Michael Mauboussin
@mjmauboussin
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Decisions, books, investing, mental models, complex adaptive systems, skill, luck. Adjunct Prof @Columbia_Biz and Chairman Emeritus of the Board @sfiscience
Joined July 2012
Some of my favorite books from 2024 (in no particular order): A Brief History of Intelligence by @maxsbennett .If you have an interest in evolution, the mind, and artificial intelligence, this one is for you. I would love to take a course based on this book
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Some of my favorite books from 2023 (in no particular order): .Outlive by @PeterAttiaMD .Changed some of my behaviors as a result of reading it
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I was fortunate to spend time with Charlie Munger this summer through the generosity of John Conlin. I don’t think there’s anyone in the investing world who has had a bigger impact on my outlook than Charlie. A life well lived.
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When I see people throw around EV/EBITDA multiples, I always wonder if they are aware of how much is EBIT, how much is DA, and why it matters
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Tonight I start my course @Columbia_Biz. This is my 27th consecutive year teaching Security Analysis and a good time to take stock of what has changed and what has stayed the same over the years
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Like other finance professors, I did the obligatory coin toss exercise with my students @Columbia_Biz last night to demonstrate the role of randomness. One student called 9 correctly in a row. Yeah, don't bother: her fund is now closed to new investors.
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1/ Some thoughts on recent results in the stock market. If you are an investor (as opposed to a speculator) remember that you are buying partial stakes in *businesses.* Would you be comfortable owning the business for years to come if there were no stock price?.
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Cockpit checklist complete. Year 29 of Security Analysis @Columbia_Biz ready for takeoff. Excited and nervous as always.
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Capital allocation is one of management's prime tasks. Today we are publishing our most comprehensive research ever on capital allocation: "Capital Allocation: Results, Analysis, and Assessment.".
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Lots of butterflies as I prepare for my 31st consecutive year teaching Security Analysis @Columbia_Biz and @CenterDodd starting tonight. Material is better than ever and I couldn't be more excited. I found my lecture notes from 1993-pre-Internet and widespread use of PowerPoint!
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Jeff Bezos discussing free cash flow per share versus earnings per share. A basic, but often overlooked, lesson.
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Most investors value stocks using multiples and seek to distinguish between value and growth stocks. But multiples obscure the drivers of value and few investors have a sense of how revisions in expectations for those drivers change multiples. Our latest.
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Attention valuation fans: we have a new report out today on return on invested capital (ROIC). It updates and extends work from 2014.
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Your annual reminder that there is no correlation between returns from one year to the next.
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Value investor's dream: amazing compilation of writings by @AustinValue .Don't click unless you have time to spend.
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I really enjoyed Buffett's Early Investments by @brettgardner_10. He does a great job presenting the quantitative and qualitative factors associated with some of Warren Buffett's early investments. Buffett did a lot of research and was active with management. Also very fun to
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Our latest is a short book on a fascinating topic: "Public to Private Equity in the United States: A Long-Term Look." A multi-decade look at public equities, buyouts, and venture capital in the U.S. Lots of cool stuff in here.
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Earlier this month I wrapped up my 30th consecutive year of teaching Security Analysis @Columbia_Biz. I am often asked how the curriculum has changed over the decades. Here are some thoughts. The course has four sections - the first is on markets (i.e., are markets efficient?).
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Your annual reminder that what the stock market does this year tells you essentially nothing about what the stock market will do next year. @ritholtz
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Calling all valuation fans: Our latest on EV/EBITDA - often used and abused.
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Our latest, The Economics of Customer Businesses, is out. It is based on the principles of customer-based corporate valuation (CBCV). I benefitted from lots of conversations with @d_mccar and @trengriffin, as well as the work of @faderp and @rgmarkey.
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Our latest, Everything is a DCF Model, encourages a return to first principles. References to John Burr Williams, Ben Graham, and Aesop. Title inspired by the great @matt_levine.
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1/Tonight I start Security Analysis @Columbia_Biz. This is my 28th consecutive year teaching the course and I am as nervous as ever. Preparation always provides a wonderful opportunity to take stock of process.
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Just finished "Behave" by the brilliant Robert Sapolsky. The best book I have ever read on human behavior. Sapolsky is an amazing teacher.
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Valuation comparisons around the world commonly fail to consider the role of ROIC in determining multiples. ROIC > cost of capital, growth, and sustainability of returns are all important value drivers.
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I have a short piece in the @financialtimes on value investing. "Why value investing still works in markets" @Columbia_Biz.
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Preparing to teach Security Analysis for the 26th straight year @Columbia_Biz. Some of the books on the shelf.
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Really fun lunch, with discussion of business, human nature, incentives, science, and managerial assessment. Lots of connection between mental models and the Santa Fe Institute, so great to have the president of @sfiscience, David Krakauer, as part of the dialogue.
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Some books that helped me think better in 2018. Thanks to @sapinker @JonHaidt @glukianoff @Scott_E_Page @michaelpollan @AnnieDuke
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We have a new piece out today on intangible investments - measuring them, their characteristics, and the implications for investors. A really important topic for all investors to understand.
