Michael Mauboussin: Some Influential Books Along The Journey

Michael Mauboussin is the author of The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing (Harvard Business Review Press, 2012), Think Twice: Harnessing the Power of Counterintuition (Harvard Business Press, 2009) and More Than You Know: Finding Financial Wisdom in Unconventional Places-Updated and Expanded (New York: Columbia Business School Publishing, 2008). More Than You Know was named one of “The 100 Best Business Books of All Time” by 800-CEO-READ, one of the best business books by BusinessWeek (2006) and best economics book by Strategy+Business (2006). He is also co-author, with Alfred Rappaport, of Expectations Investing: Reading Stock Prices for Better Returns (Harvard Business School Press, 2001).

Visit his site at: michaelmauboussin.com/

2017 Reads

Michael Mauboussin: Some Influential Books Along The Journey

1980s

Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980).

Now nearing its sixtieth printing in English and translated into nineteen languages, Michael E. Porter’s Competitive Strategy has transformed the theory, practice, and teaching of business strategy throughout the world.

[drizzle]

Electrifying in its simplicity—like all great breakthroughs—Porter’s analysis of industries captures the complexity of industry competition in five underlying forces. Porter introduces one of the most powerful competitive tools yet developed: his three generic strategies—lowest cost, differentiation, and focus—which bring structure to the task of strategic positioning. He shows how competitive advantage can be defined in terms of relative cost and relative prices, thus linking it directly to profitability, and presents a whole new perspective on how profit is created and divided. In the almost two decades since publication, Porter’s framework for predicting competitor behavior has transformed the way in which companies look at their rivals and has given rise to the new discipline of competitor assessment.

More than a million managers in both large and small companies, investment analysts, consultants, students, and scholars throughout the world have internalized Porter’s ideas and applied them to assess industries, understand competitors, and choose competitive positions. The ideas in the book address the underlying fundamentals of competition in a way that is independent of the specifics of the ways companies go about competing.

Competitive Strategy has filled a void in management thinking. It provides an enduring foundation and grounding point on which all subsequent work can be built. By bringing a disciplined structure to the question of how firms achieve superior profitability, Porter’s rich frameworks and deep insights comprise a sophisticated view of competition unsurpassed in the last quarter-century.

Robert Cialdini, Influence: The Psychology of Persuasion (New York: William Morrow, 1984).

Influence, the classic book on persuasion, explains the psychology of why people say “yes”—and how to apply these understandings. Dr. Robert Cialdini is the seminal expert in the rapidly expanding field of influence and persuasion. His thirty-five years of rigorous, evidence-based research along with a three-year program of study on what moves people to change behavior has resulted in this highly acclaimed book.

You’ll learn the six universal principles, how to use them to become a skilled persuader—and how to defend yourself against them. Perfect for people in all walks of life, the principles of Influence will move you toward profound personal change and act as a driving force for your success.

Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985).

The essential complement to the pathbreaking book Competitive Strategy, Michael E. Porter’s Competitive Advantage explores the underpinnings of competitive advantage in the individual firm.

Competitive Advantage introduces a whole new way of understanding what a firm does. Porter’s groundbreaking concept of the value chain disaggregates a company into “activities,” or the discrete functions or processes that represent the elemental building blocks of competitive advantage.

Now an essential part of international business thinking, Competitive Advantage takes strategy from broad vision to an internally consistent configuration of activities. Its powerful framework provides the tools to understand the drivers of cost and a company’s relative cost position. Porter’s value chain enables managers to isolate the underlying sources of buyer value that will command a premium price, and the reasons why one product or service substitutes for another. He shows how competitive advantage lies not only in activities themselves but in the way activities relate to each other, to supplier activities, and to customer activities. Competitive Advantage also provides for the first time the tools to strategically segment an industry and rigorously assess the competitive logic of diversification.

