The Ledger
Every statement that passed quotation and attribution checks. Mix any filter with any other: certainty 1/5, debate potential 5/5, or both at once.
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Mauboussin: Magnificent Seven Economic Profit Exceeds Market Cap Share
“When you take a look at the economic profit, so return on capital, less cost capital spread times invested capital, the economic profit Of the Magnificent Seven, it's actually larger than their market cap representation.”
Mauboussin: Portfolio managers underperform by ignoring their own position sizing rules
“Even there's some evidence if you ask portfolio managers to write down Ex ante, what rules they should follow to size their positions. A, they don't follow those rules, and B, there's evidence that they did follow their own rules, they would do better than the…”
Mauboussin: Funds Run by Three Portfolio Managers Generate the Most Alpha
“What it was found was that the funds that delivered the most Alpha were actually funds with three portfolio managers and better than single managers, and by the way, better than two and four.”
Mauboussin: US Active Equity's $1 Trillion Gross Profit Was Erased By Fees
“The cumulative gross profit, I think we have 35 years of numbers, is about a trillion, trillion net positive gross profit. So gross profit positive more than, you know, ok, is a trillion dollars. Now, that also happens to be about what the fees were in that ti…”
Mauboussin: Active Managers Perform Best In Markets With Highest Explicit Indexing
“They found that in markets where the Explicit indexing was highest Active managers often did the best”
Mauboussin: Buying Fired Fund Managers Consistently Outperforms Buying Newly Hired Ones
“Study after study demonstrates that if you bought the funds that were fired and sold the ones that were hired, you actually, just because of regression toward the mean, you do much better.”
Mauboussin: Simple Algorithms Beat Expert Forecasters in Complex Markets
“And so what we know, and this has been extraordinarily well documented by folks like Phil Tetlock, psychologist, University of Pennsylvania, and others is that in quotation marks, expert forecasts, they tend not to be very good at it. In fact, typically simple…”
Mauboussin: Top 2% of public companies generated 90% of US wealth creation
“What's remarkable is if you distill that even one step further, the top two percent of that 28,000 created 50 trillion dollars. Of the 55 trillion in total. So just two percent of all these companies are essentially 90% of the total wealth creation.”
Mauboussin: Top Quintile Public Company ROICs Have Widened Lead
“The ROICs for the top quintile of public companies has distanced itself from the next quintile and sustained at a very high level”
Mauboussin: Tech companies are not overrepresented among top compounders
“The other thing he pointed out technology companies, they're not overrepresented actually.”
Mauboussin: Almost all top compounder stocks suffer 75%+ drawdowns
“He documented that almost every one of these great compounders had massive drawdowns at some point. And it was common to have drawdowns of 75% or more, but some were 80, 85% drawdowns.”
Mauboussin: Good Judgment Project found base-rate training most improved forecasting accuracy
“What they found was the training did improve people's accuracy of their forecasts, and it turned out they found the thing that was most important in that training was basically this, is this idea of teaching them about base rates, and reference classes, and ju…”
Mauboussin: Equities rebound strongly three months after a 20% market drawdown
“After a drawdown of 20% in the S&P 500, you wait three months. So now from the beginning of March through early June, and then you get involved. And then they looked at small cap and large cap value, small cap and large cap growth. And what they found essentia…”
Mauboussin: Noise explains 50% of the gap between elite and average forecasters
“The punchline of this, which was, I think, really the key lightning bolt, was that when they decompose this, they found that the difference between the best and the rest was 50% attributable to noise, 25 to bias, and 25 to information. So saying this different…”
Mauboussin: Cognitive Diversity Boosts Fund Returns; Demographic Diversity Is Neutral
“There's only one paper that I've ever seen that attempted to tackle whether it was cognitive diversity or social category diversity that added value, and what that paper found, and it was a couple thousand mutual funds, and it's hard to tag these things really…”
Mauboussin: Additional information increases forecaster confidence without improving accuracy
“The research shows that as you give people additional pieces of information about something, the accuracy of their forecasts don't improve at all, or their bets don't improve at all, but their confidence tends to soar.”
Mauboussin: Zero $100B+ Companies Have Grown Revenue 15% Annually Over Ten Years
“Let's look at every company that had initial revenues of one hundred billion or more, so obviously adjusted for inflation, and look at how they did in their subsequent growth rates for the next 10 years. And by the way, because this is such rarefied space, you…”
Mauboussin: US expected real equity returns reached mid-6% in January 2024
“January first, 20, 24, expected equity returns are eight and a half percent nominal. You take out the inflation expectations. Your real equity returns are from the mid sixes, low to mid sixes. Not great, not compelling, but a heck of a lot better than Real thr…”
Mauboussin: US public companies declined from 7,300 in 1996 to 4,200
“In 1996, we reached the apex, which is a little over 7300 companies. Today, we don't have the 20, 23 numbers yet, but it's gonna be around 4200. So we're not only way lower than the peak, we're lower than we were in the 19 seventies.”
Mauboussin: US IPOs averaged 280 annually before 2001 vs 120 since
“The main way companies get added are initial public offerings, and what we've seen is IPOs from 76 to 2000 averaged about 280 per year. They're a couple years way above that, and since 2001, they're about a 120. And by the way, the last couple years, Have been…”
Mauboussin: Sponsor-to-sponsor sales became the primary buyout exit mechanism
“Obviously the number one technique for buyouts to exit was selling to other buyout firms.”
