Michael Maubossin: Reflections on the Ten Attributes of Great Investors
Also see michael mauboussin Research Papers From Credit Suisse – Full? Collection
Up-and-Coming Small- and Mid-cap Portfolio Managers #MICUS (Morningstar Conference)
First we list the full ten and some books he recommends followed by an excerpt from Michael Mauboussin
1. Be numerate (and understand accounting)
2. Understand value (the present value of free cash flow)
3. Properly assess strategy (or how a business makes money)
4. Compare effectively (expectations versus fundamentals)
5. Think probabilistically (there are few sure things)
6. Update your views effectively (beliefs are hypotheses to be tested, not treasures to be protected)
7. Beware of behavioral biases (minimizing constraints to good thinking)
8. Know the difference between information and influence
9. Position sizing (maximizing the payoff from edge)
10. Read (and keep an open mind).
Some Influential Books along the Journey
Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980).
Robert Cialdini, Influence: The Psychology of Persuasion (New York: William Morrow, 1984).
Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985).
Alfred Rappaport, Creating Shareholder Value: The New Standard for Business Performance (New York: Free Press, 1986).
Richard Dawkins, The Blind Watchmaker (New York: W.W. Norton & Company, 1986).
Max H. Bazerman, Judgment in Managerial Decision Making (New York: John Wiley & Sons, 1986).
Michael Rothschild, Bionomics: Economy as Ecosystem (New York: Henry Holt, 1990).
Tom Copeland, Tim Koller, and Jack Murrin, Valuation: Measuring and Managing the Value of Companies (New York: John Wiley & Sons, 1990).
G. Bennett Stewart III, The Quest for Value: A Guide for Senior Managers (New York: Harper Business, 1991).
Peter Bernstein, Capital Ideas: The Improbable Origins of Modern Wall Street (New York: John Wiley & Sons, 1992).
M. Mitchel Waldrop, Complexity: The Emerging Science at the Edge of Order and Chaos (New York: Simon & Schuster, 1992).
Kevin Kelly, Out of Control: The Rise of Neo-Biological Civilization (New York: Addison Wesley, 1994).
Daniel C. Dennett, Darwin’s Dangerous Idea: Evolution and the Meanings of Life (New York: Simon & Schuster, 1995).
Peter Bernstein, Against the Gods: The Remarkable Story of Risk (New York: John Wiley & Sons, 1996).
Steven Pinker, How the Mind Works (New York: W.W. Norton & Company, 1997).
E.O. Wilson, Consilience: The Unity of Knowledge (New York, Alfred A. Knopf, 1998). Carl Shapiro and Hal R. Varian
Information Rules: A Strategic Guide to the Network Economy (Boston, MA: Harvard Business School Press, 1999).
Michael Lewis, Moneyball: The Art of Winning an Unfair Game (New York: W.W. Norton, 2003).
Eric D. Beinhocker, The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics (Boston: Harvard Business School Press, 2006).
Daniel Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus and Giroux, 2011).
Philip E. Tetlock and Dan Gardner, Superforecasting: The Art and Science of Prediction (New York: Crown Publishers, 2015).
“Perhaps the single greatest error in the investment business is a failure to distinguish between the knowledge of a company’s fundamentals and the expectations implied by the market price.”
The world of investing and business has seen a great deal of change in the past 30 years. This report shares thoughts on the ten attributes of great fundamental investors.
Accounting is the language of business and you need to understand it to appreciate economic value and to assess competitive positioning. Investors face a slew of psychological challenges. Perhaps the most difficult is updating beliefs when new information arrives. Position sizing and portfolio construction still do not get the attention they warrant.
The substantial shift from active to passive management has profound implications for the investment industry
I started on Wall Street 30 years ago today. It has been a fascinating three decades, which is undoubtedly true of all periods of similar length. Notable events include the stock market crash of 1987, the fall of the Berlin Wall and unwinding of communism, the introduction of the Internet and the ensuing dot-com bubble, and a painful financial crisis and a subsequent recovery.
Exhibit 1 shows a contrast between then and now. The indices for equity markets are roughly 10 times higher than they were in 1986, unadjusted for inflation and dividends, and the yield on the U.S. 10-year Treasury note is one-fifth of what it was. Of the top 10 companies by market capitalization in 1986, only General Electric, AT&T, and Exxon Mobil remain in the group today. Google, Amazon.com, and Facebook were not even dreams. In 1986, Microsoft, Oracle, Adobe, and Sun Microsystems went public.
I have spent roughly two-thirds of my career on the sell-side and a third on the buy-side. Both experiences have been deeply gratifying and incredible learning opportunities. In this report, I offer what I believe to be the ten attributes of a great fundamental investor, as well as some thoughts on where we go from here. Before I do so, I provide some personal background and note the influences on my thinking. Feel free to skip directly to the attributes section on page six.