That the phrases “competitive advantage” and “sustainable competitive advantage” have become commonplace is testimony to the power of Porter’s ideas. Competitive Advantage has guided countless companies, business school students, and scholars in understanding the roots of competition. Porter’s work captures the extraordinary complexity of competition in a way that makes strategy both concrete and actionable.

Alfred Rappaport, Creating Shareholder Value: The New Standard for Business Performance (New York: Free Press, 1986).

In this substantially revised and updated edition of his 1986 business classic, Creating Shareholder Value, Alfred Rappaport provides managers and investors with the practical tools needed to generate superior returns.

The ultimate test of corporate strategy, the only reliable measure, is whether it creates economic value for shareholders.

After a decade of downsizings frequently blamed on shareholder value decision making, this book presents a new and indepth assessment of the rationale for shareholder value. Further, Rappaport presents provocative new insights on shareholder value applications to: (1) business planning, (2) performance evaluation, (3) executive compensation, (4) mergers and acquisitions, (5) interpreting stock market signals, and (6) organizational implementation. Readers will be particularly interested in Rappaport’s answers to three management performance evaluation questions: (1) What is the most appropriate measure of performance? (2) What is the most appropriate target level of performance? and (3) How should rewards be linked to performance? The recent acquisition of Duracell International by Gillette is analyzed in detail, enabling the reader to understand the critical information needed when assessing the risks and rewards of a merger from both sides of the negotiating table.

The shareholder value approach presented here has been widely embraced by publicly traded as well as privately held companies worldwide. Brilliant and incisive, this is the one book that should be required reading for managers and investors who want to stay on the cutting edge of success in a highly competitive global economy.

Richard Dawkins, The Blind Watchmaker (New York: W.W. Norton & Company, 1986).

“The best general account of evolution I have read in recent years.”?E. O. Wilson. With a new introduction.
Twenty years after its original publication, The Blind Watchmaker, framed with a new introduction by the author, is as prescient and timely a book as ever. The watchmaker belongs to the eighteenth-century theologian William Paley, who argued that just as a watch is too complicated and functional to have sprung into existence by accident, so too must all living things, with their far greater complexity, be purposefully designed. Charles Darwin’s brilliant discovery challenged the creationist arguments; but only Richard Dawkins could have written this elegant riposte. Natural selection?the unconscious, automatic, blind, yet essentially nonrandom process Darwin discovered?has no purpose in mind. If it can be said to play the role of a watchmaker in nature, it is the blind watchmaker in nature.

Max H. Bazerman, Judgment in Managerial Decision Making (New York: John Wiley & Sons, 1986).

In situations requiring careful judgment, every individual is influenced by their own biases to some extent. With Bazerman’s new seventh edition, readers can quickly learn how to overcome those biases to make better managerial decisions. The book examines judgment in a variety of organizational contexts, and provides practical strategies for changing and improving decision-making processes so that they become part of one’s permanent behavior.

1990s

Michael Rothschild, Bionomics: Economy as Ecosystem (New York: Henry Holt, 1990).

Hailed as a landmark account of how we organize ourselves for work, this wise, experience-tested book looks to nature as the model for how things work in the modern business world. Rothschild’s anecdote-rich text challenges traditional thinking with a fresh vision of economics as a self-organizing system that is as natural as life itself.

Tom Copeland, Tim Koller, and Jack Murrin, Valuation: Measuring and Managing the Value of Companies (New York: John Wiley & Sons, 1990).

McKinsey & Company’s #1 best-selling guide to corporate valuation, now in its sixth edition

Valuation is the single best guide of its kind, helping financial professionals worldwide excel at measuring, managing, and maximizing shareholder and company value. This new sixth edition provides insights on the strategic advantages of value-based management, complete detailed instruction, and nuances managers should know about valuation and valuation techniques as applied to different industries, emerging markets, and other special situations.

