Michael J. MauboussinBesprekingen

Concise and dense. It's a compilation of evidence based advice from Charlie Munger, Gladwell, Tim Ferriss, and others. The key is to think holistically about your decisions and be aware of cognitive biases.

Excellent collection of essays.

Mauboussin starts the collection with Berlin's metaphor between hedgehogs who know one big thing and foxes who know many little things. Mauboussin is most definitely a fox. The book spans topics from biology (ants and guppies) to psychology (healthy doses of behavioral economics) and finance (the issues with bell curves and the power law). The book is a collection of small essays built around metaphors or unconventional observations. The book reminds me in particular of Taleb's Black Swan, Schiller's Irrational Exuberance and Thinking Fast and Slow. The advantage of this book is that the essays are much shorter and less technical than the longer works. The essays are written in a concise simple style accompanied with informative pictures.

I've seen a lot of the ideas in other places, but as a whole the book is a good refresher. The idea that stuck out to me, is probably Mauboussin's synthesis between behavioral economics and efficient market theory. While Mauboussin believes behavioral economics to accurately describe individual investors, he argues that a diversity of biases and heuristics cancel out so that the aggregated opinions are still efficient. Additionally, he believes that when diversity of investors break down (herding behavior), the markets become inefficient and feedback occurs. In that way, Mauboussin beautifully synthesizes efficient markets, behavioral economics, system complexity and irrational exuberance. I cannot recommend this book enough for anyone with the slightest interest in the markets or finance.

As other reviewers have noted there are better treatments available since the writing of this book. There are some practical tips but they are quite wordy and not organised in a fashion that is easy to implement overall. I wish there was a good summary of action items to help you use some of the ideas in an easier way. It is however an interesting read.

A good insightful book. I'd prefer a little more maths, but overall I enjoyed the book. It seemed a bit repetitive towards the end, and if I'm brutal, I could suggest that you skip to the last chapter which gives a very nice, bullet-point summary of the whole book. Key take-aways for me are the extensive discussion around mean reversion and the idea of using correlation between successive outcomes to wait your prediction between the specific case and the base case. I found that very insightful.½

Understanding modern financial markets is not a job for the faint of heart. For all of the intellectual firepower that has been brought to bear on the topic, it really is remarkable that there is still so much that remains unknown about the fundamentals of investing. The premise of this illuminating collection of essays is that lessons from disciplines as diverse as psychology, strategic management, fractal analysis, and even evolutionary biology can greatly aid our effort to understand how investors assess a company’s ability to create or destroy value.

Mauboussin is largely successful in making the case that investment analysis in the new millennium needs to be a multidisciplinary activity. The book is packed with examples of where advances in other areas find parallels in security valuation and portfolio management (e.g., complexity theory, the study of fruit fly life cycles). On the other hand, the author is content to simply point out these connections without also offering any insights as to how investors might exploit that knowledge; for instance, after noting that distributions of firm size and growth are comparable to how animal species develop, he concludes that “mindful investors should take these patterns into account.” Nevertheless, this is a thoughtful and original treatment that should stimulate further collaborative work in the area.½

Mauboussin Scores Again

Think Twice
by Michael Mauboussin
Hardcover: 204 pages
Publisher: Harvard Business School Press (October 12, 2009)
ISBN-10: 1422176754
ISBN-13: 978-1422176757

Making a decision is difficult. For business leaders and investors making a correct one is even more difficult.

In his latest book, Think Twice: Harnessing the power of Counterintuition, Michael Mauboussin reviews 8 common behavioral decision mistakes. He notes there are three elements to the outcome of every decision: your
1. Thought process,
2. Actions,
3. Luck.

Difficult decisions involve an element of uncertainty; outcomes can only be expressed as probabilities. More often these decisions require action before complete information can be assembled. Using a combination of science, psychology and case studies, Mauboussin discusses the consequences of:
1. Inside; Outside Thinking
2. Tunnel Vision
3. Uncritical Reliance on Experts
4. Context
5. The Pitfalls of Understanding Complex Systems on the Wrong Level
6. Predicting Cause and Effect
7. Small Perturbations during Phase Transitions
8. Skill and Luck

The author admits his book contains little that is new. I would posit, however, that one cannot consider and think about these concepts enough. After all, as the author points out, the most important letters in his title are T-H-I-N_ __ I-C-E. That observation alone underscores his book’s value.

Mauboussin’s strength is his ability to weave complexities into a provocative and easily read essay. The combination results in a book that should reside on every investor’s desk.

Every once in a while, the Muses conspire to change the things you do.

For years, when asked for a recommendation of an investment book, I responded that “Reminiscences of a Stock Operator” provided insights each time I read it.

The list is now longer. “More than You Know” by Michael J. Mauboussin has been added.

The author, in 50 insightful essays, draws from the latest in behavior economics and cognitive sciences to give the reader invaluable insights into the concepts of risk and choice.

His investment strategies are sound. They draw from creative thinkers as diverse as Warren Buffett and Steven Christ; they borrow from activities and fields as diverse as casino gambling and evolutionary biology.

Mauboussin believes a multidisciplinary approach based on process and psychology offers the best opportunity for long-term investment success. He breaks his book into four sections: Investment Philosophy, Psychology of Investing, Investment and Competitive Strategy and Science and Complexity Theory. Although his essays are insightful, he provides a thorough bibliography to guide future study.

Why the Muses moved to place this book in my hands last week, I do not know. But I am grateful they did. This book is a trove of knowledge and ideas. It is a must-read for anyone who takes their investing seriously.

There is no question stock prices climb and fall based on investors’ current perceptions of their future performance.

Identify an error in those perceptions; you, as an investor, have uncovered a catapult to superior performance. In Expectations Investing, Alfred Rappaport and Michael J. Mauboussin argue current stock prices express investors’ collective expectations. A change in those expectations lies at the heart of investment success.

This is a tall task. Approximately 75 per cent of all active investors deliver returns below those posted by passive index funds. The authors argue poor performance is built on a foundation of poor tool selection, high costs, and short-term vision and style limitations.

They argue investment performance can be improved by following three simple steps:

1. Estimate Price-Implied Expectations. Forget earnings and cash-flow estimates. Long-term discounted cash-flow models market performance.
2. Identify Opportunities. Expectation changes lead to changes in market evaluations. Whether you are looking at innovative technology or value, developed or developing markets, new or old economies, these principles are universal.
3. Develop a Disciplined Buy, Hold or Sell Strategy.

The ramifications of this discipline are they remove three misconceptions from investment thinking:

1. The market is short-term.
2. Earnings per share dictate value.
3. Price-earnings ratios determine value.

This well-written and thought provoking book harnesses the market power of discounted cash flow without requiring difficult and dubious long-term forecasts. It helps the serious investor develop a theory of where he or she is headed, why and more important, the courage to ignore advice that has nothing to do with underlying value.