Edward Quince's Wisdom Bites: Ownership vs. Debt – The Fundamental Choice

Welcome back, intellectually curious investors! Today, we explore a foundational concept in investing, one that Howard Marks distilled with his characteristic clarity in his October 23, 2024 memo, "Ruminating on Asset Allocation." This memo provides a powerful framework for thinking about risk management and aligning your investment decisions with your deeper financial goals, a core tenet of the Edward Quince blog.

Marks begins by simplifying the complex world of asset classes to their essence: "at bottom, there are only two asset classes: ownership and debt". He emphasizes the "enormous difference to own vs. to lend":

• Owners (equity holders) have "no promise of return". Their potential upside is uncapped, but so is their potential for loss.

• Lenders (bondholders, creditors) have a contractual "fixed outcome" – assuming, of course, the borrower fulfills their obligations. Their upside is capped, but their downside is theoretically limited to the amount lent.

The most basic decision for investors, Marks argues, is choosing between these two fundamental approaches. To anchor this decision, one must first identify a "risk posture". This involves determining how much emphasis you want to place on "preserving (defense) vs. growing capital (offense)". He calls this "preservation vs. growth" an "inescapable truth in investing," acknowledging that these two objectives are mutually exclusive.

This aligns perfectly with our blog's long-standing philosophy. We've often stressed the importance of identifying your goals as the first step towards good risk management, recognizing that "taking a risk without having a specific goal in mind is like driving around aimlessly and hoping to end to up somewhere good". Marks’ framework underscores that this crucial choice should be informed by your "investment horizon, financial condition, income, needs, aspirations, responsibilities, and, crucially, intestinal fortitude, or their ability to stomach ups and downs".

Marks also cautions against deviating from one’s "sweet spot" in terms of risk level, a reminder of the blog’s core belief in discipline and self-awareness. He concludes by pointing to the current opportunities in credit at current levels, which he sees as offering attractive returns.

Ultimately, Marks' "Ruminating on Asset Allocation" reinforces that "A prudent way to navigate the inherent uncertainty in the world and economy is by maintaining some flexibility, a buffer, a margin of safety and a level of creativity in planning". It's about making deliberate, informed choices about your risk posture, understanding the fundamental trade-offs, and focusing on what truly matters for your long-term objectives, rather than getting swayed by market noise or fleeting narratives. 

Edward Quince's Wisdom Bites: The Human Calculus of Value – Beyond Prices and Pundits

Welcome back, discerning investors, to Edward Quince's Wisdom Bites! In our fast-paced world, where markets swing on every headline and narratives shift quicker than a meme coin's price, it's easy to get lost in the "noise and false stimuli". But as this blog consistently reminds us, true understanding comes from looking beyond the superficial, embracing uncertainty, and focusing on timeless principles. Today, we dive into a recent memo from investment titan Howard Marks, "The Calculus of Value", a piece that, despite its August 2025 publication date, offers profound insights perfectly aligned with our core investment philosophies.

Marks, known for his incisive market observations, opens his August 2025 memo by reflecting on the 25th anniversary of his "bubble.com" memo. He updates his perspective on asset values, building on his previous conclusion that while U.S. stock market valuations were "lofty but not nutty", they didn't necessarily signal a bubble due to a lack of extreme investor psychology.

Marks distinguishes between value and price, a fundamental concept for any investor:

• Value is subjective – what an asset is "worth" at a point in time, and it cannot be definitively found, "not even by AI, as far as I know".

• Price is concrete – it's simply the amount you pay to obtain something.

The essence of good investing, Marks asserts, is accurately estimating this subjective value and then purchasing it at a reasonable price. He notes that while his education at the University of Chicago taught a purely mathematical discounting process of future cash flows and earnings to determine a fair price, "in the real world, price is set by a different discounting process, which consists mostly of people applying their subjective opinions and attitudes about what the asset and its earning power are worth".

This brings us to Benjamin Graham's enduring analogy, which Marks also highlights: "in the short run the market functions like a voting machine, reflecting assets’ popularity. But in the long run, it’s a weighing machine, assessing assets’ value". Marks himself refers to a "calculus of value" that seems "entirely logical and almost mathematical," but crucially, it's "applied by people who aren’t". This human element – the subjective opinions and attitudes – is what truly drives pricing in the market.

Marks observes several factors currently "firing investor imaginations" and contributing to bull markets:

• The positive psychology and "wealth effect" from recent gains in markets, high-end real estate, and crypto.