Valuation lies at the crossroads of corporate strategy and finance. In today’s economy, it has become an essential role — and one that requires excellence at all points. This guide shows you everything you need to know, and gives you the understanding you need to be effective.

• Estimate the value of business strategies to drive better decision making
• Understand which business units a corporate parent is best positioned to own
• Assess major transactions, including acquisitions, divestitures, and restructurings
• Design a capital structure that supports strategy and minimizes risk

As the valuation function becomes ever more central to long- and short-term strategy, analysts and managers need an authoritative reference to turn to for answers to challenging situations. Valuation stands ahead of the field for its reputation, quality, and prestige, putting the solutions you need right at your fingertips.

G. Bennett Stewart III, The Quest for Value: A Guide for Senior Managers (New York: Harper Business, 1991).

In this bestselling classic of financial management, G. Bennett Stewart, III, raises and answers these provocative questions:

• Do dividends matter?
• Are earnings per share really accurate measures of corporate performance?
• What is the engine that really drives share prices?

More than that, Stewart lays the foundation for EVAr, the financial management and incentive system now in place at nearly 300 companies around the world, and which is rapidly becoming the global standard for corporate governance.

Managers, confused about what investors really want, often find it difficult to reach informed decisions regarding business strategy, acquisitions and divestitures, financial structure, dividend policy, and executive compensation. But now an EVAr -based revolution is providing a practical framework that managers can use to build a premium-valued company. At the forefront of this revolution is the consulting firm of Stern Stewart & Co., of which G. Bennett Stewart, III, author of The Quest for Value, is senior partner and cofounder.

The Quest for Value is written for senior management, key operating people, and planning and financial staff. This bible of financial management will assist managers in goal setting, resource allocation, strategy development, valuation of acquisitions, financial policy setting, incentive compensation planning, and building shareholder value.

The Quest for Value cuts sharply through the myths that to this day misinform corporate strategists in their pursuit of shareholder value. Laying waste to inaccurate yet widely used methods of performance, Stewart demonstrates how the Stern Stewart EVAr approach not only creates greater shareholder value but also provides a powerful framework for the broadest range of corporate decision making.

Peter Bernstein, Capital Ideas: The Improbable Origins of Modern Wall Street (New York: John Wiley & Sons, 1992).

Capital Ideas traces the origins of modern Wall Street, from the pioneering work of early scholars and the development of new theories in risk, valuation, and investment returns, to the actual implementation of these theories in the real world of investment management. Bernstein brings to life a variety of brilliant academics who have contributed to modern investment theory over the years: Louis Bachelier, Harry Markowitz, William Sharpe, Fischer Black, Myron Scholes, Robert Merton, Franco Modigliani, and Merton Miller. Filled with in-depth insights and timeless advice, Capital Ideas reveals how the unique contributions of these talented individuals profoundly changed the practice of investment management as we know it today.

M. Mitchel Waldrop, Complexity: The Emerging Science at the Edge of Order and Chaos (New York: Simon & Schuster, 1992).

Why did the stock market crash more than 500 points on a single Monday in 1987? Why do ancient species often remain stable in the fossil record for millions of years and then suddenly disappear? In a world where nice guys often finish last, why do humans value trust and cooperation? At first glance these questions don’t appear to have anything in common, but in fact every one of these statements refers to a complex system. The science of complexity studies how single elements, such as a species or a stock, spontaneously organize into complicated structures like ecosystems and economies; stars become galaxies, and snowflakes avalanches almost as if these systems were obeying a hidden yearning for order.

Drawing from diverse fields, scientific luminaries such as Nobel Laureates Murray Gell-Mann and Kenneth Arrow are studying complexity at a think tank called The Santa Fe Institute. The revolutionary new discoveries researchers have made there could change the face of every science from biology to cosmology to economics. M. Mitchell Waldrop’s groundbreaking bestseller takes readers into the hearts and minds of these scientists to tell the story behind this scientific revolution as it unfolds.

