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Published on Mar 14, 2016

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THE MOST IMPORTANT THING BY HOWARD MARKS0:00we study billionaires in this is episode 73 of the investors podcast and testing
0:13from Mount Airy Maryland
0:16investors podcast
0:20read the books in summarize the lessons waters tell you when it's cold will give
0:26you double investing strategies your host Preston Parrish person is everybody
0:36doing out there this is Preston Pearson I'm your host for the investors podcast
0:40is usually accompanied by my co-host Denmark and today we've got a book and
0:46this one was written by a billionaire and that is Howard Marks and for anybody
0:51in the investing community particularly the value investing community Howard
0:54Marks is a very famous name and somebody that a lot of people follow quite
0:59closely and the name of his book is written one book and the name of the
1:03book is the most important thing and it's uncommon sense for the thoughtful
1:08investor Warren Buffett's endorse this I see his really short endorsement on the
1:13front of it says this is that rarity a useful book so he has a bunch of people
1:19that have endorsed this Klarman John BOGO Joel Greenblatt all the big names
1:25have endorsed this book and for the most part I thought it was a good book I
1:29would say that this is hands down the best investment book that a person
1:32should read but I think that it's something that's very important and it
1:36is very sound advice and I think it's a very good refresher for maybe people
1:41that have read the intelligent investor in some of them a little bit more
1:44complicated I think that this is a great book to just listen to on like your
1:49audible device sir I wouldn't necessarily say you have to actually get
1:53the hard copy a lot of investing books you really kinda need to get the hard
1:57copy because there's math in it or there's charts are equations and things
2:01like that this wasn't one of those kind of books this book was more just put on
2:06and listen to and it's just giving you good sound advice in things to think
2:11mitigate your risk is a is the best way I can describe this so stick did you
2:15have any opening comments on your thoughts of the book as far as whether
2:19you liked it didn't like it or what not
2:21yeah i think im probably
2:22the same place where you are facing it was a great book good book perhaps not
2:26great it's more like a philosophical book and an old weekend use that word
2:31for a really investment book was kinda like this is how you should look at in
2:36mastering it should do that you have some principles for at least not losing
2:40all your money and probably also to make a decent return it was more of that kind
2:44of a book at say yes and we'll go through chapter by chapter that's kinda
2:48give people the highlights of the book so you can kind of see what we're
2:51referring to but in general very good book I liked it went pretty fast how
2:56long did it take to listen to an audible was like five six hours something like
3:00that and you are some of the books and you said the foreperson with a lot of
3:03numbers and so on like you sometimes you have to be listened to a definite didn't
3:07have to do that for this book was really easy breezy with this book was easy to
3:11listen to and it wasn't that long was pretty short so real fast I'll give you
3:15kind of a background on Howard Marks Howard Marks was born in 1946 as net
3:21worth is closed the two billion dollars right now he was born and raised in
3:26Queens New York so people from Queens out there that's where our marc was
3:31originally from and he went to the Wharton School of Business for his
3:35undergrad and then he went to the Chicago Booth School of Business for his
3:39masters after that he worked for Citigroup starting in 1969 as an Equity
3:44Research analyst said he was in stark starting out and then by 1985 he went
3:48into high-yield bonds and convertible securities so he's done with i think a
3:53lot of people in the industry when you're working in fixed income that's
3:55the more sought after role because you're dealing with a very large
3:59quantities of money when you're dealing with fixed-income bonds and things like
4:03that so after that in 1995 he left with five other partners and then they opened
4:09up their Oaktree Capital Management Company and just the kind of get through
4:14some numbers on the performance of oak tree which has been around since 1995
4:19they've averaged 19 percent returns since that time frame so they've done a
4:24really well
4:25extraordinarily well compared to other investors out there at the time
4:29of writing action say his company was managing eighty billion dollars that's
4:33what's written on his book here in this book came out was a 2011 I believe ya
4:392011 was when this book was published so let's go ahead and dive into the book
4:43alright so here we go chapter one second level thinking I really like this
4:47discussion and what he's talking about second level thinking as he says most
4:51people that are in the market are just level 1 thinkers and what he means by
4:57that is let's say that you have a company that their net income went up
5:02for the quarter so the level 1 thinker would would hear that that the Prophet
5:07went up and then immediately want to go out and buy more of that stock because
5:12the profits improving and marks really tries to caution people and give people
5:18an idea of how complex things can really be whenever you're looking at something
5:23like that so let's just dig deeper and talk about second level thinking so a
5:28second level think I would say yeah the Prophet went off but how did they do
5:32that how did they get their net income to go higher and was their revenue in
5:36lockstep with previous you know means if you will so what you do is you go in and
5:42you look at the income statement say yeah well there there net income went up
5:46but they pulled all these assets off the balance sheet and sold them and that
5:51increase their income statement and when we look on the income statement you can
5:55see that the revenues have been contracting for the last five quarters
5:59or seven quarters so they've got an issue with sales in in generating
6:03revenue in their offsetting that by pulling things off their balance sheet
6:06and that's just the tip of the iceberg for second

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