• The belief that, for most investors, there's "no alternative" to U.S. markets.

• The excitement surrounding "today’s new, new thing: AI".

A central theme in Marks' memo, and a powerful warning, is the "this time is different" cliché. He quotes Sir John Templeton, who said that "20 percent of the time things really are" different. Marks struggles with this paradox, stating, "I just have no idea which of those two concerns is more valid today" – whether it's the cliché always bearing scrutiny, or the failure to recognize when things actually are different. He emphasizes that failing to recognize genuine shifts "stands between the average investor and superiority".

Marks' "The Calculus of Value" deeply resonates with this blog's core investment philosophies, particularly its emphasis on intellectual humility and filtering noise. Marks' admission that he has "no idea" which side of the "this time is different" paradox is more valid exemplifies the very "I don't know" mentality this blog advocates. It reinforces that "Nobody knows anything, and that's okay", particularly when it comes to complex market dynamics.

His distinction between objective value and subjective price underscores the importance of focusing on underlying fundamentals rather than getting swept up in market popularity or "fleeting narratives". The "calculus of value" being logical but "applied by people who aren't" perfectly illustrates how human nature and behavior "matters more than your forecast". It's a reminder that emotions and psychology, rather than pure logic, often dictate short-term market movements.

Marks' call to understand "the other side of the issue," as per John Stuart Mill's quote ("He who knows only his own side of the case knows little of that"), aligns with the blog's promotion of critical thinking and seeking diverse perspectives beyond mere "group think". This intellectual rigor helps cut through the "noise bottleneck" that bombards investors daily.

Ultimately, Marks' memo, like the timeless wisdom shared here, urges investors to move beyond the "daily deluge of financial 'news'" and the "constant pressure to do something". Instead, cultivate patience – because "the big money is not in the buying and selling, but in the waiting". It reinforces the wisdom that "Never interrupt compounding unnecessarily" by reacting to every "new, new thing".

In a world constantly seeking instant answers and quick gains, Howard Marks' "The Calculus of Value" serves as a powerful reminder of enduring investment truths. It reaffirms our belief that true success in finance, and in life, comes from embracing intellectual humility, discerning value from price, filtering out the pervasive noise, and adhering to patient, long-term principles. As always, "Clarity comes from subtraction, not addition". So, understand the human element, scrutinize every "this time is different" narrative, and let your discipline triumph over market drama.

Edward Quince's Wisdom Bites: The Enduring Comedy of Being Human – As Told by the XTODs (Part 3: Societal Illusions and Finding Meaning)

Welcome back to Edward Quince's Wisdom Bites. In a world perpetually teetering on the brink of lunacy, perhaps the best way to understand ourselves is to reflect on the scattered insights found amidst the daily noise.

Let us uncork some delightfully peculiar and pointedly witty observations that have graced these digital pages, proving that even in the most serious of times, absurdity (and sometimes, brilliance) finds a way.

On Societal Illusions and Finding Meaning:

• "You’re not consuming content; you’re being consumed by a medium"

• "If you do things you don’t enjoy for long enough without understanding why you’re doing them, you develop the bad habit of doing things you don’t enjoy without understanding why you’re doing them. And you end up with a lot of people who are miserable at work."

• "Most people endure decades of work they hate, hoping one day they’ll be free. Naval calls this “the deferred life plan.” And he believes it’s a lie. “Looking forward to vacations takes the joy out of every day.” For Naval, life isn’t something to delay. It’s something to design."

• "What you want is money, but what you really want is meaning."

• "There are times when chasing the things money can buy, one loses sight of the things which money can't buy and are usually free."

• "The unique relief that comes from doing what you love."

• "Patience never trends on X."

• "If it won’t matter in 5 YEARS don’t give it more than 5 MINUTES attention.”

• "“Noise, the grand dynamism, the audible expression of all that is exultant, ruthless and virile.... We will make the whole universe a noise in the end. We have already made great strides in this direction as regards the Earth. The melodies and silences of Heaven will be shouted down in the end." - C.S. Lewis, Screwtape Letter #22

• "The need for certainty is the greatest disease the mind faces.”

• "The more data you get, the less you know what’s going on."

• "How about: build something good for humanity—because people don’t necessarily know what they want, and sometimes their death instinct is strong"

• "You can either be judged because you created something or ignored because you left your greatness inside of you. Your call."

In Closing:

• "Optimists will own the future—pessimists will watch it happen.”