Kevin Kelly, Out of Control: The Rise of Neo-Biological Civilization (New York: Addison Wesley, 1994).

Out of Control chronicles the dawn of a new era in which the machines and systems that drive our economy are so complex and autonomous as to be indistinguishable from living things.

Daniel C. Dennett, Darwin’s Dangerous Idea: Evolution and the Meanings of Life (New York: Simon & Schuster, 1995).

In a book that is both groundbreaking and accessible, Daniel C. Dennett, whom Chet Raymo of The Boston Globe calls “one of the most provocative thinkers on the planet,” focuses his unerringly logical mind on the theory of natural selection, showing how Darwin’s great idea transforms and illuminates our traditional view of humanity’s place in the universe. Dennett vividly describes the theory itself and then extends Darwin’s vision with impeccable arguments to their often surprising conclusions, challenging the views of some of the most famous scientists of our day.

Peter Bernstein, Against the Gods: The Remarkable Story of Risk (New York: John Wiley & Sons, 1996).

A Business Week, New York Times Business, and USA Today Bestseller

“Ambitious and readable . . . an engaging introduction to the oddsmakers, whom Bernstein regards as true humanists helping to release mankind from the choke holds of superstition and fatalism.” -The New York Times

“An extraordinarily entertaining and informative book.” -The Wall Street Journal

“A lively panoramic book . . . Against the Gods sets up an ambitious premise and then delivers on it.” -Business Week

“Deserves to be, and surely will be, widely read.” -The Economist

“[A] challenging book, one that may change forever the way people think about the world.” -Worth

“No one else could have written a book of such central importance with so much charm and excitement.” -Robert Heilbroner author, The Worldly Philosophers

“With his wonderful knowledge of the history and current manifestations of risk, Peter Bernstein brings us Against the Gods. Nothing like it will come out of the financial world this year or ever. I speak carefully: no one should miss it.” -John Kenneth Galbraith Professor of Economics Emeritus, Harvard University

In this unique exploration of the role of risk in our society, Peter Bernstein argues that the notion of bringing risk under control is one of the central ideas that distinguishes modern times from the distant past. Against the Gods chronicles the remarkable intellectual adventure that liberated humanity from oracles and soothsayers by means of the powerful tools of risk management that are available to us today.

“An extremely readable history of risk.” -Barron’s

“Fascinating . . . this challenging volume will help you understand the uncertainties that every investor must face.” -Money

“A singular achievement.” -Times Literary Supplement

“There’s a growing market for savants who can render the recondite intelligibly-witness Stephen Jay Gould (natural history), Oliver Sacks (disease), Richard Dawkins (heredity), James Gleick (physics), Paul Krugman (economics)-and Bernstein would mingle well in their company.” -The Australian

Steven Pinker, How the Mind Works (New York: W.W. Norton & Company, 1997).

“A model of scientific writing: erudite, witty, and clear.” ?New York Review of Books
In this Pulitzer Prize finalist and national bestseller, one of the world’s leading cognitive scientists tackles the workings of the human mind. What makes us rational?and why are we so often irrational? How do we see in three dimensions? What makes us happy, afraid, angry, disgusted, or sexually aroused? Why do we fall in love? And how do we grapple with the imponderables of morality, religion, and consciousness? ?How the Mind Works? synthesizes the most satisfying explanations of our mental life from cognitive science, evolutionary biology, and other fields to explain what the mind is, how it evolved, and how it allows us to see, think, feel, laugh, interact, enjoy the arts, and contemplate the mysteries of life. This new edition of Pinker’s bold and buoyant classic is updated with a new foreword by the author.

E.O. Wilson, Consilience: The Unity of Knowledge (New York, Alfred A. Knopf, 1998).

