The Most Important Thing by Howard Marks

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The book The Most Important Thing by Howard Marks is a book about investing. However, the essence of the moral of the story is this: You cannot be above average by being the consensus. Being the consensus or taking the consensus view you will only become or earn average. In order to be above average you must take the non-consensus view or do non-consensus things... But this is not enough, you must also be RIGHT about your non-consensus view or actions. Taking a non-consensus view or action and being wrong will take you below average.

For example: you want to drive to get Downtown. If you want to get there at an average time, then take the average route — the route that everyone else takes. However, the only way you can get there faster than everyone else is if you take the non-consensus route — a hopeful shortcut. However, if you do take the non-consensus route, you also have to be right about it being faster (it better be a shortcut and not a long cut). If you're wrong about the shortcut, you'll get there later that every one else (or the average). Being right about taking the non-consensus view will be determined by your research and reason for taking that view and ultimately by your track record. If you keep taking the non-consensus route (the shortcut in this example) and consistently get there later than everyone else, well then, you're not really good at being right about taking the non-conseunsue route.

It's naturally hard to take the non-consensus view and be right because natural evolution is efficient. Somehow, over time, the consensus will find the quickest and most efficient route, so going against the crowd is hard and at times counter-intutive and not worth it. It's only in rare occurrences that non-consensus is right, so you need to be very selective with non-consensus choices (you're practically saying that conventional wisdom is wrong). 

Another example I can think of is sports betting. You can't expect to make any real money by betting on the favorite team to win. In the best case you'll only earn average. Where the real money is is betting on the underdog team (the non-consensus team). However, you can just go betting on the underdog team every time, you also need to be right about the underdog team winning. So you need to be selective. How do you be selective? You do extensive research and assess whether the consusus view is wrong. If there is reason to believe that the consensus view is wrong, only then can you be comfortable with taking the non-consensus view or option. Otherwise, you're likely just better off taking the consensus view or not taking any option at all. You need to base your research of facts and reason and try not to let emotions (the biggest culprit) get in the way.

Anyway, the book is about investing but the concepts still apply. It says that in order to make above average returns, you can't take the consusus view, you must take the non-consensus view and be right. You can only hope to be right by doing extensive research that may prove the consensus view is wrong. You also have to look where no one else is looking or the underserved — because if everyone else is looking where you look and thinking the same non-consensus view, then it just becomes the consensus view and any hope of above average returns go away. So in order to earn above average returns, you must take the non-consensus view, be right, and be one of the only people that figure it out. In addition, there is a naturally a high margin of error in doing this so exercise healthy skepticism, fear, and risk management is important. The book offers that to mitigate this margin of error you must also buy at bargain prices so low that it's almost a 'no brainer' — you're buying something that's worth a $1 for $0.10 kind of deal. So to reiterate — you must take the non-consensus view, BE RIGHT, be one of the only few people to figure it out, and enter at bargain or very favorable prices (or terms) to mitigate the high margin of error. Being right about the non-consensus view is and should be a natural rarity (i.e. it should be uncommon) so patient opportunism is key. The book also mentions that the future is hard to predict and a moot point. Forecasts are usually wrong and there are an infinite amount of possible futures and how things will play out so you're better off taking things that look like deals now versus things that you think might look like a deal sometime in the future — don't make directional bets, make value and arbitrage-type bets.

There is obviously more to the book that talks about economic cycles and risk management but the above is the gist of the lesson (at least in my perspective).

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