Howard Marks says neither seeking to maximize winners nor minimize losers is necessarily enough. It\u0027s all in the balance. Read more
The widening of probability distributions as you move up the risk curve means that even the most successful investors are bound to have some losers along the way. The question is how many and how bad relative to their winners.
Tennis, once again, can help explain the larger implications here. In Charles Ellis’s article The Loser’s Game, published in the Financial Analysts Journal in 1975, he pointed out that there are two kinds of tennis games. Professionals play a winner’s game: they win by hitting winners. Since their game is so much within their control, they can usually produce the shots they want, the best of which win points.
This has clear parallels to investing. I’m convinced that some investors have alpha — the ability to earn above-market returns through skill or achieving average returns without taking on all the typical risk of other investors. In other words, they can alter the shape of the probability distributions of their returns so that they’re not symmetrical — the portions representing the less-desirable outcomes are smaller than those for the better ones.
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