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One of the best ways to improve the quality of your decisions is to keep track of what you decided and why, with details about what you expect to happen. It's also valuable to express the likelihood of outcomes using probabilities rather than vague verbiage (see @PTetlock).
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The Success Equation is available on for $11.66. I'm talking my book (literally), but this seems like a pretty good deal!.
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A great book for anyone who strives to think well. Richard Zeckhauser has made important contributions to multiple fields, is a champion bridge player, and is very fun to be around. A true gem as a thinker and as a person.
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I loved this book by @maxsbennett and learned a lot. Highly recommended for those interested in neuroscience, evolution, and artificial intelligence.
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The news that Berkshire Hathaway bought a stake in Domino's Pizza provides an opportunity to apply the process of expectations investing as this company served as the case study in the revised and updated version of Expectations Investing (co-authored with Al Rappaport).
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Every now and then, a book comes out and I think, “I will be much smarter if I understand the ideas in here.” @Scott_E_Page ‘s new book is one of those. Buy it and study it. @sfiscience @UMich
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For students and educators: Al Rappaport and I want to make sure the ideas in Expectations Investing are accessible and practical. To that end, we have a complementary website that includes tutorials with spreadsheets that can be downloaded:
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We have a new report out today, "Birth, Death, and Wealth Creation," on the the demographics of public companies and their patterns of wealth creation.
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Personal news: This week I joined Counterpoint Global as Head of Consilient Research. A wonderful team and I look forward to publishing much more in the months and years to come.
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1/Nick Saban, coach of the Alabama football team, is asked: "How has your own approach to coaching changed over the years?" He replies: "I’ve actually become, through the years and through the experiences, a lot less outcome-oriented and a lot more process-oriented.".
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Warren Buffett’s First Television Interview - Discussing Timeless Investment Principles
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Interesting markets and a new year --> good time to reread:.Intelligent Investor by Graham.Chapter 8 - The Investor and Market Fluctuations .Chapter 20 - Margin of Safety as the Central Concept of Investment.General Theory by Keynes.Chapter 12 - The State of Long-Term Expectation.
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We just relaunched my website, I am often asked where readers can access past material. Mayur Jain did an incredible job of assembling old work, which you can find in the "Writing" section. My youngest son Patrick built this, taking over from @amaub.
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An extraordinary collection of lessons that Danny Kahneman imparted. Worth reading and celebrating an extraordinary life:
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Here we go again! Tonight I start teaching Security Analysis @Columbia_Biz for the 32nd consecutive year. I am always excited and nervous in anticipation. Ben Graham started teach "Advanced Security Analysis" in 1927 at the extension school of Columbia College @CenterDodd.
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The new (7th) edition of Security Analysis is out, nearly 90 years after the original. Edited by Seth Klarman. A great blend of timeless wisdom and contemporary commentary. The contribution by Todd Combs, "Finding Value in Common Stocks," is my favorite:
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This book is next on my reading list. I really have no choice.
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We have a new report out on dispersion and the opportunity to express skill. Also provides some structure for thinking about process via batting average, slugging ratio, and where opportunities exist.
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Outstanding Investor Digest was one of my favorite investment-related newsletters in the 1990s. Thanks to Adam Mead (@BRK_Student) for making many of the past issues available: Students of investing will enjoy this resource.
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Much of the discussion about share buybacks (and dividends) is painful, including comments from some who are ok with them. It’s worth slowing down and understanding the concepts. Here’s a piece that addresses FAQ.
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Check out our latest report on market (in)efficiency. Discusses Behavioral, Analytical, Informational, and Technical inefficiencies and provides a checklist to assess edge by answering the question: "Who is on the other side?"
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We have a new report out today. This one extends our analysis of the return on invested capital (ROIC) for public companies in the U.S. and updates the data to cover the years 1990 to 2022.
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1/We have a new piece out today that combines two important ideas: the rise of intangible assets and the use of base rates
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The confusion and sloppy thinking about share buybacks is remarkable. The proposed excise tax on share buybacks is further evidence of this.
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Good time for wisdom from Ben Graham: "Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.".
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Listened to @patrick_oshag podcast with @bgurley and @chetanp, which was terrific. Chetan made a point that in his experience, companies can fail to consider a range of scenarios that is wide enough. Use the picture to guide your analysis:
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1/ Attention valuation nerds (normal people can safely ignore): A new paper by Venkat Peddireddy on estimating maintenance capital expenditures. A simple assumption in many models is that maintenance cap ex = depreciation and amortization. That's off.
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A couple of weeks ago I mentioned Jeff Friedman's book, War and Chance. It's about uncertainty in international politics, but has a lot of application to thinking about businesses and investing. Some thoughts:.
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1/ Just a quick reminder that negative free cash flow is not bad in and of itself. The key question is whether investments will pay off. To answer that you need to understanding the basic unit of economic analysis - i.e., how the company makes money.
