“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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The transcript of this episode can be found here. Transcripts of all episodes can be found here.
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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.
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:
- The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing by Michael Mauboussin | Amazon
- Think Twice: Harnessing the Power of Counterintuition by Michael Mauboussin | Amazon
- More Than You Know: Finding Financial Wisdom in Unconventional Places by Michael Mauboussin | Amazon
- Expectations Investing: Reading Stock Prices for Better Returns by Michael Mauboussin and Alfred Rappaport | Amazon
- Santa Fe Institute
- History of the Royal Society | Royal Society
- Creating Shareholder Value: A Guide for Managers and Investors by Alfred Rappaport | Amazon
- Michael Mauboussin, Interview No. 4 | Farnam Street Blog
- Drexel Burnham Lambert | Wikipedia
- Stokely Approves Quaker Bid | The New York Times
- Sports Science to Fuel Athletes | Gatorade
- Consilience: The Unity of Knowledge by E.O. Wilson | Amazon
- Consilient Observer | Morgan Stanley
- Who Actually Invented the Wheeled Suitcase? | Interesting Engineering
- WALL-E | Prime Video
- Complex Adaptive System | Wikipedia
- Embracing Complexity | Harvard Business Review
- The Wisdom of Crowds by James Surowiecki | Amazon
- Teams Solve Problems Faster When They’re More Cognitively Diverse | Harvard Business Review
- The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies by Scott E. Page | Amazon
- The Diversity Bonus: How Great Teams Pay Off in the Knowledge Economy by Scott Page | Amazon
- Michael Mauboussin 20th Year Tribute Video | Andrew Mauboussin
- How to Unleash the Wisdom of Crowds | The Conversation
- Market Efficiency and the Bean Jar Experiment | Financial Analysts Journal
- The Asch Conformity Experiments | Verywell Mind
- How to Manage a Team to Make Good Decisions | Credit Suisse
- The Future Divined by the Crowd | The New York Times
- How a Guessing Game Can Make You a Better Leader by Jake Wilder | The Startup
- Forecasting Tournaments: Tools for Increasing Transparency and Improving the Quality of Debate | Current Directions in Psychological Science
- Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein | Amazon
- Capital Ideas: The Improbable Origins of Modern Wall Street by Peter L. Bernstein | Amazon
- Bionomics: Economy as Business Ecosystem by Michael Rothschild | Amazon
- More Heat than Light: Economics as Social Physics, Physics as Nature’s Economics by Philip Mirowski | Amazon
- Complexity: The Emerging Science at the Edge of Order and Chaos by M. Mitchell Waldrop | Amazon
- The 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 | Amazon
- Value Investing | Investopedia
- Invest Like the Best with Patrick O’Shaughnessy
- Private vs. Public Company: What’s the Difference? | Investopedia
- What Is a Buyout? | Investopedia
- Venture Capital | Investopedia
- How Interest Rates Affect the US Markets | Investopedia
- Base Rate | Wikipedia
- Daniel Kahneman: Beware the ‘Inside View’ | McKinsey
- Triple Crown Teachings | Credit Suisse
- Think Twice: An Interview with Michael J. Mauboussin | Emerald Publishing
- Behave: The Biology of Humans at Our Best and Worst by Robert M. Sapolsky | Amazon
- Why Zebras Don’t Get Ulcers: The Acclaimed Guide to Stress, Stress-Related Diseases, and Coping by Robert M. Sapolsky | Amazon
- The 2007–2008 Financial Crisis in Review | Investopedia
- Moneyball: The Art of Winning an Unfair Game by Michael Lewis | Amazon
- Performing a Project Pre-Mortem | Harvard Business Review
- Virtual History: Alternatives and Counterfactuals by Niall Ferguson | Amazon
- Hindsight Bias | The Decision Lab
- The Dangers of “Creeping Determinism” | The Space Review
- Skill Stacking: How to Combine Your Talents for Greater Success with David Epstein | Chase Jarvis Photography
- Construct Validity in Psychological Tests by Cronbach & Meehl (1955) | Classics in the History of Psychology
