'The Most Important Thing' is Value Realization

This paper analyzes select lessons from the recently published book by Howard Marks, "The Most Important Thing" (NY: Columbia University Press, 2011), from a private equity perspective. Mr. Marks specializes in credit value investments, and as a result private equity investors may overlook the applicability of his book to their activities. As we discuss, the scope of evaluating credit can be very wide thereby providing valuable insights into more private equity-related topics. Using Mr. Marks's book as a primary source, we argue that value realization requires a differentiated approach to strategy, focusing not only on value proposition differentiation -- which is the primary focus of the strategy literature -- but also on search and capital allocation differentiation. We then argue that the management approach chosen to execute a strategy should be considered carefully and may not necessarily involve the use of "stretch targets," which can be commonly used today. Irrespective of the management approach used, however, a primary activity is to manage the risk of value destruction. As we show, Mr. Marks offers a very practical, theoretically-consistent approach for accomplishing this much written about, yet for many seemingly elusive, goal