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Got my first copy today. Excited for the book to ship next week.
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1/ Every now and then, I read a book that I have a hard time getting out of my head. So it is with Keith Stanovich's latest book, "The Bias That Divides Us" about "myside bias," a specific form of confirmation bias .
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It's happening. Expectations Investing: Reading Stock Prices for Better Returns, Revised and Updated @ColumbiaBizPub
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Recently, I have been thinking a lot about the relationship between public and private markets over the past 50 years. Found this book very useful, and it flew under my radar until recently:.
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Here's our latest report, "Categorizing for Clarity." We argue that the statement of cash flows needs to be reorganized in order to provide greater insight into the economics of a business.
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I've said this before but it bears repeating: I got this idea, which is a good one, from @AnnieDuke!.
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1/ Do you know the difference between operating leverage and economies of scale? Seriously, take a moment to define the terms clearly (I did not know the difference for a long time and see investors use the terms interchangeably all of the time);.
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Just finished (re)reading The Autobiography of Charles Darwin. Love this passage about how he fends off confirmation bias:."I had, also, during many years, followed a golden rule, namely, that whenever a published fact, a new observation or thought came across me, which was.
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Charlie Munger in Conversation with Todd Combs | Singleton Prize for CEO Excellence - April 2022
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Valuation nerd alert: New edition of McKinsey's valuation book coming out in the spring of 2020.
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Return distribution: whaling versus venture capital. From new book by Tom Nicholas, VC: An American History.
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“The key to understanding is not intelligence, it’s humility. It’s recognizing what you don’t know.” @billjamesonline #SSAC2020.
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Last week, I asked Danny Kahneman what book he enjoyed recently. He said Loonshots by @SafiBahcall
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A highlight of my professional career was the opportunity to interview Danny Kahneman at an event for @sfiscience. A sad day for the world and an opportunity to celebrate his extraordinary contributions.
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Got to meet the GOAT (who later offered some inspirational comments) earlier this month.
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I missed this paper, "A Structured Approach to Strategic Decisions," by Danny Kahneman, @dan_lavallo and @SibOliv in @mitsmr. Good stuff:
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Part three of what has changed over 30 years of teaching Security Analysis @Columbia_Biz and @CenterDodd. The course has four sections - the third is on competitive strategy analysis (i.e., is this a good business with a sustainable competitive advantage?).
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Pleased to share our new research piece: "BIN There, Done That." Should appeal to fans of @PTetlock, Danny Kahneman, @VSatopaa, Barb Mellers, @SibOliv, @CassSunstein.
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Last day @CreditSuisse. Worked with terrific colleagues and clients, and was able to do lots of fun work. On to the next opportunity!.
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Explaining the Demise of Value Investing: "two major reasons for the demise of value: (1) accounting deficiencies causing systematic misidentification of value, and particularly of glamour (growth) stocks, and (2) fundamental economic developments . ".
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Thank you, Sanjeev. And the sense of taking time to understand ideas in a book is precisely how I felt after reading Creating Shareholder Value by Professor Alfred Rappaport.
After reading the entire book I realised that I underlined almost every sentence. Can't thank you enough @mjmauboussin . Not being an mba, it took me 1 year to fully comprehend this book. I hope it's fine to not understand a book in one go.
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@Post_Market Here was our attempt to address this very question. And being an old timer, lived through dot-com and many years before that as well. “The Math of Value and Growth”:
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Investors interested in the idea of time arbitrage should (re)read Jack Treynor's paper "Long-Term Investing" -
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Part 2 of what has changed over 30 years of teaching Security Analysis @Columbia_Biz and @CenterDodd. The course has four sections - the second is on valuation (i.e., how do we value a business--including integrating competitive advantage?).
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We had the great @B3_MillerValue join the final class of the semester @Columbia_Biz. He rarely recommends investment books, but mentioned 3: The Psychology of Money by @morganhousel; Warren Buffett: Inside the Ultimate Money Mind by @RobertGHagstrom; and . .
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Someone should write a book about this….
As a professional investor, I always use a reverse DCF to value companies. It’s the best way to think about valuation. I’ll teach you everything you need to know in 5 minutes:
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I just received my copy and am really looking forward to reading this book. Looks great. A must for anyone interested in complexity science and markets. @sfiscience
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Our latest combines an interesting valuation concept (MEROI) with the latest on measuring intangible investment. The ideas are straightforward but a little more technical than normal (heaven for valuation nerds).
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7/ Warren Buffett recommends reading 3 chapters on investing, and this is not a bad time to revisit them. Chapter 8 (Mr. Market metaphor) and Chapter 20 (Margin of Safety) in Graham's The Intelligent Investor, and Chapter 20 (Expectations/behavioral) in Keynes's General Theory.
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We have a new report out today, "Cost of Capital: A Practical Guide to Measuring Opportunity Cost." The cost of capital is notoriously difficult to pin down, but there are some ways to be sensible and practical about it
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