#michael mauboussin

“You can do the right thing for some time and it won’t show up in results. You have to be able to manage money to see another day—that is, preserve options for future play—and take a long-term view.” —Michael Mauboussin.

4 Ways On How to Improve Forecasting Skills, a Credit Suisse Report by Mauboussin

In the aggregate, forecasters may be “roughly as accurate as a dart-throwing chimp,” but some forecasters are particularly and consistently far better than average. Credit Suisse reports that the book Superforecasting: The Art and Science of Prediction by Philip Tetlock and Dan Gardner provides important insights into how to improve forecasting skill, perhaps by as much as 60%.  In other words,…

Mauboussin On “Hitting .400″ In Today’s Investing World

In a great interview with Barry Ritholtz on Bloomberg View, Michael Maboussin of Credit Suisse and Columbia University offered some intriguing insights into the role of luck in investing, and the qualities of successful investors. (more…)

Interview with Michael Mauboussin by the Motley Fool on Youtube.

1) Collect mental models like tools in a tool box - read broadly in different topics, don't worry about cul de sac.

2) Have knowledge of statistics.

3) How does Gladwell's 10k hours of deliberate practice work? It doesn't: You need an investment process: analytical (how you make decisions), behaviour (how you react to the market), organisational (environment for making good investment decisions).

4) How do you evaluate the investment process? - repeatable over time (reliability), - fundamentally sound, - Journal (keep track of what you've done, fights creeping determinism, hindsight bias).

5) Once you've trained at poker, start finding easier games.

6) What's fundamental about P/E? Shortcut for present value of future cash flows. Steady state value + future growth value. Rule of thumb steady state Base P/E is 12.5x, anything over that means you're paying for growth.

7) Moats: three component parts - i) process advantage (low-cost, capital velocity), ii) consumer advantage (product differentiation), iii) regulatory advantage.

8) Teams - combined gender groups have more diversified perspectives.

9) Fundamentals = Value, Expectations = Price: make money by finding the difference between fundamentals and expectations.

10) Set up a checklist for fundamentals & expectations.

Second part of Howard Mark's latest letter is insightful: it's much easier to make money from skill in easy games - inefficient markets allow more alpha-generating opportunities.

Portfolio construction idea:

Focus portable alpha on inefficient markets. Maintain beta exposure through a range of ETFs.

Inefficient markets include: small-cap stocks, frontier markets (Peru, Thailand, Vietnam)

Some quotes:

"We arrange our lives, or portfolios, in expectation of what we think will happen in the future"

"performance is what happens when events collide with an existing portfolio"

"The price set by consensus does the best job of estimating the asset's intrinsic value, instead of accurately reflecting it"

Yogi Berra: "In theory, there is no difference between theory and practice, but in practice there is"

"Efficientization should be the presumption"

"Usually a free-lunch counter should be expected to be picked clean"

"few markets demonstrate great structural inefficiency today, but many exhibit a great deal of cyclical inefficiency"

Also, from the Credit Suisse report ("Alpha and the Paradox of Skill" by Michael Mauboussin, available here and here) a couple of nice lines:

"In many competitive interactions it is the relative level of skill that matter, not the absolute level"

"skill cancels out with two competitors with the same skill level. The rest is all luck"

"variance(skill) + variance(luck) = variance(result)" [NB variance(skill) is the spread of skill, not the spread of performance due to skill]

Professor David Hsieh's research: "average amount of available alpha to the hedge fund industry is 3% of total AUM"

What Shareholder Value is Really About is a sensible post at HBR.org from investment strategist, Michael J Mauboussin. "The premise of shareholder value, properly understood, is that if a company builds value, the stock price will eventually follow," Mauboussin continues. "The objective is to build value and then let the price reflect that value." Well worth the read.