Navigating Competitive Advantage and Valuation

What if the key to successful investing is about understanding how market expectations, intangible assets, and even your own biases shape the outcome? In this episode, Cameron sits down with Michael Mauboussin, a renowned expert in investment strategies and behavioural finance, to explore how the evolving dynamics of investing influence valuation, investor decision-making, and market efficiency. Michael is the head of Consilient Research at Counterpoint Global, part of Morgan Stanley Investment Management, and an adjunct professor at Columbia Business School, where he teaches courses on investing and decision-making. His work focuses on behavioural biases, skill versus luck, complex adaptive systems, and valuation. In our conversation, we discuss the core principles of equity investing, unpack the evolution of intangible assets, and explore how market dynamics are influenced by index funds. You’ll learn about capital allocation strategies, the shifting landscape of private equity, accounting challenges with intangibles, and how traditional investment frameworks are being redefined. Michael also provides insight into the "free dividend" fallacy, the importance of understanding the basic unit of analysis, the paradox of skill in active management, and more. Join us to learn about market and investing fundamentals to improve your strategy with Michael Mauboussin. Tune in now!

Key Points From This Episode:

(0:03:08) What the primary job of an equity investor is and the origin of stock returns.

(0:05:37) Why dividends are less critical to total shareholder return unless fully reinvested.

(0:08:43) Dissect the behaviour of investors in dividend stocks and the "free dividend fallacy."

(0:10:01) Value versus growth classifications and how intangible assets impact valuations.

(0:16:39) Learn about the potential advantages for companies investing in intangible assets.

(0:20:20) How to determine a company's position in the competitive advantage life cycle.

(0:24:42) The phase that offers the highest returns and what to consider about newer industries. (0:26:18) Explore the tradeoffs of intangible-intensive companies and the impact on base rates.

(0:29:22) Pitfalls of valuation multiples and the implications for systematic value investors.

(0:32:25) Relevance of market metrics and how index funds have affected alpha opportunities.

(0:38:14) Effects of rising indexed assets and what to consider about market concentration.

(0:45:01) Discover the historical link between market concentration and future returns. 

(0:46:31) How active managers benefit markets and misconceptions about skilled managers. 

(0:48:46) The value of active managers and advice for structuring investment portfolios.

(0:52:44) Unpack the shift from public to private equities and why it happened. 

(0:55:40) Insights into the benefits of private over public equities for investors. 

(0:58:00) Ways intangible assets influenced the rise of private equity. 

(0:59:27) What the market says about future returns and using public equity for diversification.

Links From Today’s Episode: Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ 

Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on X — https://x.com/RationalRemindRational Reminder on TikTok — www.tiktok.com/@rationalreminder

Rational Reminder on YouTube — https://www.youtube.com/channel/

Rational Reminder Email — info@rationalreminder.caBenjamin Felix — https://pwlcapital.com/our-team/

Benjamin on X — https://x.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Cameron Passmore — https://pwlcapital.com/our-team/

Cameron on X — https://x.com/CameronPassmore

Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/

Michael Mauboussin — https://www.michaelmauboussin.com/

Michael Mauboussin on LinkedIn — https://www.linkedin.com/in/michael-mauboussin-12519b2/

Michael Mauboussin on X — https://x.com/mjmauboussin

Columbia Business School — https://business.columbia.edu/

Morgan Stanley | Counterpoint Global — https://www.morganstanley.com/im/en-us/individual-investor/about-us/investment-teams/active-fundamental-equity/counterpoint-global-team.html

The Heilbrunn Center for Graham and Dodd Investing — https://business.columbia.edu/heilbrunn

Episode 332: Randolph Cohen and Michael Green — https://rationalreminder.ca/podcast/332

Books From Today’s Episode:

The Success Equation — https://www.amazon.com/Success-Equation-Untangling-Business-Investing/dp/1422184234

More Than You Know — https://www.amazon.com/More-Than-You-Know-Unconventional/dp/0231143729

Expectations Investing — https://www.amazon.com/Expectations-Investing-Reading-Prices-Returns/dp/159139127X

Think Twice — https://www.amazon.com/Think-Twice-Harnessing-Power-Counterintuition/dp/1422187381

Creating Shareholder Value — https://www.amazon.com/Creating-Shareholder-Value-Managers-Investors/dp/0684844109

Capitalism Without Capital — https://www.amazon.com/Capitalism-without-Capital-Intangible-Economy/dp/0691175039

The New Goliaths — https://www.amazon.com/New-Goliaths-Corporations-Industries-Innovation/dp/0300255047

Security Analysis — https://www.amazon.com/Security-Analysis-Foreword-Buffett-Editions/dp/0071592539

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Papers From Today’s Episode: 

'The Dividend Disconnect' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2876373

'Trading Stages in the Company Life Cycle' — https://www.morganstanley.com/im/en-gb/intermediary-investor/insights/articles/trading-stages-in-the-company-life-cycle.html