“A dazzling journey across the sciences and humanities in search of deep laws to unite them.” –The Wall Street Journal

One of our greatest living scientists–and the winner of two Pulitzer Prizes for On Human Nature and The Ants–gives us a work of visionary importance that may be the crowning achievement of his career. In Consilience (a word that originally meant “jumping together”), Edward O. Wilson renews the Enlightenment’s search for a unified theory of knowledge in disciplines that range from physics to biology, the social sciences and the humanities.

Using the natural sciences as his model, Wilson forges dramatic links between fields. He explores the chemistry of the mind and the genetic bases of culture. He postulates the biological principles underlying works of art from cave-drawings to Lolita. Presenting the latest findings in prose of wonderful clarity and oratorical eloquence, and synthesizing it into a dazzling whole, Consilience is science in the path-clearing traditions of Newton, Einstein, and Richard Feynman.

Carl Shapiro and Hal R. Varian, Information Rules: A Strategic Guide to the Network Economy (Boston, MA: Harvard Business School Press, 1999).

In Information Rules, authors Shapiro and Varian reveal that many classic economic concepts can provide the insight and understanding necessary to succeed in the information age. They argue that if managers seriously want to develop effective strategies for competing in the new economy, they must understand the fundamental economics of information technology. Whether information takes the form of software code or recorded music, is published in a book or magazine, or even posted on a website, managers must know how to evaluate the consequences of pricing, protecting, and planning new versions of information products, services, and systems. The first book to distill the economics of information and networks into practical business strategies, Information Rules is a guide to the winning moves that can help business leaders navigate successfully through the tough decisions of the information economy.

2000s

Michael Lewis, Moneyball: The Art of Winning an Unfair Game (New York: W.W. Norton, 2003).

Moneyball is a quest for the secret of success in baseball. Following the low-budget Oakland Athletics, their larger-than-life general manger, Billy Beane, and the strange brotherhood of amateur baseball enthusiasts, Michael Lewis has written not only “the single most influential baseball book ever” (Rob Neyer, Slate) but also what “may be the best book ever written on business” (Weekly Standard).
“I wrote this book because I fell in love with a story. The story concerned a small group of undervalued professional baseball players and executives, many of whom had been rejected as unfit for the big leagues, who had turned themselves into one of the most successful franchises in Major League Baseball. But the idea for the book came well before I had good reason to write it—before I had a story to fall in love with. It began, really, with an innocent question: how did one of the poorest teams in baseball, the Oakland Athletics, win so many games?”

With these words Michael Lewis launches us into the funniest, smartest, and most contrarian book since, well, since Liar’s Poker. Moneyball is a quest for something as elusive as the Holy Grail, something that money apparently can’t buy: the secret of success in baseball. The logical places to look would be the front offices of major league teams, and the dugouts, perhaps even in the minds of the players themselves. Lewis mines all these possibilities—his intimate and original portraits of big league ballplayers are alone worth the price of admission—but the real jackpot is a cache of numbers—numbers!—collected over the years by a strange brotherhood of amateur baseball enthusiasts: software engineers, statisticians, Wall Street analysts, lawyers and physics professors.

What these geek numbers show—no, prove—is that the traditional yardsticks of success for players and teams are fatally flawed. Even the box score misleads us by ignoring the crucial importance of the humble base-on-balls. This information has been around for years, and nobody inside Major League Baseball paid it any mind. And then came Billy Beane, General Manager of the Oakland Athletics.

Billy paid attention to those numbers —with the second lowest payroll in baseball at his disposal he had to—and this book records his astonishing experiment in finding and fielding a team that nobody else wanted. Moneyball is a roller coaster ride: before the 2002 season opens, Oakland must relinquish its three most prominent (and expensive) players, is written off by just about everyone, and then comes roaring back to challenge the American League record for consecutive wins.

In a narrative full of fabulous characters and brilliant excursions into the unexpected, Michael Lewis shows us how and why the new baseball knowledge works. He also sets up a sly and hilarious morality tale: Big Money, like Goliath, is always supposed to win…how can we not cheer for David?

