The Ledger
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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.”
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,…”
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…”
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.”
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…”
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 …”
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.”
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.”
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…”
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…”
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…”
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.”
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.”
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.”
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.”
Mauboussin: Financial Market Volatility Empirically Clusters in Bunches
“Empirically in finance, we know that's not true. That we know that volatility and shocks tend to come in bunches, right? So, so you get quiet periods interspersed with periods of great volatility, then quiet and volatility and so forth.”
Mauboussin: Solving complex problems requires combining multiple disciplines
“Consilience is the unification of knowledge, and the argument he makes is many of the vexing problems we have in our world will require combining different disciplines together to try to solve them.”
Mauboussin: Great managers rarely overcome bad business economics
“If a challenging business and brilliant management, it's likely the business's reputation remains intact. I think that was a good example, which is I really liked the CEO, but I the business itself was challenged and the reputation of the business remained int…”
Mauboussin: Premortems surface downside risks by forcing independent, forward-looking critique
“And the other one, I mean, the other technique is known as a premortem, which you're probably familiar with, which is we pretend we made the investment. It's now a year from now, or two years from now, and this investment's turned very sour. It's very bad. We'…”