Michael Mauboussin: Finding Easy Games
The Long View
You're Corner Stot of Expectations
M jaffan: People tend to evaluate expectations using two main pieces of information, short term earnings and profit multiples. He thinks that's the wrong way to go about it; value investing is buying something for less than what its full price would be. Expectations investing seem somewhat contrary to traditional value investing but i think we'd all agree on one point - which is our expectation is most likely to be revised up.
Our guest this week is Michael Mauboussin. Michael is the head of consilient research at Counterpoint Global. Before joining Counterpoint Global in January 2020, Michael was director of research at BlueMountain Capital Management and prior to that held research leadership roles at Credit Suisse and Legg Mason Capital Management. Michael is the author of three books including The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing and is also coauthor with Alfred Rappaport of Expectations Investing: Reading Stock Prices for Better Returns. He has been an adjunct professor of finance at Columbia Business School since 1993 and is on the faculty of the Heilbrunn Center for Graham & Dodd Investing. Michael is also chairman emeritus of the board of trustees of the Santa Fe Institute. He received his bachelor's degree from Georgetown University.
Background
The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing, by Michael Mauboussin
Expectations Investing: Reading Stock Prices for Better Returns, by Michael Mauboussin and Alfred Rappaport
More Than You Know: Finding Financial Wisdom in Unconventional Places, by Michael Mauboussin
Consilience
Consilience: The Unity of Knowledge, by Edward O. Wilson
“Charlie Munger’s System of Mental Models: How to Think Your Way to Success,” by Andrew McVagh, mymentalmodels.info.com, Aug. 7, 2018.
“Increasing Returns and the New World of Business,” by W. Brian Arthur, harvardbusinessreview.com, July-August 1996.
“Why Foxes Make Better Decisions Than Hedgehogs,” by Kevin Sookocheff, sookocheff.com, July 15, 2021.
Jonathan Baron, Professor, University of Pennsylvania
Active Fund Success
“Turn and Face the Strange: Overcoming Barriers to Change in Sports and Investing,” by Michael Mauboussin and Dan Callahan, morganstanley.com, Sept. 8, 2021.
“Dispersion and Alpha Conversion: How Dispersion Creates the Opportunity to Express Skill,” by Michael Mauboussin and Dan Callahan, morganstanley.com, April 14, 2020.
Fundamental Law of Active Management
“The ‘Paradox of Skill’ Adds to Active Management Woes,” by Christine Idzelis, institutionalinvestor.com, Sept. 17, 2020.
Triumph and Tragedy in Mudville: A Lifelong Passion for Baseball, by Stephen Jay Gould
“Looking for Easy Games in Bonds,” by Michael Mauboussin, bluemountaincapital.com, April 16, 2019.
“Do Individual Day Traders Make Money? Evidence From Taiwan,” by Brad Barber, Yi-Tsung Lee, Yu-Jane Liu, and Terrance Odean, Berkeley.edu, May 2004.
Expectations Investing
Creating Shareholder Value: A Guide for Managers and Investors, by Alfred Rappaport
“Market-Expected Return on Investment: Bridging Accounting and Valuation,” by Michael Mauboussin and Dan Callahan, morganstanely.com, April 14, 2021.
Security Analysis course taught by Michael Mauboussin at Columbia Business School
“The Math of Value and Growth: Growth, Return on Capital, and the Discount Rate,” by Michael Mauboussin and Dan Callahan, morganstanely.com, June 9, 2020.
“Public to Private Equity in the United States: A Long-Term Look,” by Michael Mauboussin and Dan Callahan, morganstanley.com, Aug. 4, 2020.
“How the Parting of Two Market Forces Helped Spur the Equity Rally,” by Michael Mauboussin, ft.com, Feb. 8, 2021.
Business Quality and Capital Allocation
“Thoughts on Cost of Capital and Buffet’s $1 Test--Part 1,” by John Huber, sabercapitalmgt.com, Oct. 30, 2017.
“Return on Invested Capital (ROIC)--Michael Mauboussin on Investment Concepts,” anthenarium.com.
“Michael Mauboussin on Capital Allocation and Value Creation,” anthenarium.com, Nov. 29, 2019.
“Chancellor: Tech Growth Comes at Irrational Price,” by Edward Chancellor, reuters.com, Sept. 9, 2021.
“Categorizing for Clarity: Cash Flow Statement Adjustments to Improve Insight,” by Michael Mauboussin and Dan Callahan, morganstanley.com, Oct. 6, 2021.
Other and Recommended Reading
Aswath Damodaran, Professor of Finance, Stern School of Business
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness, by Morgan Housel
The Warren Buffett Way, by Robert Hagstrom
Warren Buffett: Inside the Ultimate Money Mind, by Robert Hagstrom
Richer, Wiser, Happier: How the World’s Greatest Inventors Win in Markets and Life, by William Green
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