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More Than You Know: Finding Financial Wisdom in Unconventional Places
One of Wall Street's most creative and influential minds offers provocative new ways of thinking about the stock market, investing, and how we make decisions.
268 pages, Hardcover
First published January 1, 2006
About the author
Michael J. Mauboussin
14 books271 followersMichael J. Mauboussin is Chief Investment Strategist at Legg Mason Capital Management. Prior to joining LMCM in 2004, Michael was a Managing Director and Chief U.S. Investment Strategist at Credit Suisse. Michael joined CS in 1992 as a packaged food industry analyst. He is a former president of the Consumer Analyst Group of New York and was repeatedly named to Institutional Investors All-America Research Team and The Wall Street Journal All-Star survey in the food industry group.
Michael is the author of Think Twice: Harnessing the Power of Counterintuition (Harvard Business Press, 2009) and More Than You Know: Finding Financial Wisdom in Unconventional PlacesUpdated 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).
Michael has been an adjunct professor of finance at Columbia Business School since 1993 and is on the faculty of the Heilbrunn Center for Graham and Dodd Investing. In 2009, Michael received the Deans Award for Teaching Excellence. BusinessWeeks Guide to the Best Business Schools (2001) highlighted Michael as one of the schools Outstanding Faculty, a distinction received by only seven professors.
Michael earned an A.B. from Georgetown University. He is also affiliated with the Santa Fe Institute, a leading center for multi-disciplinary research in complex systems theory, and is on the board of directors of Sermo, an online community for physicians."
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Displaying 1 - 30 of 82 reviews
May 19, 2012
The core premise of this book is best summarized by the author: "More Than You Know's core premise is simple to explain but devilishly difficult to live: you will be better investor, executive, parent, friend - person - if you approach problems from a multidisciplinary perspectives". He then details his approach: "While the essays cover a range of topics, I categorize them into four parts - investment philosophy, psychology of investing, innovation and competitive strategy, and science and complexity theory. Consider these compartments in a toolbox, each addressing a distinct facet of investing."
Michael does an excellent job of explaining his multidisciplinary perspectives for investing in a very accessible and practical way - assuming very little prior knowledge. The separate essays are very focused and direct to the point, making this book very easy and relatively quick to ready. A refreshing and very interesting take on investing that can be extended to numerous other fields. A must read!
Below are key excerpts from the book that I found particularly insightful:
1- "Rubin - "It's not that results don't matter. They do. But judging solely on results is a serious deterrent to taking risks that may be necessary to making the right decision. Simply put, the way decisions are evaluated affects the way decisions are made."
2- "I would argue that many of the performance challenges in the business stem from an unhealthy balance between the profession and the business. Many of the investment managers that do beat the market seem to have the profession at the core."
3- "...The leading thinkers and practitioners from somewhat varied fields have converged on the same formula: focus not on the frequency of correctness but on the magnitude of correctness."
4- "The lesson from the process of theory building is that sound theories reflect context. Too many investors cling to attribute-based approaches and wring their hands when the market doesn't conform to what they think it should do."
5- "Investors need to pay a great deal of attention to what influences their behavior. Three of Cialdini's six tendencies are particularly relevant for investors: consistency and commitment, social validation, and scarcity."
6- "A dominant idea in Western society is that we should separate emotion and rationality. Advances in science show that such a separation is not only impossible but also undesirable. Yet successful investing requires a clear sense of probabilities and payoffs. Investors who are aware of affect are likely to make better decisions over time."
7- "In markets, a symbiotic relationship between positive and negative feedback generally prevails...But the evidence shows that positive feedback can dominate prices, if only for a short time."
8- "So The issue is not whether individuals are irrational (they are) but whether they are irrational in the same way at the same time."
9- "In effect, when the environment is uncertain, it helps to start with lots of alternatives (e.g., synaptic connections) and then select (via pruning) the ones that are best given the environment. The process is undoubtedly costly because lots of energy and resources necessarily go to waste, but it's the best one going."
10- "Chess master Bruce Pandolfini observes four behaviors that are consistent among chess champions and useful in thinking through the short-term/long-term debate. 1) Don't look too far ahead...2) Develop options and continuously revise them based on the changing conditions...3) Know your competition...4) Seek small advantages."
11- "Idea diversity allows you to find what Johnson calls "weak signals." A weak signal may be the start of a trend away from the dominant path (such as new technology or development) or the right piece of information at the right time from an unexpected source."
12- "In his 2001 letter to shareholders, Warren Buffett distinguishes between experience and exposure. Experience, of course, looks to the past and considers the probability of future outcomes based on occurrence of historical events. Exposure, on the other hand, considers the likelihood - and potential risk - of an event that history (especially recent history) may not reveal. Buffett argues that in 2001 the insurance industry assumed huge terrorism risk without commensurate premiums because it was focused on experience, not exposure."
