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67 of 73 people found the following review helpful
5.0 out of 5 stars Its Time to Amend the List
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...
Published on June 14, 2006 by Craig L. Howe

versus
53 of 64 people found the following review helpful
3.0 out of 5 stars Bland Title, Bland Insights
These thirty short essays offer a view on the financial markets that is informed by a widely read and wide-ranging intellect. At its best this collection will free the reader to view markets differently from ways in which they are accustomed. In particular, general readers not directly involved in the markets may find this book of interest. For others the insights are...
Published on June 11, 2006 by dennis wentraub


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67 of 73 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 (Darien, CT United States) - See all my reviews
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.
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53 of 58 people found the following review helpful
5.0 out of 5 stars A powerful new investment framework - buy this book, July 13, 2006
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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.
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53 of 64 people found the following review helpful
3.0 out of 5 stars Bland Title, Bland Insights, June 11, 2006
By 
dennis wentraub (schenectady, new york USA) - See all my reviews
(REAL NAME)   
These thirty short essays offer a view on the financial markets that is informed by a widely read and wide-ranging intellect. At its best this collection will free the reader to view markets differently from ways in which they are accustomed. In particular, general readers not directly involved in the markets may find this book of interest. For others the insights are generally accepted investor truths in no need of further proof.

It is the author's view that the markets are a "complex adaptive system" and an inherently social activity. As such we may better understand their workings by looking at other organized systems in nature. Interconnecting links in nature, patterns of psychological behavior, the imitative activity of ants, the life cycle of the fruit fly, or mathematical "power laws" are viewed for what insights they can provide.

Much of this leads to already accepted ideas. Here are some examples.

A long term perspective is the preferred investment approach. A disciplined strategy ("process") will eventually yield desired results. Too much portfolio turnover is unproductive. Stress is a product of short term thinking. Innovation is a product of information. The rapid flow of information makes it difficult for a company to control its competitive advantage for long. Great growth companies mature through a life cycle and "stall". The pace of company and product life cycles appear to be accelerating. Investors are often their own worst enemies due to built-in biases. The business of investing is often at odds with the interests of the investor. Losses are harder to bear than successes of equal magnitude which tend to be discounted. Crowd behavior, herding, often leads to excesses (Mackay's "the Madness of Crowds"). Still, markets are rational because diverse opinions create a consensus that cancels out individual "errors".

Elsewhere we are left holding the problem. One essay ends with this: "One of the major challenges in investing is how to capture (or avoid) low-probability, high-impact events. Unfortunately, standard finance theory has little to say about the subject".

Recognizing commonly accepted patterns as they exist elsewhere in our world is not enough to make us better investors, innovators, etc. In the end we have heard all this before.
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22 of 25 people found the following review helpful
5.0 out of 5 stars A Differentiated Perspective, June 1, 2006
Before one attempts to review "More Than You Know", it is useful to understand the author's background and context. Michael Mauboussin is Chief Investment Strategist of Legg Mason Capital Management. He is on the Board of Trustees of the Santa Fe Institute (SFI) and also teaches Security Analysis at Columbia Business School. Before Legg Mason, Michael was Chief U.S. Investment Strategist at Credit Suisse First Boston. During his career he has studied the objectives, resources and processes of successful investors; He has aggregated best practices of successful companies, competitive strategy, valuation and behavioral finance; He has studied the important principles of the major disciplines: Finance, Psychology, Mathematics, Physics, Philosophy, Biology, Evolution, History, Literature, Social Sciences. Michael has dedicated his career to one objective: The efficient and effective allocation of Financial and Intellectual Capital.

One of Michael's fundamental beliefs, also one of the main themes of "More Than You know", is that to succeed in accomplishing your investment and life objectives, you need to understand the most important principles of the major disciplines: Finance, Psychology, Mathematics, Physics, Philosophy, Biology, Evolution, History, Literature, Social Sciences. This belief is also a driving influence of Legg Mason's investment philosophy, SFI's culture and the Security Analysis class that Michael teaches at Columbia.