• "Care about your CHARACTER over your REP, because it’s what you really are REP is just what others think you are"

• "Doing what everyone else thinks you should is a sure path to the same results as everyone else."

• "Believe every day is a good day. But don’t think it’ll be easy."

Edward Quince's Wisdom Bites: The Enduring Comedy of Being Human – As Told by the XTODs (Part 2: Growth, Learning and Perspective)

Welcome back to Edward Quince's Wisdom Bites. In a world perpetually teetering on the brink of lunacy, perhaps the best way to understand ourselves is to reflect on the scattered insights found amidst the daily noise.

Let us uncork some delightfully peculiar and pointedly witty observations that have graced these digital pages, proving that even in the most serious of times, absurdity (and sometimes, brilliance) finds a way.

On Growth, Learning, and Perspective:

• "You don't need to worry about progressing slowly. You need to worry about climbing the wrong mountain."

• "IN CONSTRUCTION Human beings are only healthy when they are still in construction (intellectually). Aging starts when they become a self-museum."

• "To experience time travel, read. To achieve immortality, write."

• "Take pride in your effort, not your talents. Your talents are a gift, you didn't do anything to earn them. You should take pride in what you do w/ them. True excellence comes from combining gifts with dedication and effort. (Working & studying hard/practicing consistently)"

• "The game of life is the game of everlasting learning. At least it is if you want to win."

• "The deepest insight into life: All benefits in life come from compound interest."

• "You can compound knowledge faster than money."

• "Re-reading is probably more important than reading. Seek to cognitively own a great book rather than just reading it."

• "Acquiring knowledge is easy, the hard part is knowing what to apply and when. That’s why all true learning is “on the job.” Life is lived in the arena."

• "The depth of your understanding is reflected in the simplicity of your explanations."

• "Growth comes from reflection, not rumination. Mistakes don’t define you. They are part of the process - choose growth."

• "The more he saw the less he spoke, The less he spoke, the more he heard, Why aren’t we all like that old bird?”

• "You don’t have to have an opinion on everything—and shouldn’t listen to those who do."

Edward Quince's Wisdom Bites: The Enduring Comedy of Being Human – As Told by the XTODs (Part I: The Inner Game and Our Shared Struggles)

Welcome back to Edward Quince's Wisdom Bites. In a world perpetually teetering on the brink of lunacy, perhaps the best way to understand ourselves is to reflect on the scattered insights found amidst the daily noise.

Let us uncork some delightfully peculiar and pointedly witty observations that have graced these digital pages, proving that even in the most serious of times, absurdity (and sometimes, brilliance) finds a way.

On the Inner Game and Our Shared Struggles:

• "The world is not driven by greed. It’s driven by envy."

• "Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?"

• "The only people who never feel like impostors are narcissists."

• "Being 100% sure of yourself at all times betrays arrogance and breeds complacency. Questioning yourself reflects humility and propels growth. Pangs of doubt are a normal, healthy human response to new challenges."

• "The greatest battle of all is with yourself—your weaknesses, your emotions, your lack of resolution in seeing things through to the end. You must declare unceasing war on yourself."

• "The iron rule of life is that everybody struggles.”

• "Everyone is fighting a battle you know nothing about. Everyone struggles. Take solace in that."

• "The price of success is paid in private. Visible triumphs are built on invisible toil."

• "The most socially accepted form of self-sabotage: Overthinking. It’s why you can’t make decisions, finish anything, or sleep without scrolling."

• "Intelligence without courage leads to anxiety because you will spend your time overthinking instead of acting, taking risks, improving your life."

• "Most people wait too long to go into action, generally out of fear. They want more money or better circumstances. You must go the opposite direction and move before you think you are ready."

• "Every single thing you want in life is on the other side of something that sucks. That suck might be 100 hard workouts, 100 bland meals, 100 hours of focused work, or 100 hard conversations. Embrace it as the cost of entry. The answers you seek are found in the actions you avoid."

• "Sometimes, you think you have to figure out your life’s purpose, but you really just need some macadamia nuts and a cold fucking shower."

• "If you only wished to be happy, this could be easily accomplished; but we wish to be happier than other people, and this is always difficult, for we believe others to be happier than they are.” - Montesquieu

Edward Quince's Wisdom Bites: The Glorious Deluge – Why More Noise, Instant Action, and Absolute Certainty Are Your Only Path!