13- "If the stock market is a system that emerges from the interaction of many different investors, then reductionism - understanding individuals - does not give a good picture of how the market works. Investors and corporate executives who pay too much attention to individuals are trying to understand markets at the wrong level. An inappropriate perspective of the market can lead to poor judgments and value-destroying decisions."
14- "The stock market has all of the characteristics of a complex adaptive system. Investors with different investment styles and time horizons (adaptive decision riles) trade with one another (aggregation), and we see fat-tail price distributions (nonlinearity) and imitation (feedback loops). An agent-based approach to understanding markets is gaining broader acceptance. But this better descriptive framework does not offer the neat solutions that the current economic models do."
Michael does an excellent job of explaining his multidisciplinary perspectives for investing in a very accessible and practical way - assuming very little prior knowledge. The separate essays are very focused and direct to the point, making this book very easy and relatively quick to ready. A refreshing and very interesting take on investing that can be extended to numerous other fields. A must read!
Below are key excerpts from the book that I found particularly insightful:
1- "Rubin - "It's not that results don't matter. They do. But judging solely on results is a serious deterrent to taking risks that may be necessary to making the right decision. Simply put, the way decisions are evaluated affects the way decisions are made."
2- "I would argue that many of the performance challenges in the business stem from an unhealthy balance between the profession and the business. Many of the investment managers that do beat the market seem to have the profession at the core."
3- "...The leading thinkers and practitioners from somewhat varied fields have converged on the same formula: focus not on the frequency of correctness but on the magnitude of correctness."
4- "The lesson from the process of theory building is that sound theories reflect context. Too many investors cling to attribute-based approaches and wring their hands when the market doesn't conform to what they think it should do."
5- "Investors need to pay a great deal of attention to what influences their behavior. Three of Cialdini's six tendencies are particularly relevant for investors: consistency and commitment, social validation, and scarcity."
6- "A dominant idea in Western society is that we should separate emotion and rationality. Advances in science show that such a separation is not only impossible but also undesirable. Yet successful investing requires a clear sense of probabilities and payoffs. Investors who are aware of affect are likely to make better decisions over time."
7- "In markets, a symbiotic relationship between positive and negative feedback generally prevails...But the evidence shows that positive feedback can dominate prices, if only for a short time."
8- "So The issue is not whether individuals are irrational (they are) but whether they are irrational in the same way at the same time."
9- "In effect, when the environment is uncertain, it helps to start with lots of alternatives (e.g., synaptic connections) and then select (via pruning) the ones that are best given the environment. The process is undoubtedly costly because lots of energy and resources necessarily go to waste, but it's the best one going."
10- "Chess master Bruce Pandolfini observes four behaviors that are consistent among chess champions and useful in thinking through the short-term/long-term debate. 1) Don't look too far ahead...2) Develop options and continuously revise them based on the changing conditions...3) Know your competition...4) Seek small advantages."
11- "Idea diversity allows you to find what Johnson calls "weak signals." A weak signal may be the start of a trend away from the dominant path (such as new technology or development) or the right piece of information at the right time from an unexpected source."
12- "In his 2001 letter to shareholders, Warren Buffett distinguishes between experience and exposure. Experience, of course, looks to the past and considers the probability of future outcomes based on occurrence of historical events. Exposure, on the other hand, considers the likelihood - and potential risk - of an event that history (especially recent history) may not reveal. Buffett argues that in 2001 the insurance industry assumed huge terrorism risk without commensurate premiums because it was focused on experience, not exposure."
13- "If the stock market is a system that emerges from the interaction of many different investors, then reductionism - understanding individuals - does not give a good picture of how the market works. Investors and corporate executives who pay too much attention to individuals are trying to understand markets at the wrong level. An inappropriate perspective of the market can lead to poor judgments and value-destroying decisions."
14- "The stock market has all of the characteristics of a complex adaptive system. Investors with different investment styles and time horizons (adaptive decision riles) trade with one another (aggregation), and we see fat-tail price distributions (nonlinearity) and imitation (feedback loops). An agent-based approach to understanding markets is gaining broader acceptance. But this better descriptive framework does not offer the neat solutions that the current economic models do."
August 26, 2012
Another finance book with less than everyone knows.
The author is under the delusion that volatility,
is RISK. p 53
the author frequently talks about how stock turnover has increased greatly from the early 1970's to the present.
He doesn't seem to know that until 1975,
stock commissions were fixed at a very high price.
In 1975 deregulation occurred with commissions plunging,
also the bid/ask spread went from 12.5 cents on NY stocks
and 50 cents on NASDAQ stocks to 1-2 cents a share.
