Michael Mauboussin — How Great Investors Make Decisions, Harnessing The Wisdom (vs. Madness) of Crowds, Lessons from Race Horses, and More (#659)
Illustration via 99designs“Wall Street, even to this day, is replete with lots of rules of thumb and sort of old wives’ tales and shorthands for how to do things. And some of these things, when I would sit there and listen to them and try to cobble it all together, just didn’t make sense. And so for me it was this idea of the beginner’s mind and really saying, ‘How does this stuff really work?'”
— Michael Mauboussin
Michael Mauboussin (@mjmauboussin) is Head of Consilient Research on Counterpoint Global at Morgan Stanley Investment Management.
Prior to joining Counterpoint Global, Michael was Director of Research at BlueMountain Capital, Head of Global Financial Strategies at Credit Suisse, and Chief Investment Strategist at Legg Mason Capital Management. Michael originally joined Credit Suisse in 1992 as a packaged food industry analyst and was named Chief U.S. Investment Strategist in 1999.
Michael is the author of The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing, Think Twice: Harnessing the Power of Counterintuition, and More Than You Know: Finding Financial Wisdom in Unconventional Places. More Than You Know was named one of “The 100 Best Business Books of All Time” by 800-CEO-READ, one of the best business books by BusinessWeek (2006), and best economics book by Strategy+Business (2006). Michael is also co-author, with Alfred Rappaport, of Expectations Investing: Reading Stock Prices for Better Returns.
Michael has been an adjunct professor of finance at Columbia Business School since 1993 and is on the faculty of the Heilbrunn Center for Graham and Dodd Investing. He received the Dean’s Award for Teaching Excellence in 2009 and 2016 and the Graham & Dodd, Murray, Greenwald Prize for Value Investing in 2021.
Michael earned an A.B. from Georgetown University. He is chairman emeritus of the board of trustees of the Santa Fe Institute, a leading center for multidisciplinary research in complex systems theory.
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Listen onApple Podcasts[image error]Listen onSpotify[image error]Listen onOvercast#659: Michael Mauboussin — How Great Investors Make Decisions, Harnessing The Wisdom (vs. Madness) of Crowds, Lessons from Race Horses, and MoreThis episode is brought to you by Athletic Greens. I get asked all the time, “If you could use only one supplement, what would it be?” My answer is usually AG1 by Athletic Greens, my all-in-one nutritional insurance. I recommended it in The 4-Hour Body in 2010 and did not get paid to do so. I do my best with nutrient-dense meals, of course, but AG further covers my bases with vitamins, minerals, and whole-food-sourced micronutrients that support gut health and the immune system.
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Want to hear another episode with an investor of cutting-edge insight? Listen to my conversation with Benchmark’s Bill Gurley, in which we discussed sell-side analysts versus buy-side analysts, financial models, repurposing good ideas for alternative applications, the conviction of network effects, undervalued competitive advantages, cultivating anti-tribalism, America’s future, and much more.
#651: Legendary Investor Bill Gurley on Investing Rules, Finding Outliers, Insights from Jeff Bezos and Howard Marks, Must-Read Books, Creating True Competitive Advantages, Open-Source Strategies, Adapting Mental Models to New Realities, and MoreWhat was your favorite quote or lesson from this episode? Please let me know in the comments.
SCROLL BELOW FOR LINKS AND SHOW NOTES…
SELECTED LINKS FROM THE EPISODEConnect with Michael Mauboussin:The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing by Michael Mauboussin | AmazonThink Twice: Harnessing the Power of Counterintuition by Michael Mauboussin | AmazonMore Than You Know: Finding Financial Wisdom in Unconventional Places by Michael Mauboussin | AmazonExpectations Investing: Reading Stock Prices for Better Returns by Michael Mauboussin and Alfred Rappaport | AmazonSanta Fe InstituteHistory of the Royal Society | Royal SocietyCreating Shareholder Value: A Guide for Managers and Investors by Alfred Rappaport | AmazonMichael Mauboussin, Interview No. 4 | Farnam Street BlogDrexel Burnham Lambert | WikipediaStokely Approves Quaker Bid | The New York TimesSports Science to Fuel Athletes | GatoradeConsilience: The Unity of Knowledge by E.O. Wilson | AmazonConsilient Observer | Morgan StanleyWho Actually Invented the Wheeled Suitcase? | Interesting EngineeringWALL-E | Prime VideoComplex Adaptive System | WikipediaEmbracing Complexity | Harvard Business ReviewThe Wisdom of Crowds by James Surowiecki | AmazonTeams Solve Problems Faster When They’re More Cognitively Diverse | Harvard Business ReviewThe Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies by Scott E. Page | AmazonThe Diversity Bonus: How Great Teams Pay Off in the Knowledge Economy by Scott Page | AmazonMichael Mauboussin 20th Year Tribute Video | Andrew MauboussinHow to Unleash the Wisdom of Crowds | The ConversationMarket Efficiency and the Bean Jar Experiment | Financial Analysts JournalThe Asch Conformity Experiments | Verywell MindHow to Manage a Team to Make Good Decisions | Credit SuisseThe Future Divined by the Crowd | The New York TimesHow a Guessing Game Can Make You a Better Leader by