One of the barriers to learning the multi disciplinary approach to become a better investor and a better person is knowing how to properly filter the massive amounts of information (good and bad) that is out there. One of the ways to overcome these barriers is to find what I call filter/aggregators: someone with excellent judgment that has found the relevant knowledge, filtered it, and then aggregated the most important insights in one place for you. Examples of filter/aggregators in the investment world are: Bill Miller, Warren Buffett, Charles Munger and Michael Mauboussin. Michael's books (Expectations Investing, More Than You Know) and essays (Consilient Observer, Mauboussin on Strategy) are filled with investment insights, ideas from other disciplines that apply to investing and references to books, studies and essays by other authors.

The purpose of "More Than You Know" is to show how a multi-disciplinary approach to investing can improve investment skills by giving investors fresh perspectives. The book is divided in 4 Parts/Categories: Investment Philosophy, Psychology of Investing, Innovation and Competitive Strategy, Science and Complexity Theory. Each part is made up of about 7 essays that describe major ideas of each category. In the essays Michael uses examples from business, successful investors, other authors, and studies from other disciplines to derive investment insight. Michael gives an appropriate understanding of the insights. In the eventuality that the reader would like to dig deeper, the Notes section on the essays and the Reference section are filled with studies and books by Investors, Scientists, Physicists, Mathematicians, Biologist, ect...

The book is entertaining and provides knowledge that is very relevant to investors. It also makes you think since the perspectives it gives you are differentiated. One example: how studying fruit flies is relevant to the evolution of businesses within industries. Or how stock markets share many of the same features of social insect colonies such as ants.

It is important to observe how homogeneous the money management industry is. Mutual funds, brokers, individual investors, day traders all read the same newspapers, magazines, books; they have mostly two investment philosophies, value and growth; they read the same analyst reports; watch the same news channels. To accomplish your investment objectives and to gain an edge over the market it is necessary to have a differentiated point of view. "More Than You Know" gives you that differentiated perspective.
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14 of 15 people found the following review helpful
3.0 out of 5 stars Clever insight on decisions you shouldn't be making, March 4, 2007
The author is a strategist at a large active-management mutual fund firm, and it shows in a bizarre intellectual oversight that dominates my impression of the book.

Statistics are cited on p. 16 that 2/3rds of actively-managed mutual funds under-performed their indexes over a recent 5-year period, and 3/4ths over 10 years. The author accurately describes Jack Bogle's and Charles Ellis' cogent critiques of the mutual fund industry. He proceeds in the course of the book to recount many results and observations, both from the investment world and other fields, suggesting that markets are efficient enough that efforts to outwit them are not worth the cost. He notes the correlation between low turnover and high performance, and how psychology and social pressure lead investors astray when they try to beat the market. He presents in fact most of the intellectual background that supports low-cost index investing over active management (the key omission being the tax problems caused by actively-managed mutual funds in taxable accounts).

And yet, the book is an attempt (successful in a way) to describe a body of wide-ranging knowledge for use in trying to select investments to beat the market. This internal conflict reaches its most absurd in Chapter 24, describing the remarkable tendancy of collective information to be more accurate than individual experts, even in predicting the future... but where does this lead the author? Not to index funds, which would be the obvious investment application of this idea. Rather, he suggests that "investors who identify companies intelligently using collectives... may gain an investment edge." In other words, he would buy stock in Vanguard (if that were possible), but he wants you to invest your money with his firm!

The author's conflict of interest bubbles closest to the surface in his discussion of his firm colleague Bill Miller's streak of beating the S&P 500 for 15 straight years, as the book went to press in 2006. Miller's feat is remarkable, and his fund now rakes in 1.68% per year from an asset base of $20 billion (vs. 0.20% or less for many index funds). Miller of course has a favorable blurb for the book, and he may in fact be skilled. Academics debate whether his singular performance (among literally thousands of mutual funds) is anything beyond pure chance. The question is, can you count on such outperformance to continue into the future? The author obviously thinks yes... well, good thing he went to press when he did: Miller's fund underperformed the S&P by 9.9% for 2006.

Rick Ferri's and Williams Bernstein's books will be more useful for almost all individual investors.
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7 of 7 people found the following review helpful
5.0 out of 5 stars Try More than You Know, January 9, 2007
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If you've grown bored or found yourself uninspired by the trite recommendations spewed out freely by the financial media, read this book and begin your cleansing process. More Than You Know will open your eyes to exciting ideas and hopefully, as it did for me, challenge you to explore many topics further. Overall, I found it to be an enjoyable read, as Mauboussin employs a matter-of-fact, pleasant writing style that makes for easy digestion of some complex material.