When I started out buying stocks at age 14,
I figured a NYSE stock had to go up more than a dollar a share just to break even.
Now it only needs to go up a nickel a share.
So yes, my turnover is a lot more than pre 1975,
along with everyone else.
In any case, who cares about turnover?
Does it make any difference?
Management wasn't any more interested in stockholders when turnover was low than now.
Management in the modern corporation is divorced from ownership.
They only care about themselves.
And their precious stock options,
which they sell as quickly as they can,
so they don't align managements interests with that of stockholders.
Which management falsely claims they do.
He complains about how stock prices don't follow a standard
bell shaped curve, thus standard deviation,
which was crafted for the standard bell curve doesn't work well for stock returns.
OK, I agree, lots of people know this,
hasn't anyone made a new improved SD for stock returns?
It shouldn't be that hard for even an average mathematician.
Finally, there doesn't seem to be coherence through out the book,
it reads like a bunch of post it notes,
strung along.
The author is under the delusion that volatility,
is RISK. p 53
the author frequently talks about how stock turnover has increased greatly from the early 1970's to the present.
He doesn't seem to know that until 1975,
stock commissions were fixed at a very high price.
In 1975 deregulation occurred with commissions plunging,
also the bid/ask spread went from 12.5 cents on NY stocks
and 50 cents on NASDAQ stocks to 1-2 cents a share.
When I started out buying stocks at age 14,
I figured a NYSE stock had to go up more than a dollar a share just to break even.
Now it only needs to go up a nickel a share.
So yes, my turnover is a lot more than pre 1975,
along with everyone else.
In any case, who cares about turnover?
Does it make any difference?
Management wasn't any more interested in stockholders when turnover was low than now.
Management in the modern corporation is divorced from ownership.
They only care about themselves.
And their precious stock options,
which they sell as quickly as they can,
so they don't align managements interests with that of stockholders.
Which management falsely claims they do.
He complains about how stock prices don't follow a standard
bell shaped curve, thus standard deviation,
which was crafted for the standard bell curve doesn't work well for stock returns.
OK, I agree, lots of people know this,
hasn't anyone made a new improved SD for stock returns?
It shouldn't be that hard for even an average mathematician.
Finally, there doesn't seem to be coherence through out the book,
it reads like a bunch of post it notes,
strung along.
December 24, 2009
I liked this interesting book by the "Chief Investment Stratigest" as Leggs Mason and Columbia Business School professor. It is a collection of quick essays (blog posts?) on different topics -- some not normally associated with investing -- and how they might be applied to investing. A lot of the essays deal with one facet or another of behavioral science, but things get more interesting when he muses on things like Zipf's power law, the accelerating rate of innovation, and decision making in the military.
I tried to read straight through but eventually found myself skipping around because not all the essays could hold my attention. I found some of the essays frustratingly superficial and even some of the thoughts on how to apply a topic to investing felt kind of tacked on.
I would have much rather read a book that touches on fewer topics with more development. Still, I'm always glad to read a book by someone with a genuinely curious mind like Mr. Mauboussin's.
I tried to read straight through but eventually found myself skipping around because not all the essays could hold my attention. I found some of the essays frustratingly superficial and even some of the thoughts on how to apply a topic to investing felt kind of tacked on.
I would have much rather read a book that touches on fewer topics with more development. Still, I'm always glad to read a book by someone with a genuinely curious mind like Mr. Mauboussin's.
December 29, 2019
OK introduction to lots of "scientifical" concepts.
Ultimately doesn't add much of practical value beyond other things out there.
Ultimately doesn't add much of practical value beyond other things out there.
September 16, 2013
Too theoretical for me. I kept glancing over each chapter and once in a while, I would bore down into what the author was trying to say.
So, sure, there are interesting things in the book.
A good way to approach this book is in the form of multi-disciplinary learning; the book refreshes one's mind towards the various facets of investing and how it is not so much about the numbers.
So, sure, there are interesting things in the book.
A good way to approach this book is in the form of multi-disciplinary learning; the book refreshes one's mind towards the various facets of investing and how it is not so much about the numbers.
