More Than You Know: Finding Financial Wisdom in Unconventional Places (Hardcover)

by Michael J. Mauboussin (Author) "I remember the exact moment the idea for The Consilient Observer hatched..." (more)
Key Phrases: standard finance theory, myopic loss aversion, stall points, Petersburg Paradox, Social Security, United States (more...)

Editorial Reviews

From Publishers Weekly
Mauboussin is not your average Wall Street equity analyst, writing investment recommendations whose topical interest wanes a few days after the report is issued. His strategy reports begin with scientific findings from diverse fields, then show why an investor should care. This book is a collection of 30 short reports, revised and updated, covering animal behavior ("Guppy Love: The Role of Imitation in Markets"), psychology ("Why Zebras Don't Get Ulcers"), philosophy of science ("The Janitor's Dream: Why Listening to Individuals Can be Hazardous to Your Wealth") and other fields. Each essay describes a fascinating scientific finding, then develops and applies it to personal investing. "Survival of the Fittest," for example, begins by discussing how Tiger Woods improved his golf swing, introduces the concept of fitness landscapes from evolutionary biology, then explains why investors in commodity-producing companies should like strong centralized management, while technology-stock buyers should prefer flexible organizations with lots of disruptive new ideas. The book is breezy and well written, but not dumbed down, and provides extensive references. It can be read for entertainment as popular science or to broaden your investment thinking. However, it suffers from a common problem among compiled essays: despite the revisions, some material is out of date and other material is repeated. (June)
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Review

"Mauboussin is not your average Wall Street equity analyst... It can be read for entertainment... or to broaden your investment thinking." -- Publisher's Weekly

"Michael Mauboussin has written the best book ever on how to think about investing...like a Ph.D. in investment wisdom." -- Bill Miller, Chairman and Chief Investment Officer, Legg Mason Capital Management

"Mauboussin has found great insights about the science of human behavior in unconventional places and has written superbly about it." -- Robert Sapolsky, Professor of neurobiology, Stanford University

"Michael Mauboussin's insights and examples speak volumes to the value of an interdisciplinary approach to understanding how choices are made." -- Geoffrey West, President and distinguished professor, Santa Fe Institute

"Few readers could come away from this book without being stimulated and intrigued." -- Philip Coggan, The Financial Times

"A refreshingly intelligent antidote... The book engagingly shows how a multidisciplinary perspective can deepen your sense of how financial markets work." -- Burton G. Malkiel, Wall Street Journal

"Written with the professional investor in mind but extends far beyond the world of economics and finances." -- Micromotives.com

See all Editorial Reviews

Product Details

• Hardcover: 268 pages
• Publisher: Columbia University Press; illustrated edition edition (April 21, 2006)
• Language: English
• ISBN-10: 0231138709
• ISBN-13: 978-0231138703
• Product Dimensions: 9.1 x 6 x 1 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 4.4 out of 5 stars See all reviews (47 customer reviews)
• Amazon.com Sales Rank: #74,743 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

44 of 46 people found the following review helpful:

5.0 out of 5 stars Excellent Brain Food, November 18, 2006

By	Dale C. Maley "Index Fund Investor" (Fairbury, IL United States) - See all my reviews (REAL NAME)

What impressed me about this book was that it made me think about applying some of the author's findings and theories to many different situations. I am really amazed at how well read the author is with regards to many different fields of study. The author's whole premise is that a multi-disciplinary approach is required to solve our big problems.

Some previous reviewers have criticized this book because of no specific information that can be applied to investing. I have actually read this book 3 times in the last couple of months, because each time it causes me to think of different applications for some of the author's ideas. I make notes each time I read it, and after this 3rd time of reading the book, I disagree with reviewers about no specific things to apply to investing.

Some of the specific ways of applying this books ideas to investing include:

Recognize there are stock market bubbles of speculation on a periodic basis that are driven by investor psychology. When these bubbles appear, take actions to protect yourself from the inevitable bursting of the bubble including withdrawing from the market or use stop-loss type orders on stocks.

Once a company reaches the Fortune 50, its annual growth usually stops. If your stock has done well and reached the Fortune 50, it is probably time to sell. The historical data shows that is almost impossible to continue double-digit growth rates once you hit this company size.

Use asset allocation (diversify your investments) to avoid the risk of a fat-tail stock market loss dramatically shrinking your portfolio value. Bonds help to reduce this risk. Although not mentioned in the book, a lot of recent research indicates that low cost immediate annuities also reduce portfolio risk by shifting the fat-tail risk to the company providing the annuity.