“One of the best baseball—and management—books out….Deserves a place in the Baseball Hall of Fame.”—Forbes

James Surowiecki, The Wisdom of Crowds: Why the Many Are Smarter than the Few and How Collective Wisdom Shapes Business, Economies, Societies, and Nations (New York: Random House, 2004).

“No one in this world, so far as I know, has ever lost money by underestimating the intelligence of the great masses of the plain people.” —H. L. Mencken

H. L. Mencken was wrong.

In this endlessly fascinating book, New Yorker columnist James Surowiecki explores a deceptively simple idea that has profound implications: large groups of people are smarter than an elite few, no matter how brilliant—better at solving problems, fostering innovation, coming to wise decisions, even predicting the future.

This seemingly counterintuitive notion has endless and major ramifications for how businesses operate, how knowledge is advanced, how economies are (or should be) organized and how we live our daily lives. With seemingly boundless erudition and in delightfully clear prose, Surowiecki ranges across fields as diverse as popular culture, psychology, ant biology, economic behaviorism, artificial intelligence, military history and political theory to show just how this principle operates in the real world.

Despite the sophistication of his arguments, Surowiecki presents them in a wonderfully entertaining manner. The examples he uses are all down-to-earth, surprising, and fun to ponder. Why is the line in which you’re standing always the longest? Why is it that you can buy a screw anywhere in the world and it will fit a bolt bought ten-thousand miles away? Why is network television so awful? If you had to meet someone in Paris on a specific day but had no way of contacting them, when and where would you meet? Why are there traffic jams? What’s the best way to win money on a game show? Why, when you walk into a convenience store at 2:00 A.M. to buy a quart of orange juice, is it there waiting for you? What do Hollywood mafia movies have to teach us about why corporations exist?

The Wisdom of Crowds is a brilliant but accessible biography of an idea, one with important lessons for how we live our lives, select our leaders, conduct our business, and think about our world.

Eric D. Beinhocker, The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics (Boston: Harvard Business School Press, 2006).

Over 6.4 billion people participate in a $36.5 trillion global economy, designed and overseen by no one. How did this marvel of self-organized complexity evolve? How is wealth created within this system? And how can wealth be increased for the benefit of individuals, businesses, and society? In The Origin of Wealth, Eric D. Beinhocker argues that modern science provides a radical perspective on these age-old questions, with far-reaching implications. According to Beinhocker, wealth creation is the product of a simple but profoundly powerful evolutionary formula: differentiate, select, and amplify. In this view, the economy is a “complex adaptive system” in which physical technologies, social technologies, and business designs continuously interact to create novel products, new ideas, and increasing wealth. Taking readers on an entertaining journey through economic history, from the Stone Age to modern economy, Beinhocker explores how “complexity economics” provides provocative insights on issues ranging from creating adaptive organizations to the evolutionary workings of stock markets to new perspectives on government policies. A landmark book that shatters conventional economic theory, The Origin of Wealth will rewire our thinking about how we came to be here—and where we are going.

Daniel Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus and Giroux, 2011).

In the international bestseller, Thinking, Fast and Slow, Daniel Kahneman, the renowned psychologist and winner of the Nobel Prize in Economics, takes us on a groundbreaking tour of the mind and explains the two systems that drive the way we think. System 1 is fast, intuitive, and emotional; System 2 is slower, more deliberative, and more logical. The impact of overconfidence on corporate strategies, the difficulties of predicting what will make us happy in the future, the profound effect of cognitive biases on everything from playing the stock market to planning our next vacation?each of these can be understood only by knowing how the two systems shape our judgments and decisions.

Engaging the reader in a lively conversation about how we think, Kahneman reveals where we can and cannot trust our intuitions and how we can tap into the benefits of slow thinking. He offers practical and enlightening insights into how choices are made in both our business and our personal lives?and how we can use different techniques to guard against the mental glitches that often get us into trouble. Winner of the National Academy of Sciences Best Book Award and the Los Angeles Times Book Prize and selected by The New York Times Book Review as one of the ten best books of 2011, Thinking, Fast and Slow is destined to be a classic.

