From the Vault: Michael Mauboussin on Decision-Making for Investors

From the Vault: Michael Mauboussin on Decision-Making for Investors

Michael Mauboussin’s paper from May 24, 2004 has three parts. First, we will review these three elements, drawing input from successful people in various probabilistic domains. Second, we go from theory to practice and explore the mechanics and nuances of expected value. Finally, we discuss some heuristics and their associated biases to see why we fail to properly calibrate probabilities and outcomes.

Michael Mauboussin: The Right Stuff

Process versus outcome. Long-term success in a probabilistic field requires a disciplined and economic process. Discipline does not mean inflexibility; top practitioners recognize circumstantial changes and continually adapt.

While satisfactory long-term outcomes ultimately define success in probabilistic fields, the best in their class focus on establishing a superior process with the understanding that outcomes take care of themselves. Probabilistic endeavors require a focus on process because, by definition, poor decisions will periodically result in good outcomes, and good decisions will lead to poor outcomes. Exhibit 1 is a simple two-by-two matrix that summarizes this point:

Bonhoeffer Fund July 2022 Performance Update

Screenshot 27Bonhoeffer Fund's performance update for the month ended July 31, 2022. Q2 2022 hedge fund letters, conferences and more The Bonhoeffer Fund returned 3.5% net of fees in July, for a year-to-date return of -15.8%.   Bonhoeffer Fund, LP, is