The Power Law (also called the 80:20 Rule, or Pareto's Law) can be applied to many things in investing. For example, you can simplify your investment portfolio to only 4 asset classes versus 12 classes because these 4 classes provide 70% of the benefits of diversification.

Use index funds as the core of your portfolio. Index funds almost always win over active mutual funds.

Be aware of reversion to the mean and that it happens to almost all companies.

And last, watch CNBC for its entertainment value only. It is a form of financial pornography that does you no good with regards to investing.

I would suggest companion books to supplement this book including:
The Richest Man in Babylon
Bogle on Mutual Funds: New Perspectives for the Intelligent Investor
The Millionaire Next Door
The Four Pillars of Investing: Lessons for Building a Winning Portfolio
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition
Index Mutual Funds: How to Simplify Your Financial Life and Beat the Pro's
The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life
The Bogleheads' Guide to Investing
Wealth: Grow It, Protect It, Spend It, and Share It
All About Asset Allocation.

49 of 53 people found the following review helpful:

5.0 out of 5 stars Its Time to Amend the List, June 14, 2006

By	Craig L. Howe "The Pointed Pundit" (Darien, CT United States) - See all my reviews (TOP 500 REVIEWER)    (REAL NAME)

Every once in a while, the Muses conspire to change the things you do.

For years, when asked for a recommendation of an investment book, I responded that "Reminiscences of a Stock Operator" provided insights each time I read it.

The list is now longer. "More than You Know" by Michael J. Mauboussin has been added.

The author, in 50 insightful essays, draws from the latest in behavior economics and cognitive sciences to give the reader invaluable insights into the concepts of risk and choice.

His investment strategies are sound. They draw from creative thinkers as diverse as Warren Buffett and Steven Christ; they borrow from activities and fields as diverse as casino gambling and evolutionary biology.

Mauboussin believes a multidisciplinary approach based on process and psychology offers the best opportunity for long-term investment success. He breaks his book into four sections: Investment Philosophy, Psychology of Investing, Investment and Competitive Strategy and Science and Complexity Theory. Although his essays are insightful, he provides a thorough bibliography to guide future study.

Why the Muses moved to place this book in my hands last week, I do not know. But I am grateful they did. This book is a trove of knowledge and ideas. It is a must-read for anyone who takes their investing seriously.

33 of 35 people found the following review helpful:

5.0 out of 5 stars A powerful new investment framework - buy this book, July 13, 2006

By	Stephen Kawaja - See all my reviews (REAL NAME)

It is rare to find a book that fundamentally changes how you think about investing, and beyond that, learning. This is such a book.

Mauboussin relies on a simple, but fundamentally non-consensus idea - that finding useful links between disparate fields, rather than focusing exclusively on one discipline, can make you a better investor. His sources range from Darwin to Dr. Seuss, his subjects from physics to ant colonies, but all of them are focused on generating conclusions and tips that will help you beat the market.

More Than You Know builds a comprehensive investment framework in four chapters:

1. "Investment Philosophy" tackles how you should make investment decisions. Focus on process not outcomes, understand that the magnitude of gains and losses trumps their frequency, understand the psychological hang-ups that can lead to bad decisions, and realize sometimes we see patterns where they don't exist.

2. "Psychology of Investing" helps investors identify the pitfalls that prevent us from remaining objective such as stress, circumstance, and bias.

3. "Innovation and Competitive Strategy" teaches investors how to think about industry structures and how they are changed by innovation. In a world of accelerating change, Mauboussin demonstrates the folly of using historical P/Es, how you can profit from mean reversion, and how perception gaps are generated at predictable stages in a company's evolution.

4. Why can a group of people get to the right answer when no individual person actually has the answer? Why do seemingly small scale inputs often lead to massive and disproportional outputs in the stock market? The book's final chapter, science and complexity, answer these questions and posits a new model that is a better predicator of market behavior than standard finance - one that is consistent with empirical findings and can help you understand market moves more clearly.

In 1998, Mauboussin wrote a report On the Shoulders of Giants, drawing its name from Isaac Newton's statement - "If I have seen further it is by standing on the shoulders of Giants." In this report, Mauboussin expounds Charlie Munger's view that investors must possess a variety of mental models drawn from the central tenets of many disciplines in order to be successful. Otherwise, you end up applying the wrong tool to solve a problem, or as Charlie Munger eloquently puts it - "To a man with a hammer, everything looks like a nail."

This book gives you the tools to get to the right answer.