When Mauboussin Drops Research, Investors Listen

Michael Mauboussin's research is consistently crucial reading, making him one of the most esteemed analysts in the field.

Michael J. Mauboussin is a renowned personality in the investment world. Why so?

Currently, Mauboussin is leading Consilient Research at Counterpoint Global, which is a part of Morgan Stanley Investment Management. In addition to that, he is also a professor of finance at Columbia Business School, where he shares his extensive knowledge and experience with students. Michael possesses a remarkable talent for identifying stocks that have the potential to generate transformative returns. His strategies have been proven time and again. Therefore, he is a highly respected and sought-after figure in the investment industry.

Mauboussin is a well-known author of investment books that explore the intersection of finance, psychology, and decision-making. His books, including “Think Twice: Harnessing the Power of Counterintuition”, “The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing”, and “More Than You Know: Finding Financial Wisdom in Unexpected Places”, are popular among investors for their insightful analysis and practical advice.

Today, we look at four takeaways from the great man himself.

Open Minded

The best investors have two important qualities that make them stand out:

• They are open to different viewpoints.

• They are willing to change their minds based on new information.

These qualities are really helpful when it comes to investing because the world of investing is always changing and can be hard to understand. Many investors only pay attention to information that supports what they already believe, and they ignore anything that doesn't fit with their bias. This can lead to bad decisions and missed opportunities.

However, the best investors actively seek out different ideas and opinions. This helps them learn new things and challenges their assumptions. It also helps them understand the market better and find things they might have missed before. When investors are open to different viewpoints, they can come up with new and creative investment strategies. They can also find new insights that other investors might not see.

Hidden Opportunities

Mauboussin's investment approach is unique and insightful. He believes that there are hidden opportunities that can bring in profits during market turbulence and uncertainty.

For instance, when there is uncertainty in the market, some businesses have a better chance of success than others. This is because these businesses have the potential to take advantage of future opportunities that go beyond their current value. It's like having the option to invest in something that could give you a great return, without the obligation to do so. Companies with good management teams and access to capital are well-equipped to recognise and exploit these opportunities as they arise.

Evaluate

When it comes to investing, there are different strategies that people use. One common approach is called “value investing.” This means trying to find stocks that are worth more than their current price and buying them at a discount.

However, there's another way to think about investing that Mauboussin recommends. Instead of focusing on the intrinsic value of a stock, he suggests looking at its current market price and thinking about what might make it go up in the future. This includes looking at things like how much the company might grow, what might cause the stock price to go up, and other factors that could make it more valuable. Of course, it's important to think about how likely it is that these things will happen. Based on all of this information, investors can decide whether or not to buy the stock.

Focus On Good Decisions, Not Outcomes

Many investors make the mistake of focusing on making money without paying enough attention to how they make their investment decisions. This can lead to short-lived success that one may wrongly attribute to skill rather than luck.

It's tempting to chase good results, but successful investors know that long-term success comes from consistently making good decisions, regardless of immediate outcomes. Some investors confuse luck with skill, thinking they're better than they are when their success is largely due to chance. This can hold back long-term growth. It's important to evaluate decisions based on their quality, not just their outcomes. This approach helps investors improve and evaluate their performance more objectively. Investing is unpredictable, so it's best to make decisions based on the best information available and an understanding of the likelihood of different outcomes.

The Best Of Mauboussin

Here are three of Mauboussin’s research papers for more reading:

“Market Share” - Explores the concept of market power, which includes competitive advantages, corporate moat building, industry concentration, what makes a corporate “superstar”, and how and why those superstars can lose market share.

“Capital Allocation” - Explores capital allocation and its essential part of creating value - one of management’s prime responsibilities.

“Pattern Recognition” - Explores the powers and perils of pattern recognition, which investors often cite as a basis for action.

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