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Michael Mauboussin — How Great Investors Make Decisions, Harnessing The Wisdom (vs. Madness) of Crowds, Lessons from Race Horses, and More (#659)

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Artist's rendering of Michael Mauboussin.
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“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.

Please enjoy!

Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Castbox, Google Podcasts, Stitcher, Amazon Music, or on your favorite podcast platform.

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The transcript of this episode can be found here. Transcripts of all episodes can be found here.

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#659: Michael Mauboussin — How Great Investors Make Decisions, Harnessing The Wisdom (vs. Madness) of Crowds, Lessons from Race Horses, and More

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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 More

What 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 EPISODE

  • Connect with Michael Mauboussin:

Website | Twitter

Following are many of the books that Michael suggested his son Andrew (@amaub) read during his gap year before college. Michael provided these on his Twitter feed, where he included tags for many of the authors.

SHOW 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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Sebastian
Sebastian
3 years ago

I really liked it. Lot’s of helpful insights at least to my opinion

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DOK
DOK
2 years ago

Fascinating episode.

Have you explored any more ideas since the interview on how to leverage your crowd in more creative and constructive ways?

The power of crypto, community and collective intelligence is becoming quite powerful, from our POV.

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Dave Oram
Dave Oram
2 years ago
Reply to  DOK

Hey @Tim & Team – any additional thoughts on how you are looking to scope our collective intelligence projects with your audience. Would love to be an early guinea pig with you on that, if so.

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Zhanara
Zhanara
2 years ago

A very insightful episode. Thank you for bringing such interesting guests to the show. On the topic of intuition, you might be interested in reading Gert Gigerenzer’s book Gut Feelings: The Intelligence of Unconscious. Gigerenzer is a German psychologist who studies decision making. In this book Gigerenzer explores the mechanisms underlying intuition and explains when intuition succeeds and when it fails. The book has changed the way I look at intuitive decision making. It’s a very thought provoking book and in my view a solid attempt to explain intuition in a straightforward way without being new-agey. Perhaps you might be interested in inviting Gigerenzer to the podcast. He sounds like he could be a very interesting interviewee.

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