Insight
Mauboussin: Strong investment track records often stem purely from systemic randomness
“When you think about investing, there may be a lot of randomness in the system, and some people are going to be in the position to be lucky, and hence, they'll, their track record, for example, may look good as just beneficiaries of a random system.”
Assertion Supported
Mauboussin: Venture capital continues to have high performance persistence
“If you look across asset classes, the asset class that continues to have high persistence is actually venture capital.”
Assertion Supported
Mauboussin: Buyout fund performance persistence has melted away over 20 years
“That persistence used to have to happen in buyouts. But that effect is mostly melted away in the last 20 years, and it's very difficult to find persistence in public markets at all.”
Opinion
Mauboussin: High seed startup valuations can have positive expected value
“Sometimes it's going to seem insane to pay a lot, thirty million dollars for two people in a garage. When that still may have positive expected value, if that becomes one of the few things that really drive the value.”
Assertion Supported
Mauboussin: Venture return dispersion leaves median and bottom firms with dismal results
“What we know is that there's huge dispersion in returns in venture capital. So if you own the top decile or top Quintile type of firms you do spectacularly well over time, but if you own the median firm or a bottom quartile firms, the results are actually quit…”
Insight
Mauboussin: Thesis-driven investors must pre-define probabilistic signposts to prevent bad deals
“If you do have a thesis, and by the way, I'm not adverse to that, but if you have a thesis, you should be thinking about so-called signposts, which is to say, if this thesis is correct, here are the things that we should see happen as we travel down this road,…”
Insight
Mauboussin: Four Key Conditions Required for Real Options Valuation to Apply
“Real options tend to be relevant when there's a lot of uncertainty, which is almost always true for young companies. Second, when we have an astute management team that knows how to cultivate and ultimately exercise options appropriately, when there's access t…”
Insight
Mauboussin: Investment success depends on win magnitude, not win frequency
“So it's not how often you make money that matters. It's how much money you make when you're right.”
Assertion Supported
Mauboussin: Less than 5% of public companies drive all market value creation
“Work by Hank Bessenbinder demonstrates that in public markets over long periods of time, most companies, public markets earn Returns less than the treasury bill rates. And it's like a handful, less than five percent of companies basically drive all the value f…”
Insight
Mauboussin: Consumer surplus and pricing power shield companies from nominal rate hikes
“You can't dodge the real rate increase, but you can dodge nominal rate increases if your company has pricing power. So this goes back to when we think about technology companies or any kind of company, are they delivering a good or service that creates consume…”
Insight
Mauboussin: Luck operates individually while randomness operates at the system level
“I'm going to say luck has three conditions. It happens to an individual organization, so to you or your company or your favorite sports team. Second is it can be good or bad. Don't mean to suggest that it's symmetrical, but there's a positive sign potentially …”
Insight
Mauboussin: Human minds struggle to judge where activities fall on the luck-skill spectrum
“And most things are at some between those two extremes. And I think our minds are not particularly good at sorting out where that activity is on that luck skill continuum. And as a consequence, it's misattribution basically.”
Insight
Mauboussin: Investment processes must align directly with an investor's edge
“So the key is that there is no one size fits all for process, I think. But rather that you want to make your process congruent with your perceived source of edge.”
Insight
Mauboussin: Fund managers must execute their actual process, not aspirational marketing
“Usually when you're marketing your fund or something, there's a little bit of aspirational component to what you say you do, but the key is to be as congruent, to do actually, to cue as closely as possible to that process in order to achieve the results you pu…”
Insight
Mauboussin: Three-person committees enable healthy dissent via majority vote
“And the other thing about three is if it comes down to it, you can actually have a two to one, people can vote and it can be two to one and you can proceed without, you know, you can have the dissenting voice be in the room in a way that's not ultimately destr…”
Insight
Mauboussin: Overprecision and confirmation bias are the biggest investment decision pitfalls
“Two big sources of bias, I think are one is overconfidence. And when you look at overconfidence, usually the sub-component of oral confidence of the problem is over precision, which is you start to think you know what the world is going to be rather than bette…”
Insight
Mauboussin: The optimal decision-making team size is three to six people
“Usually smaller is better, right? And that the right number is between three and six, something like that.”
Insight
Mauboussin: Team decision failures stem from poor management, not cognitive homogeneity
“Usually there's cognitive diversity in the room. Almost always where the failures occur is in how it's managed.”
Insight
Mauboussin: Leaders should solicit team feedback starting with the most junior person
“Thing is if I'm the leader in the organization to go and ask the opinion of the most junior person in the room first, and then go, go up in seniority from there.”
Assertion Supported
Mauboussin: Empirical data shows odd-numbered investment committees outperform even-numbered ones
“Three is better than two. That's a best practice. And by the way, five is, is not five is better than four. For instance, these odd numbers tend to be good things in terms of, and there's good data. Pardon me. There's good data to back all that up”
Insight
Mauboussin: Heavy capital inflows into an asset class inevitably compress returns
“Anytime you see capital flowing into something, you should worry about returns. That's just, that's like a basic rule.”
Assertion Supported
Mauboussin: Venture capital excess returns are highly episodic and short-lived
“If you look at long-term public market equivalent, so, so this is how academics are measured is public market equivalent for venture capital. It's actually been pretty good over long periods of time, but it's extremely episodic. So almost all the returns are e…”
Assertion Supported
Mauboussin: Buyout funds consistently beat venture capital on a PME basis
“Buyouts, by the way, have consistently been a little bit better than private equity have been a little bit better than venture. They're much less episodic or dramatic, and they tend to chug along a little bit over one PME.”
Prediction Not checkable as stated
Mauboussin: Scattershot investing strategies will shift primarily to later rounds
“So there's gonna be a bottleneck at, in terms of how many firms can actually do that at a very successful level. And this is sort of Series A really adding value at the Series A level. So I think when, the more the scattershot philosophy can be later rounds pr…”
Michael Mauboussin