Howard Marks Memo – The Route to Performance (1990)

I have just finished re-reading one of my all-time favorite investing books; The Most Important Thing Illuminated – Uncommon Sense for the Thoughtful Investor by Howard Marks. It is probably the book that has had the greatest impact on how I theoretically think and practically approach investing. Therefore, it is quite embarrassing to admit, as was the case with the Berkshire Hathaway shareholder letters, that I haven’t read all of Marks memos. Although the The Most Important Thing is more or less based on the memos I believe that there are still nuggets of wisdom to be found when reading each memo in detail. To find these nuggets and to restore my pride I thought I would go through all of the memos reading one per day. Also, as I did with the Berkshire letters, I will post five extracts of worldly wisdom’s that caught my attention while reading each memo and share these with you as part of The Worldly Wisdom Project. Hopefully you will find the extracts that I pick as educational and inspiring as I did.

Please comment if you have read the memo and what you thought of it. Also, if you have found a worldly wisdom in the memo that you think I should have included please comment on that as well. I’m very interested in what caught your eye while reading and why.

Worldly wisdom’s from The Route to Performance – 1990


If you want to be in the top 5% of money managers, you have to be willing to be in the bottom 5%, too.


We have never had a year below the 47th percentile over that period or, until 1990, above the 27th percentile. As a result, we are in the fourth percentile for the fourteen year period as a whole.

My thoughts: The above extracts demonstrate 1. how not to and 2. how to pursue superior investment results. One should note that the first argument (how not to pursue superior investment results) at first glance sounds equally rational and logic as the second. That makes it dangerous, but it also explains why it is easy to fall for what is most likely a fallacy for the individual investor.


I feel strongly that attempting to achieve a superior long term record by stringing together a run of top-decile years is unlikely to succeed. Rather, striving to do a little better than average every year — and through discipline to have highly superior relative results in bad times — is: 

– less likely to produce extreme volatility, 

– less likely to produce huge losses which can’t be recouped and, most importantly, 

– more likely to work (given the fact that all of us are only human).

My thoughts: What Marks has laid out above are good and powerful arguments for why the “little better than average” strategy should be employed. Still, I would argue that most investors employ a “top-decile” strategy. Although I understand their reasoning for doing so I will never understand their logic and rationale.


[…] the best foundation for above-average long term performance is an absence of disasters.

My thoughts: This is my favourite sentence in the memo.


There will always be cases and years in which, when all goes right, those who take on more risk will do better than we do. In the long run, however, I feel strongly that seeking relative performance which is just a little bit above average on a consistent basis — with protection against poor absolute results in tough times — will prove more effective than “swinging for the fences.”

My thoughts: This sums up the memo perfectly.


2 thoughts on “Howard Marks Memo – The Route to Performance (1990)

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