard Marks, Buffett, Munger and Ackman are buying?
It's one of the tools in our "Toolkit For the Value Investor" with all our favorite resources for finding great companies.
Get it free here:
valueinvestoracademy.com
10.
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Follow us for more on:
- Investing
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@ValueInvestorAc
If enjoyed this, please help us reach a greater audience by retweeting the first tweet of the thread.
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