The book is divided up into four sections: Investment Philosophy, Psychology of Investing, Innovation and Competitive Strategy, and Science and Complexity Theory.

The Investment Philosophy section recommends to investors that they step outside their own field and draw insight from the practices of thinkers in other probabilistic fields, such as handicappers or poker players. These are people who practice what they preach and have the results to back it up. They emphasize process over outcome, take a long-term approach, and carefully ensure that the odds and probabilities are in their favor.

The Psychology of Investing section offers a curious amalgam of behavioral finance, neuroscience, and the biological sciences to highlight many of the ways investors act suboptimally. Hundreds of thousands of years of evolution have taught us to rely on a variety of "rules of thumb," quite often for very good reasons. These heuristics, however, come fully equipped with a variety of biases, and these can lead us down suboptimal pathways. The key is "knowin' yourself" - as gambling legend Puggy Pearson said.

The Innovation and Competitive Strategy section covers the two most important concepts in business today. With asset lives shrinking, product cycles tightening, and competitors unseating incumbents at a faster pace, this section is an important read. Mauboussin offers some powerful analogies here, such as that between the synaptic pruning process the brain goes through and the pruning processes of various industries, or that between the rapid life cycle of the fruit fly (2 weeks) and the accelerating pace of evolution in the business world.

The Science and Complexity Theory section is clearly strongly influenced by Mauboussin's affiliation with the Santa Fe Institute. This is a place where Nobel Prize winning scientists like Murray Gell-Mann and Phil Anderson hang out, so it's not a bad place to go fishing for insight. A few of the chapters delve into the idea that the stock market is a complex adaptive system in which agents (investors) aggregate (via trading) and in the end produce efficient outcomes (most of the time). A few related chapters deal with the power of the collective to solve problems well and draw inspiration from such things as honey bee and ant colonies.
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6 of 6 people found the following review helpful
5.0 out of 5 stars Promise fulfilled, September 28, 2006
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I was a big fan of Michael Mauboussin when he was at CSFB writing a piece called "The Consilient Observer" for CSFB's clients. When he left CSFB for Legg Mason, I wondered when he would publish a book with the same material, this time for public consumption. So when this book was released, I immediately ordered a copy. Having read through much of it, I can relate that it is a nicely arranged set of self-sufficient chapters which comprehensively covers the same material as "The Consilient Observer," but with some revisions and consolidation. Each chapter presents a new concept and its implications to the market and investment. The book is chock full of information. I cannot recommend it enough.
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5 of 5 people found the following review helpful
5.0 out of 5 stars Uniquely good, May 24, 2011
This review is from: More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded) (Columbia Business School Publishing) (Hardcover)
This book attempts to apply what has been learned about complex systems during the past few decades (in mathematics and the natural sciences) to the domain of business, markets, and investing. Mauboussin has apparently read the relevant literature extensively and understood it well, and he succeeds in applying it effectively, probably in large part because of his considerable industry experience (Chief Investment Strategist for Legg Mason at the time the book was published). As a result, I enjoyed this book and found it genuinely informative. I also liked the short-essay format of the book, though this does result in significant repetition.

The following is a summary of what I personally found to be the key points from the book, organized into four categories.

General:

(1) Systems near a threshold can exhibit a very large response to a minor input.

(2) Power laws are ubiquitous, though not fully understood. Power laws increase the likelihood of extreme events, as compared to processes governed by "normal" tails.

(3) People don't generally cope well with complexity, but multidisciplinary approaches and multiple models are helpful (reductionism just doesn't work for complex systems), along with cognitive diversity, both through diverse individuals and diverse learning within given individuals. Along these lines, though specialized "experts" tend to do well in dealing with simple systems, they're usually surpassed by diverse groups of non-specialists when dealing with complex systems; part of the reason is that specialists tend to be inflexible.

(4) Context-sensitive theories are needed for practical decision-making. Such theories have good categorization of cases and are iteratively refined based on comparing outcomes with predictions.

(5) We're wired to see patterns, even where they don't exist. This is one of the reasons why we misuse statistics.

(6) Emotions affect our decision making, sometimes for the worse, but sometimes also for the better.

(7) Getting more information can sometimes cloud the picture and create confusion rather than clarity.

(8) Although the process can be costly, generating many alternatives and then picking the best one usually provides the best overall outcomes. But human rationality is bounded, so people usually try to satisfice rather than optimize.

