Second-Level Thinking
Howard Marks term for the analytical discipline of holding two views in mind simultaneously -- the investors own view of the future and an honest read of the view the market has already priced in -- and acting only when the two diverge meaningfully. First-level thinking asks what will happen; second-level thinking asks what will happen relative to what is already priced in. Returns come from the gap between actual outcomes and consensus expectations, not from the level of the outcomes themselves.
Lessons that use this term
Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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