- Expert Political Judgment: How Good Is It? How Can We Know? by Philip E. Tetlock | Amazon
- The Wisdom of Crowds and The Expert Squeeze | Farnam Street Blog
- Principles of Naturalistic Decision Making | Naturalistic Decision Making Association
- Prospect Theory | Investopedia
- Conditions for Intuitive Expertise: A Failure to Disagree | American Psychologist
- System 1 and System 2 Thinking | The Decision Lab
- The Art of Learning: An Inner Journey to Optimal Performance by Josh Waitzkin | Amazon
- Chunking Theory in Chess | Bill Wall
- Draft No. 4: On the Writing Process by John McPhee | Amazon
- Dr. 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 #654
- Game of Thrones | HBO
- The Nurture Assumption: Why Children Turn Out the Way They Do by Judith Rich Harris | Amazon
- No Two Alike: Human Nature and Human Individuality by Judith Rich Harris | Amazon
- Parent Effectiveness Training: The Proven Program for Raising Responsible Children by Thomas Gordon | Amazon
- Free-Range Kids: How Parents and Teachers Can Let Go and Let Grow by Lenore Skenazy | Amazon
- 12 Years After Free-Range Kids, How Has Childhood Changed? | Reason
- Yellowstone National Park | US National Park Service
- Complexity: A Guided Tour by Melanie Mitchell | Amazon
- Superforecasting: The Art and Science of Prediction by Philip E. Tetlock and Dan Gardner | Amazon
- Psychology of Intelligence Analysis by Richards J. Heuer | Amazon
- Psychology of Intelligence Analysis by Richards J. Heuer (PDF) | CIA
- Incerto: Fooled by Randomness, The Black Swan, The Bed of Procrustes, Antifragile, Skin in the Game by Nassim Nicholas Taleb | Amazon
- Expectations Investing
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.
- Influence: The Psychology of Persuasion by Robert Cialdini
- Thinking, Fast and Slow by Daniel Kahneman
- How the Mind Works by Steven Pinker
- The Blind Watchmaker: Why the Evidence of Evolution Reveals a Universe Without Design by Richard Dawkins
- Darwin’s Dangerous Idea: Evolution and the Meaning of Life by Daniel C. Dennett
- The Righteous Mind: Why Good People Are Divided by Politics and Religion by Jonathan Haidt
- Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein
- Moneyball by Michael Lewis
- Complexity: The Emerging Science at the Edge of Order and Chaos by M. Mitchell Waldrop
- The Halo Effect: … and the Eight Other Business Delusions That Deceive Managers by Phil Rosenzweig
- Guns, Germs, and Steel: The Fates of Human Societies by Jared Diamond
- Sync: The Emerging Science of Spontaneous Order by Steven Strogatz
- [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
- Carl Friedrich Gauss
- Charlie Munger
- Alfred Rappaport
- Michael Milken
- Alan Greditor
- Bill Gurley
- E.O. Wilson
- James Surowiecki
- Scott E. Page
- Francis Galton
- Charles Darwin
- Jack L. Treynor
- Solomon Asch
- Philip E. Tetlock
- M. Mitchell Waldrop
- Peter L. Bernstein
- Daniel Bernoulli
- Johann Bernoulli
- Jacob Bernoulli
- Nicolaus II Bernoulli
- Johann II Bernoulli
- Michael Rothschild
- Philip Mirowski
- Isaac Newton
- W. Brian Arthur
- Bill Miller
- Benjamin Graham
- Josh Wolfe
- Josh Waitzkin
- Patrick O’Shaughnessy
- Daniel Kahneman
- Big Brown
- Steve Crist
- Robert Sapolsky
- Billy Beane
- Roelof Botha
- Gary Klein
- Niall Ferguson
- David Epstein
- Gregory Northcraft
- Paul E. Meehl
- John Vervaeke
- Michelle Mauboussin
- John McPhee
- Michael Lewis
- Matthew Walker
- Judith Rich Harris
- Thomas Gordon
- Jonathan Haidt
- Melanie Mitchell
- John Henry Holland
- Dan Gardner
- Richards Heuer
- Nassim Nicholas Taleb
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4 Replies to “Michael Mauboussin — How Great Investors Make Decisions, Harnessing The Wisdom (vs. Madness) of Crowds, Lessons from Race Horses, and More (#659)”
I really liked it. Lot’s of helpful insights at least to my opinion
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.
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.
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.