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TIP421: Expectations Investing w/ Michael Mauboussin

Feb 11, 2022

Guest

Michael J. Mauboussin

Michael Mauboussin, the Head of Consilient Research at Counterpoint Global and an adjunct professor at Columbia, shares insights from his extensive career in investing. He discusses the transformative influence of the Santa Fe Institute on his approach to investing and introduces the three steps of Expectations Investing. The conversation delves into the complexities of intangible assets, the ethics of share buybacks, and how to assess a company's competitive moat. Listeners gain a real-time look at updating investment strategies in an evolving market.

01:05:26

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ANECDOTE

First Encounter with Bill Miller

Michael Mauboussin's first interaction with Bill Miller was when Miller requested the even pages of a report Mauboussin authored.
This led to a meeting where they connected over their shared approach to business and valuation.

insights

INSIGHT

Santa Fe Institute's Focus

The Santa Fe Institute studies complex adaptive systems, like the stock market, emphasizing the interactions of individual agents.
It fosters interdisciplinary collaboration among experts, leading to insights applicable in various fields, including investing.

insights

INSIGHT

Increasing Returns

Brian Arthur's work on increasing returns suggests that under certain conditions, businesses can achieve increasing returns, contrary to traditional economic theory.
This concept, recognizing winner-take-most markets, is crucial for investment strategy.

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Navigating the Investment Landscape

02:10 • 16min

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Navigating Investment Expectations

18:13 • 7min

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Expectations Investing and Asset Valuation

24:56 • 19min

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Signals of Investment Strategies

43:44 • 7min

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Investment Performance and Competitive Analysis

50:21 • 16min

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Exploring Expectations Investing and Its Resources

A Random Walk Down Wall Street

Burton G. Malkiel

In this book, Burton G. Malkiel argues that stock market prices are essentially random and unpredictable, aligning with the efficient market hypothesis. He discusses historical financial bubbles, the futility of trying to beat the market through technical or fundamental analysis, and the importance of a diversified portfolio. The book also covers various investing techniques and theories, including modern portfolio theory, and advises investors to adopt a long-term, disciplined approach to investing.

Understanding Michael Porter

Joan Magretta

Erik Synnestvedt

Don Hagen

This book provides a clear and accessible summary of Michael Porter's groundbreaking ideas on competition and strategy. Written with Porter's full cooperation, it corrects common misconceptions about his concepts, such as the importance of being unique rather than the best, and how strategy involves making deliberate trade-offs. The book offers practical examples and insights into applying Porter's frameworks to achieve competitive success.

The little book of valuation

Aswath Damodaran

Capital Ideas

The Improbable Origins of Modern Wall Street

Peter L. Bernstein

This book traces the development of modern Wall Street by highlighting the contributions of pioneering scholars such as Harry Markowitz, William Sharpe, Franco Modigliani, and others. It delves into the origins of key financial theories, including the efficient markets hypothesis, the Capital Asset Pricing Model (CAPM), and arbitrage pricing theory. Bernstein explains how these abstract economic concepts were translated into practical applications in investment management, including the creation of index funds, portfolio insurance, and tactical asset allocation.

Against the Gods

The Remarkable Story of Risk

Peter L. Bernstein

Against the Gods: The Remarkable Story of Risk chronicles the intellectual journey that has led humanity from relying on oracles and soothsayers to using sophisticated tools of risk management. The book delves into the history of probability, starting from ancient civilizations and their limitations in understanding chance, to the modern era where risk is quantified and managed. Bernstein discusses how the development of probability theory and risk management has been a key factor in distinguishing modern times from the past.

scale

This sound

Jeffrey West

The novel centers on two Chinese American siblings on the lam after their sometimes abusive father dies, leaving them to survive in a dreamscape that blends historical and mythological elements. The story is narrated by a sister whose gender is more fluid and includes elements of ghost narratives, gold, and tigers. Zhang's work challenges the traditional white-centered narratives of the American West, incorporating elements of her own cultural background and childhood experiences.

Expectations Investing

Reading Stock Prices for Better Returns

Michael J. Mauboussin

Alfred Rappaport

Trey Lockerbie chats with a very special guest and that is investing legend Michael Mauboussin. Michael is the Head of Consilient Research at Counterpoint Global. He is also the author of three books as well as an adjunct professor at Columbia Business School, where he’s been teaching the Security Analysis course for 30 years.

IN THIS EPISODE, YOU’LL LEARN:

01:52 - Michael's early career working under the tutelage of Bill Miller.
06:08 - His introduction to the Santa Fe Institute and how it shaped his investing style.
15:49 - The 3 steps of what Michael calls Expectations Investing.
19:37 - The concept of reflexivity.
25:26 - The problem with investing is based simply on multiples.
30:35 - The rise of intangibles, what are they, and how to look through them.
39:40 - The golden rule of share buybacks and why they are controversial to some.
55:00 - How to calculate a company's competitive moat.
58:09 - How Michael has updated the Security Analysis course at Columbia.
1:04:33 - How to determine your own cost of capital.
And much, much more!

*Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members.
Michael Mauboussin's website.
Michael Mauboussin's Twitter.
Measuring the Moat paper.
Expectations Investing book.
Increasing Returns by Brian Arthur book.
Scale by Geoffrey West book.
Understanding Michael Porter by Joan Magretta book.
Against the Gods by Peter Bernstein book.
Valuation by McKinsey book.
A Random Walk Down Wall Street by Burton Malkiel book.
Trey Lockerbie Twitter.

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