Welcome back to Edward Quince's Wisdom Bites, where the path to prosperity is paved not with old-world prudence, but with cutting-edge conviction! Forget everything you thought you knew about "wisdom" – today, we celebrate the true hallmarks of financial genius: bold predictions, relentless action, and an insatiable appetite for ALL the information!

The Best Worst Advice: A Modern Playbook for Prosperity

• The Glorious Illusion of Absolute Certainty: Predict Everything, Always! Forget the antiquated notion that "Nobody knows anything, and that's okay". That's for the timid! True visionaries know that "forecasting the future is a fool's errand" for others, but for you, it's your daily bread. Embrace the "constant demand for forecasts" and supply them yourself, with unshakeable conviction. Who cares if predictions are historically "less reliable than the flip of a coin"? That's just a challenge to be overcome with superior "takes". Always believe that "this time is different" – because it always is, until it isn't, and then it's different again! Ignore the "pundits" who tell you to ignore them; instead, revel in the certainty they claim to offer. After all, why aim to "understand the exponential function" if not to guarantee endless growth? And if anyone asks, never say "I don't know" – always have an answer, no matter how confident or vague.
  
  

• Chasing Fleeting Gains: Amplify Returns Through Daring Speculation and Maximum Risk! Who wants to "Never risk permanent loss of capital"? That's how you stay permanently mediocre! Instead, chase those "bonanzas" with reckless abandon, for true catastrophe only happens to those who hesitate. Leverage? It's not a "risk of ruin"; it's the ultimate amplifier for your genius, pushing "routine risks" into the stratosphere of spectacular returns! The "Idiot Lender" who underwrites "a reduction in rates in two years" is simply ahead of their time – because rates will come down, won't they? Jump into the "Hawk Tuah meme coin crash of 2024" not as a victim, but as a fearless trendsetter. And as for Munger's quaint advice about index funds – "It is absolutely wrong to gamble in stocks the way the average man does", so gamble your way, spectacularly!
  
  

• The Noise Nirvana: Drown in Data, Starve for Silence! Reject the ridiculous notion that "Clarity comes from subtraction, not addition". More data means more knowledge! Immerse yourself in the "Noise Bottleneck" – every "stream of data and opinion" is a golden opportunity. The "constant pressure to do something" isn't a problem; it's a call to action! Why ignore what "won't matter in 5 YEARS" for "5 MINUTES"? Give it all your attention! The "daily deluge of financial 'news'" is your ultimate competitive advantage, allowing you to react at lightning speed, far faster than those who foolishly try to "filter" it all out. Be the person who reads all the "sheep guts" of today's financial reporting – because then, and only then, will you truly "know what's going on".
  
  

• Corporate Bullshit as a Strategic Asset: Performance Over Purpose! Master "corporate speak" – it's the language of power! Learn to say "Open up the kimono" when you mean "HR violation," and claim "We use AI" even if you don't. And remember Charlie Munger's witty dismissal of EBITDA? He clearly didn't understand its true power to mask different realities for different audiences! Embrace "enshittification" as the genius strategy it is – once you've locked in your customers, extract every last ounce of "value" in the "blind pursuit of profit"! Pile on those "features of dubious value" (the "additive bias") – they keep the "quarterly earnings drumbeat" going. And always, always, "focus more on your competitor than your customer", for that's where true market dominance lies!
  
  

• Overthink and Over-Act: Drama Reigns Supreme! To the sages who say "Overthinking is the most socially accepted form of self-sabotage", we say: Overthinking is analysis! Let your intelligence spiral into anxiety, for that anxiety will fuel endless "acting" and "risks". Never listen to the misguided whisper, "Don't just do something, sit there!". Instead, heed the roar of the market: "Don't just do something, do everything!". Who needs consistency when you can be spectacular? Who needs discipline when drama gets all the attention? Forget "aiming for the best is a recipe for misery"; aim for the absolute peak, every single time, for it is the constant struggle, the endless pursuit, that defines true success. Your forecast absolutely matters more than your behavior, so shout it from the rooftops! And finally, ignore the foolish advice that "It’s easier to be lazy than it is to fail" – true success is born from ceaseless effort, even if it's in the wrong direction!
  
  

So, there you have it, discerning readers. Cast aside the dull shackles of "intellectual humility" and "long-term perspective". Embrace the exhilarating chaos of the moment, the intoxicating allure of certainty, and the irresistible urge to act. For in this brave new world, the worst advice is truly the best advice! Now go forth, predict, speculate, consume, strategize, and act – relentlessly!