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Establishing a healthy relationship between fundamentals — value — and price is at the core of successful investing. Investor psychology can cause a security to be priced just about anywhere in the short run, regardless of its fundamentals. Investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity.

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The safest and most potentially profitable thing is to buy something when no one likes it. All bubbles start with some nugget of truth. Valuation eventually comes into play, and those who are holding the bag when it does have to face the music. Risk means more things can happen than will happen.


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The possibility of permanent loss is the risk I worry about. Skillful investors can get a sense for the risk present in a given situation. They make that judgement based on a the stability and dependability of value and b the relationship between price and value.

92 Quotes From The Most Important Thing by Howard Marks

Return alone—and especially return over short periods of time—says very little about the quality of investment decisions. Recognizing risk often starts with understanding when investors are paying it too little heed. The value investor thinks of high risk and low prospective returns as nothing but two sides of the same coin, both stemming primarily from high prices. Awareness of the relationship between price and value—whether for a single security or an entire market — is an essential component of dealing successfully with risk.


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So a prime element in risk creation is a belief that risk is low, perhaps even gone altogether. That belief drives up prices and leads to the embrace of risky actions despite the lowness of prospective returns. The degree of risk present in a market derives from the behavior of the participants, not from securities, strategies, and institutions.

When worry is in short supply, risky borrowers and questionable schemes will have easy access to capital, and the financial system will become precarious. Too much money will chase the risky and the new, driving up asset prices and driving down prospective returns and safety.

The Uncommon Investor III: How to Earn Superior Returns in the Stock Market Despite Everything

Investment risk comes primarily from too-high prices, and too-high prices often come from excessive optimism and inadequate skepticism and risk aversion. High quality assets can be risky, and low quality assets can be safe.

Risk control is the best route to loss avoidance. Risk avoidance, on the other hand, is likely to lead to return avoidance as well.

Where Do Investors Make Their Biggest Mistakes?

The road to long-term investment success runs through risk control more than through aggressiveness. Skillful risk control is the mark of the superior investor. Most things prove to be cyclical.

François Rochon: "The Art of Investing: Analyzing Numbers and Going Beyond"

Cycles will never stop occurring. If there were such a thing as a completely efficient market, and if people really made decisions in a calculating and unemotional manner, perhaps cycles or at least their extremes would be banished. Jackie Reid marked it as to-read Jun 28, Jen marked it as to-read Jun 28, Bonny Macisaac marked it as to-read Jun 29, Tyler Villeneuve marked it as to-read Jun 29, Annie-claude marked it as to-read Jun 29, Debera Harrington marked it as to-read Jun 29, Unknown Unknown marked it as to-read Jun 29, Maurice Caldarella marked it as to-read Jun 29, Kass Birdsell marked it as to-read Jun 29, Meghan marked it as to-read Jun 29, Vivianne Wright marked it as to-read Nov 12, BayKay marked it as to-read Apr 01, Daniel marked it as to-read Dec 04, Trevor marked it as to-read Feb 15, There are no discussion topics on this book yet.

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Books by Benj Gallander. Standing fast to his decidedly contrarian position, Gallander does not believe in buying and holding stock in perpetuity, and he thinks that stop-losses are idiotic, like playing cards with an open hand. Instead Gallander has redefined conventional norms of the risk-reward relationship: And all he has to show for his contrarian position is a fifteen-year annualised return of