July 10, 2018
4.5 stars. This is a collection of 38 essays about the complexity of markets and connections with other disciplines. I thought some of the essays were brilliant while others felt more ordinary or needed to go more in-depth. The ones I especially enjoyed were chapters:
1 Process and Outcome in Investing
2 Investing - Profession or Business?
3 Frequency Versus Magnitude in Expected Value
5 Risk, Uncertainty and Prediction in Investing
9 Management Evaluation and the Investment Process
12 Emotion and Intuition in Decision Making
14 Misuse of Behavioral Finance Can Lead to Bad Thinking
17 Weighted Watcher
18 Why Innovation is Inevitable
19 What Brain Development Teaches Us About Innovation
33 Why Listening to Individuals Can Be Hazardous to Your Wealth
1 Process and Outcome in Investing
2 Investing - Profession or Business?
3 Frequency Versus Magnitude in Expected Value
5 Risk, Uncertainty and Prediction in Investing
9 Management Evaluation and the Investment Process
12 Emotion and Intuition in Decision Making
14 Misuse of Behavioral Finance Can Lead to Bad Thinking
17 Weighted Watcher
18 Why Innovation is Inevitable
19 What Brain Development Teaches Us About Innovation
33 Why Listening to Individuals Can Be Hazardous to Your Wealth
April 18, 2023
This isn't a book to learn directly from because it just contains short nuggets about topics concerning investing but it's a great resource to expand your map on luck/statistics/probability, charting/presentation, math, psychology, economics, etc. and to persuade how much universal wisdom is needed to beat the market. Its recommended readings/references are golden.
April 20, 2022
Good ideas but felt scattered
December 20, 2021
I try to read everything that Michael Mauboussin writes. His multidisciplinary way of looking at the world and wide range of research interests I think makes him one of the most unique voices in the investment community. More Than You Know is a collection of some of his best writing from his days in Credit Suisse First Boston and covers a broad range of topics from investment philosophy, psychology, innovation, competitive strategy, science and complexity theory. All the essays are very focused and straight to the point, making the book easy and relatively quick to ready. I thought every piece had some great insights but what I enjoyed the most were his essays on complexity theory, drawing on lessons from biology, complex adaptive systems and his work at the Santa Fe Institute. One of my favourites is titled “Pruned for Performance”, which draws parallels between brain development and industry innovation:
“When the environment is uncertain, it helps to start with lots of alternatives (e.g. synaptic connections) and then select (via pruning) the ones that are best given the environment. The process is undoubtedly costly because lots of energy and resources necessarily go to waste, but it’s the best one going.”
It is a refreshing and very interesting take on investing that can be extended to numerous other fields. Highly recommend.
This review (along with others) was also posted on my blog:
https://punchcardinvestor.substack.co...
“When the environment is uncertain, it helps to start with lots of alternatives (e.g. synaptic connections) and then select (via pruning) the ones that are best given the environment. The process is undoubtedly costly because lots of energy and resources necessarily go to waste, but it’s the best one going.”
It is a refreshing and very interesting take on investing that can be extended to numerous other fields. Highly recommend.
This review (along with others) was also posted on my blog:
https://punchcardinvestor.substack.co...
November 21, 2011
A little shallow, but some interesting ideas from a range of fields (genetics, baseball, gambling, basketball, etc...) applied to investing. Given his unassuming and entertaining writing style, I was surprising to learn that Mauboussin is the "Chief Investment Strategist" at Legg Mason and previously at Credit Suisse. He also doubles as a Columbia Business School professor.
One of the better essays is a discussion on Outcome vs. Process taken from Moneyball that now appears in several other books. This is a very powerful approach to thinking about investing and the book is almost worth reading based on just this essay. Other essays are a little more forced as the author tries to show that every discipline can teach us something about investing.
In general More than You Know felt more like a blog than a book, but nevertheless I found it refreshing and unique.
One of the better essays is a discussion on Outcome vs. Process taken from Moneyball that now appears in several other books. This is a very powerful approach to thinking about investing and the book is almost worth reading based on just this essay. Other essays are a little more forced as the author tries to show that every discipline can teach us something about investing.
In general More than You Know felt more like a blog than a book, but nevertheless I found it refreshing and unique.
August 3, 2007
Mauboussin's book draws on his diverse knowledge of biological, psychological, demographic, and historical fields of study to argue that investment process can be observed in many places outside of business.
His sweeping discussion, from behaviorial finance/economics to biological Darwinism and choice, offers insight to investors that seek to understand the decision trees we subconsciously follow that affect our perception of risk/reward in an uncertain world.
Arguing for a multi-disciplinary approach to investment process, Mauboussin summarizes a wide body of research and thinking that has rarely been so cleverly applied to investment theory.
His sweeping discussion, from behaviorial finance/economics to biological Darwinism and choice, offers insight to investors that seek to understand the decision trees we subconsciously follow that affect our perception of risk/reward in an uncertain world.
Arguing for a multi-disciplinary approach to investment process, Mauboussin summarizes a wide body of research and thinking that has rarely been so cleverly applied to investment theory.
October 1, 2019
If you are new to investing (maybe started reading about it less than 2 years ago) this book can easily get a higher rating.