Mauboussin: Non-Financial Companies Built Cash Rather than Investing During Easy-Money Era
“What did companies actually do? None of that stuff. They actually didn't invest more. And so what capital structures got more conservative cash balances. Built up on balance sheets is excluding financial services companies.”
Mauboussin: Perpetually elevated volatility has only occurred in the 1930s
“The only time we've ever seen sort of perpetually elevated Volatility was back in the 19 thirties. So right after the crash of 1929.”
Mauboussin: Bond markets faced widespread bid-ask freezes in Q4 2018
“I think that came to the forefront in the fourth quarter of 2018.
I think there were people that wanted to trade bonds that simply there weren't bids and offers out there for the most part.”
Mauboussin: Non-fundamental demand shocks create excess returns in asset markets
“So there have been some really interesting papers about, like, who has the money, what do they want to buy, and what does that mean for these downward sloping demand curves, and there's good evidence that you create these sort of excess returns as a consequenc…”
Mauboussin: Standard Deviation Of Active Manager Alpha Has Narrowed Over Time
“So one of the ways to quantify that as we measure the standard deviation of excess returns, the standard deviation of alpha, right? So you imagine alpha plotted as a bell shaped distribution, which is roughly not a horrible way to look at it. And that bell has…”
Mauboussin: Asset-Weighting Lifts Active Manager Outperformance Rates To The Mid-Forties
“If you look at it on an asset weighted basis, the numbers go, they're not quite 50, but they get into the mid to high So it's a temp called a 10 or 15% uplift on that percentage basis.”
Mauboussin: Harvard Research Shows Optimal Team Size Is Four To Six People
“Richard Hackman as a professor at Harvard. And, you know, he studied teams across all different disciplines and found that the optimal tie size was four to six.”
Mauboussin: Keith Stanovich Distinguishes Rational Decision-Making Ability From General IQ
“Stanovich has made this really important distinction between IQ, which measures something very real, helpful, more of it tends to be better, and what he calls RQ, rationality quotient, which is the ability to make good decisions.”
Mauboussin: High-Yield ETFs Are Much More Liquid Than Their Underlying Assets
“Most of the volume, for example, in ETFs would be things like the SPDR, which is the S&P, and there's just not, there's unlikely to be a big issue there, but as you point out, we've had this massive proliferation, and especially into credit markets, and you kn…”
Mauboussin: Private equity buyouts represent 20% of public company delistings
“Since in the last 10 or 15 years, buyouts have been about 20% of delisting of public companies.”
Mauboussin: GM and GE remain top 20 lifetime wealth creators
“For example, you think about the leaderboard, the top 20 greatest wealth creators of all times, and it would include some suspects you would guess, which would be Apple and Microsoft and Amazon and Alphabet and so forth, but it also includes things you might n…”
Mauboussin: High-Yield Spreads Are Half Their 2008 Peak
“And we're now, as of last day or so, about 900 basis points spread. We've seen episodes like this in 2016, 2012, but we are about half the levels of spread that we saw during the financial crisis.”
Mauboussin: VIX Prints Reached All-Time Highs Above 2008 Levels
“I believe it's correct to say that the prints we've had on the VIX and the clothes we've had on the VIX are at all time highs, higher than the financial crisis.”
Mauboussin: M&A, IPOs, and Buybacks Are Heavily Pro-Cyclical
“Things like mergers and acquisitions, share buybacks, IPOs, have historically been associated with high market levels, right?... And by contrast, M&A tends to dry up when you've had difficult times, IPOs dry up and buybacks dry up.”
Mauboussin: Single-Manager Funds Dropped From Over 75% to Under 25%
“By the way, in my career, it used to be almost all single manager PM funds. It was more than three quarters of them. Now that's less than a quarter.”
Mauboussin: Taiwan Study Shows Institutions Outperform While Retail Investors Lose
“Taiwan was a particularly nice data set because they could really identify the characters behind all these different trades, and they found that institutions delivered excess returns, individuals lost money,”
Mauboussin: Dodd-Frank Eliminated the Outsized Market Impact of Credit Rating Changes
“And it turns out the importance of credit rating changes went way up after Reg FD, which is super cool. So that was an example of asymmetric information. Mark recognized that that was important. Why it's an interesting natural experiment is that Dodd-Frank in …”
Mauboussin: Manager Return Dispersion Spiked During Dot-Com Era Before Reverting
“So that standard deviation had been going down, down, down, sixties, seventies, eighties, into the nineties. And then there was a massive reversal where the standard deviation went way back up around the dot com period. And so there's a spike, and then it come…”
Mauboussin: Olympic Podium Finish Times Are Shrinking As Skill Levels Increase
“In most things, certainly physical endeavors, you know, we are grinding toward physiological limits, and if you look at things like marathon times, or sprinting, or swimming, and as you also know, that the times are converging, so the difference between gold, …”
Mauboussin: Unweighted Data Shows 40% Of Active Managers Beat Markets Annually
“Unweighted numbers, about 40% of managers beat the market in an average year. And the standard deviation is high. It's like 17% standard deviation.”
Mauboussin: Wilt Chamberlain Shot Underhand Free Throws During His 100-Point Game
“That day that Will Chamberlain scored a hundred points in Hershey, Pennsylvania, he was shooting underhand free throws and made like 90% of them. And it was like one, and it wasn't captured on tape, and apparently it was kind of a one-off. He just did it a few…”