Philip E. Tetlock and Dan Gardner, Superforecasting: The Art and Science of Prediction (New York: Crown Publishers, 2015).

“The most important book on decision making since Daniel Kahneman’s Thinking, Fast and Slow.” — Jason Zweig, The Wall Street Journal

Everyone would benefit from seeing further into the future, whether buying stocks, crafting policy, launching a new product, or simply planning the week’s meals. Unfortunately, people tend to be terrible forecasters. As Wharton professor Philip Tetlock showed in a landmark 2005 study, even experts’ predictions are only slightly better than chance. However, an important and underreported conclusion of that study was that some experts do have real foresight, and Tetlock has spent the past decade trying to figure out why. What makes some people so good? And can this talent be taught?

In Superforecasting, Tetlock and coauthor Dan Gardner offer a masterwork on prediction, drawing on decades of research and the results of a massive, government-funded forecasting tournament. The Good Judgment Project involves tens of thousands of ordinary people—including a Brooklyn filmmaker, a retired pipe installer, and a former ballroom dancer—who set out to forecast global events. Some of the volunteers have turned out to be astonishingly good. They’ve beaten other benchmarks, competitors, and prediction markets. They’ve even beaten the collective judgment of intelligence analysts with access to classified information. They are “superforecasters.”

In this groundbreaking and accessible book, Tetlock and Gardner show us how we can learn from this elite group. Weaving together stories of forecasting successes (the raid on Osama bin Laden’s compound) and failures (the Bay of Pigs) and interviews with a range of high-level decision makers, from David Petraeus to Robert Rubin, they show that good forecasting doesn’t require powerful computers or arcane methods. It involves gathering evidence from a variety of sources, thinking probabilistically, working in teams, keeping score, and being willing to admit error and change course. Superforecasting offers the first demonstrably effective way to improve our ability to predict the future—whether in business, finance, politics, international affairs, or daily life—and is destined to become a modern classic.

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Endnotes

Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing (Boston, MA: Harvard Business Review Press, 2012), 1-2.

William James, The Principles of Psychology, Volume 1 (New York: Henry HOLT and Company, 1890), 488.

Alfred Rappaport, Creating Shareholder Value: The New Standard for Business Performance (New York: Free Press, 1986).

William N. Thorndike, Jr., The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success (Boston, MA: Harvard Business Review Press, 2012).

Peter D. Kaufman, ed., Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger (Virginia Beach,VA: PCA Publication, 2005).

****

Some of my favorites include:

Howard M. Schilit and Jeremy Perler, Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, 3rd Edition (New York: McGraw Hill, 2010);

Charles W. Mulford and Eugene E. Comiskey, Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance (Hoboken, NJ: John Wiley & Sons, 2005);

Charles W. Mulford and Eugene E. Comiskey, The Financial Numbers Game: Detecting Creative Accounting Practices (Hoboken, NJ: John Wiley & Sons, 2005);

Kathryn F. Staley, The Art of Short Selling (New York: John Wiley & Sons, 1997).

****

Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980).

Baruch Lev and Feng Gu, The End of Accounting and the Path Forward for Investors and Managers (Hoboken, NJ: John Wiley & Sons, 2016).

Madeleine I. G. Daepp, Marcus J. Hamilton, Geoffrey B. West, and Luís M. A. Bettencourt, “The Mortality of Companies,” Royal Society Interface, Vol. 12, No. 106, May 6, 2015;

Michael J. Mauboussin and Dan Callahan, “Why Corporate Longevity Matters: What Index Turnover Tells Us about Corporate Results,” Credit Suisse Global Financial Strategies, April 16, 2014.