But if you've read 10+ books on the subject, this book just doesn't pack enough content. It's too superficial. There are the mandatory Buffett mentions/quotes and warnings not to follow herd mentality.
Since I have a tendency to rate most books I read as 3, 4 or 5 stars, I need to do sth to get a more sound average...
2/5 is harsh, but hey, not all books are above average!
But if you've read 10+ books on the subject, this book just doesn't pack enough content. It's too superficial. There are the mandatory Buffett mentions/quotes and warnings not to follow herd mentality.
Since I have a tendency to rate most books I read as 3, 4 or 5 stars, I need to do sth to get a more sound average...
2/5 is harsh, but hey, not all books are above average!
October 3, 2011
After reading this book, it went immediately into my personal list of the top 10 of investment books.
The author doesn't miss any FUNDAMENTAL point in investing. My personal favorites:
- Process and Outcome in Investing*
- Frequency Versus Magnitude
- Risk and Uncertainty
- Emotion and Decision Making
- The Hot Hand
* the whole chapter is on [...] - I only glanced at the site and new immediately that I had to buy this outstanding book
The author doesn't miss any FUNDAMENTAL point in investing. My personal favorites:
- Process and Outcome in Investing*
- Frequency Versus Magnitude
- Risk and Uncertainty
- Emotion and Decision Making
- The Hot Hand
* the whole chapter is on [...] - I only glanced at the site and new immediately that I had to buy this outstanding book
February 4, 2017
This is a good book that suffers from two things. First, it's an assembly of articles and that makes it a bit too thick and lacks a thread that runs through. Second, the margins are too narrow for excessive note taking.
The book is an opportunity to learn many things, but it could be structured better.
The book is an opportunity to learn many things, but it could be structured better.
October 5, 2009
Got tied up awhile... took me bout a month to finish this book @@
Anyway this book serves a nice guidance for ur future ref/thinking. The author studied/look into many other areas when writing this book. Behavioral econs concepts are constantly applied. If you like the ideas from diverse areas, I think you will enjoy this :)
Anyway this book serves a nice guidance for ur future ref/thinking. The author studied/look into many other areas when writing this book. Behavioral econs concepts are constantly applied. If you like the ideas from diverse areas, I think you will enjoy this :)
August 4, 2008
Great book. Mauboussin brings a refreshing and unique prespective into how we should think about the capital markets.
May 8, 2009
This book was included in my book: The 100 Best Business Books of All Time. www.100bestbiz.com
March 10, 2015
It was an ok group of thoughts on how other concepts apply to investing. Overall, I found that it just made tons of generalized statements that didn't really educate the reader all that much
August 23, 2018
As a leading thinker on investments Michael Mauboussin, strategist at Legg Mason and formerly at Credit Suisse First Boston, has through his widely read writings influenced how equities are viewed today. This book is an inspiring tour on a number of topics related to investment philosophy and strategy, market psychology, risk and equity analysis - often presented with a fun and surprising new perspective.
The main insight of Mauboussin’s work is that you will become a better investor with a deeper understanding if you approach problems from a multidisciplinary perspective. With more tools at hand you are more effective as problems vary. Charlie Munger who has been one of the most prominent proponents of this thought has stated that investors should aspire to build a number of mental models from various academic and practical disciplines. It’s often through the unexpected merger of knowledge from different areas that innovation & new thinking are born.
The book consists of a number of collected essays that were originally written while the author was working at CSFB. These have then been edited and placed in five chapters after different types of topics. In his foreword Mauboussin singles out Al Rappaport of Harvard and Bill Miller at Legg Mason as important influences. It is therefore not surprising to find value based management and so called complexity theory as two of the most important topics discussed.
The first part of the book however, covers investment philosophy where the content of the essays often narrows in on the statistical aspects of investing. With examples from gambling and behavioural finance, investors’ and their managers’ understanding – or rather lack of understanding - of the statistical nature of their profession is exposed. In the chapters on investment psychology examples are instead taken from biological swarm studies and experiments within neurology. Mauboussin is mostly interested in collective behaviour and is somewhat critical towards much work within behavioural finance that is too focused on the individual. Irrational investors do not necessarily accumulate into irrational markets.
Mauboussin’s most important work relates to complexity theory. Drawing on lessons from biology, chaos theory and work done at Santa Fe Institute, so called complex adaptive systems points to a stock market that produces something larger than its parts. The system shows non-linear causalities with unstable feed-back loops and so called “fat tails” as results. As the system to a large extent is made up by the interaction between the agents included in the system, it is not possible to understand it through studies of the individual parts. This alternative way of understanding markets, which resonates well with George Soros reflexivity theory, will equip you with a variant perception compared to many others on the stock market. This in itself could give you an edge as an investor.