(9) Central planned top-down control is feasible for simple systems, but complex systems require more distributed and adaptive control.

(10) Key qualities of leaders include a thirst for learning, creating an atmosphere of free speech, communicating a clear vision, adapting to changing circumstances, emotional intelligence, and balancing self-confidence with humility.

(11) Creative people are intellectually curious, flexible and open-minded, able to recognize and clearly define problems, able to organize information in multiple differnt ways, anti-authoritarian, unorthodox, mentally restless and intense, highly motivated, highly intelligent, and goal-oriented.

Business:

(1) Sustainable competitive advantage is harder to maintain for service business as compared to product businesses. Only about 10% to 15% of businesses can sustain notably high returns year after year.

(2) Managers need to think about both the short term and long term, though thinking too far ahead is a waste of time, if not detrimental. A good strategy is to be flexible and adaptive, keeping a close eye on the competition and seeking small gains wherever possible. And the more rapidly a landscape changes, the larger the jumps one must be prepared to make.

(3) Most business acquisitions add little or no value, or likely destroy value, though sellers tend to do well.

Markets:

(1) Markets can be rational even if individuals are irrational, but only if markets are sufficiently diverse. Otherwise, herding effects due to positive feedback (people acting same way) contribute to bubbles and crashes. There's typically a threshold for such effects to be triggered.

(2) Markets tend to be "efficient" with regard to forecasting short-term outcomes, but less efficient with regard to longer-term forecasting.

Investing:

(1) Successful investing requires consistent application of a proven process over a substantial period of time, rather than a constant focus on short-term outcomes (stress encourages a short-term focus). This helps to compensate for our tendencies towards biases and errors (and associated overconfidence) and gives time for probabilistic effects to average out. Also, it's more appropriate to focus on expected values rather than probabilities, especially since we tend to inappropriately weigh losses more than gains, and thus tend to take gains too quickly and cut losses too late.

(2) Statistically, P/E ratios aren't a good guide to predict market returns.

(3) In various areas, growth often follows an S curve, which can make forecasting difficult. When investing, try to ride up the steep part of the curve.
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4 of 4 people found the following review helpful
5.0 out of 5 stars Smorgasboard of brain food; Original must-read, July 10, 2006
I was at once excited and dissapointed to hear Michael Mauboussin was publishing the book. Excited: because it's the perfect gift for intellectual omnivores. Its worldy-wisdom, mental-models approach is a smorgasboard of brain food, and its cook ladels out the perfect portion sizes to educate, entertain and keep your attention. Dissapointed: because Mauboussin's insights were previously only available to an elite few in-the-know insiders on Wall Street and I'd be competitively better off if it stayed that way....

The inconvenient truth is that this book (and its author) are rare gems. Here's why: Even if you had the time and resources to identify and then access all the relevant wisdom and empirical evidence culled from mainstream and non-traditional sources alike, you wouldn't know where to start. You'd need a filter. And Mabuoussin--as though he were an explorer bringing riches back to the kingdom--has traveled through history, culture and the sciences, harvesting a collection of thinkers and undiscovered principles--and then sorted and organized them into quick, neat narratives for any willing reader to lap up. My own read yielded one eureka moments after the next. And if you're like me, discovering these so-called mental-models is like finding one useful tool after another, you get eager to put the book down, pick up the tools up and start using them in everyday life. How you combine the tools is up to you, but they're there for the taking.

Anyone reading "More Than You Know" gets to be a lucky free-rider following the author's own hunger for subtle patterns, universal truths and wordly wisdom--which impact not only investing, but a balanced family life and the relentless pursuit of competitive edge in business.

This book has become de rigeur reading for all the partners and analysts at our investment firm. And buying it may be the best returning investment I've made all year...
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7 of 8 people found the following review helpful
5.0 out of 5 stars the new frontiers of finance, July 17, 2006
I've been following Mauboussin's work since his early 1990s coverage of the food industry. "Frontiers of Finance", published by CSFB, has a permanent spot on my bookshelf and "Atoms, Bits and Cash", his report on cash conversion cycles and returns on capital across the S&P500, had a major impact on my career. This book upholds this long, creative and thoughtful tradition. Dip in and out of it at your leisure, take the time to think about each essay before moving onto the next. For collectors of "mental models", this book will be a good addition.
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