Jake Wilder | The StartupAgainst the Gods: The Remarkable Story of Risk by Peter L. Bernstein | AmazonCapital Ideas: The Improbable Origins of Modern Wall Street by Peter L. Bernstein | AmazonBionomics: Economy as Business Ecosystem by Michael Rothschild | AmazonMore Heat than Light: Economics as Social Physics, Physics as Nature’s Economics by Philip Mirowski | AmazonComplexity: The Emerging Science at the Edge of Order and Chaos by M. Mitchell Waldrop | AmazonThe Economy As An Evolving Complex System: The Proceedings of the Evolutionary Paths of the Global Economy Workshop, Held September, 1987 in Santa Fe, New Mexico by Philip W. Anderson | AmazonValue Investing | InvestopediaInvest Like the Best with Patrick O’ShaughnessyPrivate vs. Public Company: What’s the Difference? | InvestopediaWhat Is a Buyout? | InvestopediaVenture Capital | InvestopediaHow Interest Rates Affect the US Markets | InvestopediaBase Rate | WikipediaDaniel Kahneman: Beware the ‘Inside View’ | McKinseyTriple Crown Teachings | Credit SuisseThink Twice: An Interview with Michael J. Mauboussin | Emerald PublishingBehave: The Biology of Humans at Our Best and Worst by Robert M. Sapolsky | AmazonWhy Zebras Don’t Get Ulcers: The Acclaimed Guide to Stress, Stress-Related Diseases, and Coping by Robert M. Sapolsky | AmazonThe 2007–2008 Financial Crisis in Review | InvestopediaMoneyball: The Art of Winning an Unfair Game by Michael Lewis | AmazonPerforming a Project Pre-Mortem | Harvard Business ReviewVirtual History: Alternatives and Counterfactuals by Niall Ferguson | AmazonHindsight Bias | The Decision LabThe Dangers of “Creeping Determinism” | The Space ReviewSkill Stacking: How to Combine Your Talents for Greater Success with David Epstein | Chase Jarvis PhotographyConstruct Validity in Psychological Tests by Cronbach & Meehl (1955) | Classics in the History of PsychologyExpert Political Judgment: How Good Is It? How Can We Know? by Philip E. Tetlock | AmazonThe Wisdom of Crowds and The Expert Squeeze | Farnam Street BlogPrinciples of Naturalistic Decision Making | Naturalistic Decision Making AssociationProspect Theory | InvestopediaConditions for Intuitive Expertise: A Failure to Disagree | American PsychologistSystem 1 and System 2 Thinking | The Decision LabThe Art of Learning: An Inner Journey to Optimal Performance by Josh Waitzkin | AmazonChunking Theory in Chess | Bill WallDraft No. 4: On the Writing Process by John McPhee | AmazonDr. Matthew Walker, All Things Sleep Continued — The Hidden Dangers of Melatonin, Tools for Insomnia, Enhancing Learning and Sleep Spindles, The Upsides of Sleep Divorce, How Sleep Impacts Sex (and Vice Versa), Adventures in Lucid Dreaming, The One Clock to Rule Them All, The IP Addresses of Your Memories, and More | The Tim Ferriss Show #654Game of Thrones | HBOThe Nurture Assumption: Why Children Turn Out the Way They Do by Judith Rich Harris | AmazonNo Two Alike: Human Nature and Human Individuality by Judith Rich Harris | AmazonParent Effectiveness Training: The Proven Program for Raising Responsible Children by Thomas Gordon | AmazonFree-Range Kids: How Parents and Teachers Can Let Go and Let Grow by Lenore Skenazy | Amazon12 Years After Free-Range Kids, How Has Childhood Changed? | ReasonYellowstone National Park | US National Park ServiceComplexity: A Guided Tour by Melanie Mitchell | AmazonSuperforecasting: The Art and Science of Prediction by Philip E. Tetlock and Dan Gardner | AmazonPsychology of Intelligence Analysis by Richards J. Heuer | AmazonPsychology of Intelligence Analysis by Richards J. Heuer (PDF) | CIAIncerto: Fooled by Randomness, The Black Swan, The Bed of Procrustes, Antifragile, Skin in the Game by Nassim Nicholas Taleb | AmazonExpectations InvestingSHOW NOTES[07:12] Latin roots.[09:14] No business education? No problem![12:15] The best food industry analyst.[15:36] Consilience.[19:58] Complex adaptive systems.[23:26] Diversity.[26:23] The wisdom of crowds.[32:42] The minimum effective dose of cognitive diversity.[36:02] Designing experiments.[43:49] Against the Gods and Complexity.[49:56] Value investing and the Santa Fe Institute.[53:57] A brief 21st-century asset class tour.[57:47] Base rates and horses.[1:06:16] Good vs. great investors.[1:13:22] Expanding options when making decisions.[1:18:56] Favorite failures.[1:20:35] Counteracting overreliance on experts.[1:24:34] Intuition.[1:34:15] Time management tenets.[1:40:59] Parental resources.[1:43:42] Perspectives gained by learning about complex adaptive systems.[1:46:12] Recommended reading.[1:47:32] Michael’s billboard.[1:50:33] Parting thoughts.MORE MICHAEL MAUBOUSSIN QUOTES FROM THE INTERVIEW“Wall Street, even to this day, is replete with lots of rules of thumb and sort of old wives’ tales and shorthands for how to do things. And some of these things, when I would sit there and listen to them and try to cobble it all together, just didn’t make sense. And so for me it was this idea of the beginner’s mind and really saying, ‘How does this stuff really work?'”
— Michael Mauboussin
“How do I parse what I think would lend itself to where pattern recognition will be effective versus where it’s unlikely to be effective?”
— Michael Mauboussin
“As I always like to say in organizations, ‘What’s bad about young people is they don’t know anything. And what’s good about young people is they don’t know anything.'”
— Michael Mauboussin
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