This book is not the usual academic behavioural finance text. As the essays are written at a bank and the target audience are investors it is also a practical text. After discussing a behavioural quirk or describing a feature of the market, Mauboussin not only goes on to explain what this means for investors but also gives advice on remedies and measures to handle the topic at hand. The combination of odd angels, deep thinking and practical advice in this book is hard to top.
In my view complex adaptive systems is a better way to describe financial markets than the so called modern portfolio theory. Nowhere will you pick up on this important topic and have more fun at the same time than in More Than You Know.
The main insight of Mauboussin’s work is that you will become a better investor with a deeper understanding if you approach problems from a multidisciplinary perspective. With more tools at hand you are more effective as problems vary. Charlie Munger who has been one of the most prominent proponents of this thought has stated that investors should aspire to build a number of mental models from various academic and practical disciplines. It’s often through the unexpected merger of knowledge from different areas that innovation & new thinking are born.
The book consists of a number of collected essays that were originally written while the author was working at CSFB. These have then been edited and placed in five chapters after different types of topics. In his foreword Mauboussin singles out Al Rappaport of Harvard and Bill Miller at Legg Mason as important influences. It is therefore not surprising to find value based management and so called complexity theory as two of the most important topics discussed.
The first part of the book however, covers investment philosophy where the content of the essays often narrows in on the statistical aspects of investing. With examples from gambling and behavioural finance, investors’ and their managers’ understanding – or rather lack of understanding - of the statistical nature of their profession is exposed. In the chapters on investment psychology examples are instead taken from biological swarm studies and experiments within neurology. Mauboussin is mostly interested in collective behaviour and is somewhat critical towards much work within behavioural finance that is too focused on the individual. Irrational investors do not necessarily accumulate into irrational markets.
Mauboussin’s most important work relates to complexity theory. Drawing on lessons from biology, chaos theory and work done at Santa Fe Institute, so called complex adaptive systems points to a stock market that produces something larger than its parts. The system shows non-linear causalities with unstable feed-back loops and so called “fat tails” as results. As the system to a large extent is made up by the interaction between the agents included in the system, it is not possible to understand it through studies of the individual parts. This alternative way of understanding markets, which resonates well with George Soros reflexivity theory, will equip you with a variant perception compared to many others on the stock market. This in itself could give you an edge as an investor.
This book is not the usual academic behavioural finance text. As the essays are written at a bank and the target audience are investors it is also a practical text. After discussing a behavioural quirk or describing a feature of the market, Mauboussin not only goes on to explain what this means for investors but also gives advice on remedies and measures to handle the topic at hand. The combination of odd angels, deep thinking and practical advice in this book is hard to top.
In my view complex adaptive systems is a better way to describe financial markets than the so called modern portfolio theory. Nowhere will you pick up on this important topic and have more fun at the same time than in More Than You Know.
April 10, 2021
Mindexpanding
Like all of the author’s writing, this book is filled with thought provoking views of the market. Drawing from a diverse cross section of fields, the author makes compelling cases for when markets are, and are not efficient, and the limits of classical finance views of markets. Some ideas I hope to remember:
1. While random chance should produce streaks, streaks are much more likely to occur when luck is layered on a degree of skill. Said another way, streaks are likely a good indicator of skill.
2. Markets are complex adaptive systems, which should not be expected to follow simple Newtonian cause and effect, but are the aggregate of individual agents. Consequentially, small changes in information can have disproportionate impacts to the market, and markets will not necessarily reflect the sum of individual agent behavior.
3. Historical averages are meaningless if the components are not stationary. Since inflation, interest rates, taxes and accounting very over time, earnings vary over time relative to firm performance, so looking at historical average PEs is unlikely to be meaningful.
4. Markets are more efficient when agents with a diverse array of strategies participate, the errors in their actions cancel each other out. Markets are less efficient when there is style convergence, or the exit of participants with divergent styles, resulting in bearding behavior. This may explain the fat tails of market returns that differ from the assumption of a normal distribution.
5. Company size follows a power law, which seems to be fixed over time. Larger companies tend to grow more slowly, or at least with more variance, than smaller firms. Markets that assume growth that implies lots of large companies are probably wrong.
6. Investors are prone to assume linearity. Whereas company growth tends to follow and S-curve. This means people will underestimate the growth potential of fast growing firms and overestimate growth as markets mature.
7. Expected return is a function of both firm cash flow generation potential and expectations of firm cash flow return. It’s important to understand expectations built into a share price when determining when to invest.
8. Models that imply a point valuation for a security are less useful than models that compute valuation across multiple scenarios and assign probabilities to each scenario. It may be useful for investment firms to have multiple analysts develop firm performance models, then have a third party assign probabilities to each scenario, approximating a double blind scientific
process.
