When seeing Buffet’s track record beside market performance, I noticed what really put him ahead was avoiding catastrophic losses. Many years he beats the market, but the real outperformance comes from only losing 5% while the market loses 20%. Howard Marks touched on that in this memo and it’s gold.

“I like caution in my money managers. I believe, in many cases, the avoidance of losses and terrible years is more easily achieved than repeated greatness. And thus, risk control is more likely to create a solid foundation for a superior long-term. Investing scared, requiring good value and a substantial margin for error and being conscious of what you don’t know and can’t control are the hallmarks of the best investor’s I know”

It’s the reason for my individual success. I buy value stocks with a margin of safety. Avoiding massive losses keeps me from having to make up too much ground. Here’s a screenshot from TipRanks to demonstrate the idea:

4041 is the same portfolio I have linked here; you can see while the average TipRanks portfolio lost ~19% in April, I went sideways. Usually not a good thing, but I’ll take sideways over a 20 drawdown all day.

Avoiding losing makes winning so much easier. So overpriced growth stocks with lofty valuations and companies without earnings go straight to the “no thank you” pile.