Great investors see something different from everyone else and are right

The question put to Howard Marks, the investor and author of The Most Important Thing, started with a description of another investor, Steve Cohen, the subject of a book the questioner had been reading. The book said Cohen could "feel the ticker," staying closely attuned to the market. Could that kind of greatness be taught, the questioner asked, or could a good investor only be made better?

Marks answered with the idea he calls the foundation of his first book. "The most important thing is second-level thinking," he said.

By that, he means that average investing is just agreeing with everyone else. As he puts it, "If you don't see anything different from everybody else, you can't possibly be superior." To beat the market, an investor has to hold what he calls a variant perception, a view that differs from the consensus, bet on it, and be right.

In practice, Marks says, that means deciding the crowd has it wrong about a company. The consensus may overstate its quality, its growth rate, its earning power, or the price it deserves relative to earnings. The second-level thinker sees the overstatement, takes the other side, and turns out to be correct.

That last part is why Marks thinks the skill mostly cannot be taught. Asked if he can teach someone that way of thinking, he says, "I don't know," but "I think it's more of no than yes." He believes he can teach the importance of second-level thinking, a lesson he once wrote as a sample chapter that became the opening of his book, but he cannot tell someone how to form perceptions that are both at odds with other investors and correct.

He compares it to basketball, where coaches say you cannot coach height. Insight is similar, Marks says. Some people have it, and some do not. He says he does not know whether computers can ever have it, and he calls that one of the big open questions about artificial intelligence.