Like all of the author’s writing, this book is filled with thought provoking views of the market. Drawing from a diverse cross section of fields, the author makes compelling cases for when markets are, and are not efficient, and the limits of classical finance views of markets. Some ideas I hope to remember:
1. While random chance should produce streaks, streaks are much more likely to occur when luck is layered on a degree of skill. Said another way, streaks are likely a good indicator of skill.
2. Markets are complex adaptive systems, which should not be expected to follow simple Newtonian cause and effect, but are the aggregate of individual agents. Consequentially, small changes in information can have disproportionate impacts to the market, and markets will not necessarily reflect the sum of individual agent behavior.
3. Historical averages are meaningless if the components are not stationary. Since inflation, interest rates, taxes and accounting very over time, earnings vary over time relative to firm performance, so looking at historical average PEs is unlikely to be meaningful.
4. Markets are more efficient when agents with a diverse array of strategies participate, the errors in their actions cancel each other out. Markets are less efficient when there is style convergence, or the exit of participants with divergent styles, resulting in bearding behavior. This may explain the fat tails of market returns that differ from the assumption of a normal distribution.
5. Company size follows a power law, which seems to be fixed over time. Larger companies tend to grow more slowly, or at least with more variance, than smaller firms. Markets that assume growth that implies lots of large companies are probably wrong.
6. Investors are prone to assume linearity. Whereas company growth tends to follow and S-curve. This means people will underestimate the growth potential of fast growing firms and overestimate growth as markets mature.
7. Expected return is a function of both firm cash flow generation potential and expectations of firm cash flow return. It’s important to understand expectations built into a share price when determining when to invest.
8. Models that imply a point valuation for a security are less useful than models that compute valuation across multiple scenarios and assign probabilities to each scenario. It may be useful for investment firms to have multiple analysts develop firm performance models, then have a third party assign probabilities to each scenario, approximating a double blind scientific
process.
December 17, 2019
Not the best book I’ve ever read. Not terrible either. Mauboussin is an experienced and creative thinking investor with a number of great insights – I’ve listed a few random ones below. I just didn’t really get into the book and it took a while to read so there wasn’t much enjoyment.
Investing is more about temperament than intelligence. Once you’ve established a foundation, learning, hard work, focus, patience and experience get you over the line.
You’ll be a better investor if you approach problems with a multi-disciplinary perspective.
Don’t assess investment outcomes, asses the decision-making process. Good decisions can result in bad outcomes and bad decisions can result in good outcomes. Good decisions are a matter of weighing probabilities. Uncertainty always exists.
Part of the problem with active managers is navigating the shift from investment profession to an investment management business, where the focus changes from long-term investment returns to generating earnings. Maximising the business value involves; more relationship managers because retention boosts profits, cross-selling products, developing a brand, expanding into new markets, strong relations with investment consultants, growing products lines to diversify revenue streams and sticking close to the index in order to reduce business risk. Most of these goals compromise investment returns, making it difficult to beat the market.
Babe Ruth effect: win big when you win and you don’t need to be right all of the time.
Past averages are only relevant if they capture current circumstances.
We need to be aware of our need, as humans, to explain all outcomes, to rationalise. Awareness of this need can be an inoculation against making mistakes. Investors who insist on understanding the causes for market moves risk focusing on faulty causality or inappropriately anchoring on false explanations. Complex adaptive systems don’t accommodate cause and effect calculations at every turn.
https://pricelesseconomics.wordpress....
Investing is more about temperament than intelligence. Once you’ve established a foundation, learning, hard work, focus, patience and experience get you over the line.
You’ll be a better investor if you approach problems with a multi-disciplinary perspective.
Don’t assess investment outcomes, asses the decision-making process. Good decisions can result in bad outcomes and bad decisions can result in good outcomes. Good decisions are a matter of weighing probabilities. Uncertainty always exists.
Part of the problem with active managers is navigating the shift from investment profession to an investment management business, where the focus changes from long-term investment returns to generating earnings. Maximising the business value involves; more relationship managers because retention boosts profits, cross-selling products, developing a brand, expanding into new markets, strong relations with investment consultants, growing products lines to diversify revenue streams and sticking close to the index in order to reduce business risk. Most of these goals compromise investment returns, making it difficult to beat the market.
Babe Ruth effect: win big when you win and you don’t need to be right all of the time.
Past averages are only relevant if they capture current circumstances.
