Oaktree Capital Management chairman and co-founder Howard Marks is one of those rare money managers who is prized for both his investment performance and his market wisdom. Marks, 65, started to articulate his investment philosophy — which emphasizes risk control and consistency — in the early 1990s writing memos to clients as a portfolio manager at Trust Co. of the West. He continued that practice after he and five colleagues left TCW to start Oaktree in 1995. Today the Los Angeles–based firm manages $82 billion and has more than 650 employees and offices in Frankfurt; Hong Kong; London; New York; Seoul; Singapore; Stamford, Connecticut; and Tokyo.

For Marks, who began his career in 1969 as an equity research analyst at Citicorp Investment Management, one of the keys to investing is to avoid losses. “The No. 1 job of a professional investor is not to make a lot of money; it’s to control risk,” he explains. “If most people had understood that, we would not have had the financial crisis.” In his book, The Most Important Thing: Uncommon Sense for the Thoughtful Investor, published this month by Columbia University Press, Marks dedicates three chapters to risk; the text excerpted here comes from the first of them. But Marks — who incorporates passages from his investor memos into his book to bring home his points — has no illusions that he will be able to convert longtime investors to his investment philosophy. “The book is mostly directed at young people,” he says.....