Stanley Block, “Methods of Valuation: Myths vs. Reality,” The Journal of Investing, Winter 2010, 7-14.

Alfred Rappaport, Creating Shareholder Value: A Guide for Managers and Investors (New York: Free Press, 1998), 15.

Michael J. Mauboussin and Dan Callahan, “Measuring the Moat: Assessing the Magnitude and Sustainability of Value Creation,” Credit Suisse Global Financial Strategies, July 22, 2013.

Michael Steinhardt, No Bull: My Life In and Out of Markets (New York: John Wiley & Sons, 2001), 129.

Steven Crist, “Crist on Value,” in Beyer, et al., Bet with the Best (New York: Daily Racing Form Press, 2001).

Dan Ariely, George Loewenstein, and Drazen Prelec, “‘Coherent Arbitrariness’: Stable Demand Curves Without Stable Preferences,” Quarterly Journal of Economics, Vol. 118, No 1, February 2003, 73-106.

Amos Tversky, “Features of Similarity,” Psychological Review, Vol. 84, 1977, 327-352. Reprinted in Eldar Shafir, ed., Preference, Belief, and Similarity: Selected Writings, Amos Tversky (Cambridge, MA: MIT Press, 2004).

Paul R. Carlile and Clayton M. Christensen, “The Cycles of Theory Building in Management Research,” Harvard Business School Working Paper Series, No. 05-057, 2005.

Also, see the chapter, “History, The Fickle Teacher,” in Duncan J. Watts, Everything Is Obvious*: *Once You Know the Answer (New York: Crown Business, 2011), 108-134.

Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable, Second Edition (New York: Random House, 2010), 365.

Warren E. Buffett, Berkshire Hathaway Annual Meeting, 1989.

The phrase “beliefs are hypotheses to be tested, not treasures to be protected” comes from Philip E. Tetlock and Dan Gardner, Superforecasting: The Art and Science of Prediction (New York: Crown Publishers, 2015), 191.

Robert B. Cialdini, Influence: The Psychology of Persuasion (New York: William Morrow, 1993).

Stephanie L. Brown, Terrilee Asher, and Robert B. Cialdini, “Evidence of a Positive Relationship Between Age and Preference for Consistency,” Journal of Research in Personality, Vol. 39, No. 5, October 2005, 517-533.

Christopher Peterson and Martin E. P. Seligman, Character Strengths and Virtues: A Handbook and Classification (Oxford: Oxford University Press, 2004), 144.

Uriel Haran, Ilana Ritov, Barbara A. Mellers, “The Role of Actively Open-Minded Thinking in Information Acquisition, Accuracy, and Calibration,” Judgment and Decision Making, Vol. 8, No 3, May 2013, 188-201.

For a layman’s discussion of Bayes’s Theorem, see Nate Silver, The Signal and the Noise: Why So Many Predictions Fail-But Some Don’t (New York: The Penguin Press, 2012), 243-248. To solve for the new probability, you need three quantities. First, you need a prior probability (x). Second, you need an estimate of the probability as a condition of the hypothesis being true (y). Finally, you need an estimate conditional on the hypothesis being false (z).

For an example, see Michael J. Mauboussin and Dan Callahan, “Cultivating Your Judgment Skills: A Framework for Improving the Quality of Decisions,” Credit Suisse Global Financial Strategies, May 7, 2013.

Brent Schlender, “The Bill & Warren Show,” Fortune, July 20, 1998.

Rose McDermott, James H. Fowler, and Oleg Smirnov, “On the Evolutionary Origin of Prospect Theory Preferences,” Journal of Politics, Vol. 70, No. 2, April 2008, 335–350.

Mark Granovetter, “Threshold Models of Collective Behavior,” American Journal of Sociology, Vol. 83, No. 6, May, 1978, 1420-1443.

David Spanier, Easy Money: Inside the Gambler’s Mind (New York: Penguin, 1987).

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