We need to be aware of our need, as humans, to explain all outcomes, to rationalise. Awareness of this need can be an inoculation against making mistakes. Investors who insist on understanding the causes for market moves risk focusing on faulty causality or inappropriately anchoring on false explanations. Complex adaptive systems don’t accommodate cause and effect calculations at every turn.
https://pricelesseconomics.wordpress....
January 12, 2019
This book came highly recommended, so I bought it with high expectation. However, I came away disappointed. The idea of this book is good, chapters structure well defined and the concepts within are important to all investors. However, I just wish the writing can be better. At time I even wonder if the author tried deliberately to make it hard to understand. It is like solving puzzles in each chapters and only after you read 2 times you have this " oh this is what you want to talk about". Very irritating and a waste of time. Especially after reading Buffett and Dalio, I appreciate just how hard it is to find great teachers who could translate their smarts into good writing. I'm sure the author is a very smart person but man this book is tough to finish, which sadly reminded me exactly of most sell side research.
January 11, 2019
One of the first investing book I believe investor/trader must read before put money into the market.
The book covers essential topics such as:
- Fundamental concepts in investing: Process vs. Outcome
- Frequency of correctness vs Magnitude of correctness
- A shift from Attribute- to Circumstance-based thinking
- The distinctions between Risk and Uncertainty
- Valuation depends on your time horizon
- 3 areas for careful consideration: Management's Leadership, Incentives, and Capital Allocation skills
- Psychology of Investing
- What Influences Investors' Behavior
- Emotion and Intuition in Decision Making
- Innovation & Competitive strategy
- The Role of Cause and Effect in Markets
The book covers essential topics such as:
- Fundamental concepts in investing: Process vs. Outcome
- Frequency of correctness vs Magnitude of correctness
- A shift from Attribute- to Circumstance-based thinking
- The distinctions between Risk and Uncertainty
- Valuation depends on your time horizon
- 3 areas for careful consideration: Management's Leadership, Incentives, and Capital Allocation skills
- Psychology of Investing
- What Influences Investors' Behavior
- Emotion and Intuition in Decision Making
- Innovation & Competitive strategy
- The Role of Cause and Effect in Markets
May 6, 2019
This book is based on the idea of consilience - lessons learned from findings in various fields of science and applied in investing in financial markets. The author draws on multiple research results and presents them as convincing examples of how they could be used by investors. It's like reading about some overarching rules that are reliable over the long haul and should be used by investors as the foundations for their models or systems.
July 23, 2021
Michael Mauboussin is an awesome writer, and I love his books. Not only is he filled with knowledge and wisdom, but he breaks topics down in a great way that anyone can digest. It took me a while to read this book, but that’s only because I overdosed on books about investing and trading. Once I picked it back up, I binged it. This is a fantastic book with short chapters giving you tidbits of wisdom about how markets work so you can make better decisions when investing and trading.
December 31, 2023
Audible version is terrible (monotonous voice) so nearly abandoned but switched to reading the book at it became enjoyable and much more interesting. This is a very good reference book that looks at investing from various points of view some of which are less conventional. It summarizes a lot of key concepts across various fields and ties them back to security analysis in an insightful way. Reason I’m giving it four not five stars is it’s unclear how this book will age.
January 22, 2024
The central theme of this book is that we are likely to find unconventional ideas in unconventional places, and drives home the point that we need to keep an open mind and study broader areas instead of focusing on gaining expertise in a few narrow topics.
It's written from an investor's perspective but similarities can be drawn to other walks of life as well.
It touches on a wide range of topics, written in a simple language but gets too complex/technical at times.
It's written from an investor's perspective but similarities can be drawn to other walks of life as well.
It touches on a wide range of topics, written in a simple language but gets too complex/technical at times.
June 29, 2017
Loved the research and the insight through market lessons and company dynamics. Interesting comparisons to the Animal Kingdom.
The author incorporate insight from Benoit Mandelbrot and Fractals, which are a natural phenomenon seen in the stock market and other aspects of life.
If you like investing or valuing companies, the book gives you a fresh perspective.
The author incorporate insight from Benoit Mandelbrot and Fractals, which are a natural phenomenon seen in the stock market and other aspects of life.
If you like investing or valuing companies, the book gives you a fresh perspective.
January 5, 2019
A must read if you are at all interested in finance and investing. It covers so many of my favourite topics like probabilities, behavioral psychology, chaos theory, power laws, complexity, etc... and relates them back to the world of investing. The main thesis of the book is that a multidisciplinary approach is best when dealing with complex systems like the stock market.
May 11, 2019
I really enjoy the multidisciplinary approach Mauboussin brings to investment analysis. This book contains a nice introductory level description of numerous concepts across the social and physical sciences and their applications to investing. I’d say this book is more of a starting point to uncover topics that resonate, and then one must go deeper separately. Entertaining and quick read.
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