Most business strategy books are nearly useless when you try to apply their lessons to investing. They’re overflowing with post-hoc sophistry, flow charts, org charts and pithy acronyms. They explain success by focusing almost exclusively on successful companies, despite the fact that failure, or at least muddle-through mediocrity, is the norm. Meanwhile, investors have learned the hard way that nothing recedes like success. Phil Rosenzweig's 'Halo Effect' was a notable exception and now his latest book, Left Brain, Right Stuff: How Leaders Make Winning Decisions, is equally effective in tearing down more mythology in management theory. This book is another must-read if you want to improve your analysis of strategic decision-making. By analyzing how decisions are made in the real world, rather than in controlled experiments or hindsight storytelling, Rosenzweig once again challenges conventional wisdom. As an investor, there are few business books that can improve both our analytical skills and mental models for thinking. Phil Rosenzweig’s books meet this very high standard.

Another important book from Phil Rosenzweig. He goes to great lengths to try to undo some of the more quantitative approaches and helps us strike a balance between rational decisionmaking for planning and enthusiastic (irrational) execution. If you have read any of the evidence-based business books, this one is next. Highly recommended.

Read in Feb 2016. Good Book. I like Phil Rosenzweig from his first book. The Halo Effect. When I saw he published his second book. I had to read it. I learn about Phil's book was mentioned in the Black Swan Book by Nassim Talib.

v/r
[...]

Great concepts and easily mapped improvements t your own challenges!

On the right track differentiating decisions and outcomes that you can influence. And that's it. The book could finish the main points in probably 10 pages.

I recently finished reading Left Brain Right Stuff - How Leaders Make Winning Decisions by Phil Rosenzweig. The author had graciously provided me with a copy of his new book, as I had previously read and reviewed an earlier work of his (The Halo Effect).

Below are key excerpts from the book that I found particularly insightful:

1- "They make predictable errors, or biases, which often undermine their decisions. By now we're familiar with many of these errors, including the following: -People are said to be overconfident, too sure of themselves and unrealistically optimistic about the future. -People look for information that will confirm what they want to believe, rather than seeking information that might challenge their hopes. -People labor under the illusion of control, imagining they have more influence over events than they really do. -People are fooled by random events, seeing patterns where none exist. People are not good intuitive statisticians, preferring a coherent picture to what makes sense according to the laws of probability. -People suffer from a hindsight bias, believing that they were right all along."

2- "Yet for all we know about these sorts of decisions, we know less about others. First, many decisions involve much more than choosing from options we cannot influence or evaluations of things we cannot affect...Second, many decisions have a competitive dimension...Third, many decisions take a long time before we know the results...Fourth, many decisions are made by leaders of organizations...In sum, experiments have been very effective to isolate the processes of judgment and choice, but we should be careful when applying their findings to very different circumstances."

3- "Great decisions call for clear analysis and dispassionate reasoning. Using the left brain means: -knowing the difference between what we can control and what we cannot, between action and prediction -knowing the difference between absolute and relative performance, between times when we need to do well and when we must do better than others -sensing whether it's better to err on the side a' taking action and failing, or better not to act; that is, between what we call Type I and Type II errors -determining whether we are acting as lone individuals or as leaders in an organizational setting and inspiring others to achieve high performance -recognizing when models can help us make better decisions, but also being aware of their limits."

4- "Having the right stuff means: -summoning high levels of confidence, even levels that might seem excessive, but that are useful to achieve high performance -going beyond past performance and pushing the envelope to seek levels that are unprecedented -instilling in others the willingness to take appropriate risks."

5- "Moore and his colleagues ran several other versions of this study, all of which pointed to the same conclusion: people do not consistently overestimate their level of control. A simpler explanation is that people have an imperfect understanding of how much control they can exert. When control is low they tend to overestimate. but when it's high they tend to underestimate."

6- "Of course managers don't have complete control over outcomes. any more than a doctor has total control over patient health. They are buffeted by events outside their control: macroeconomic factors, changes in technology, actions of rivals, and so forth. Yet it's a mistake to conclude that managers suffer from a pervasive illusion of control. The greater danger is the opposite: that they will underestimate the extent of control they truly have."

7- "If you believe there's an intense pressure to outperform rivals when that's not the case, you might prefer a Type 1 error. You might take action sooner than necessary or act more aggressively when the better approach would be to wait and observe. The risks can be considerable, but perhaps not fatal On the other hand, if performance is not only relative but payoffs are highly skewed, and you don't make every effort to outperform rivals, you'll make a Type II error. Here the consequences can be much more severe. Fail now, and you may never get another chance to succeed. By this logic, the greater error is to underestimate the intensity of competition. It's to be too passive in the face of what could be a mortal threat. When in doubt, the smart move is to err on the side of taking strong action."

8- "The lesson is clear: in a competitive setting, even a modest improvement in absolute performance can have a huge impact on relative performance. And conversely, failing to use all possible advantages to improve absolute performance has a crippling effect on the likelihood of winning. Under these circumstances, finding a way to do better isn't just nice to have. For all intents and purposes, it's essential."

9- "First, not even thing that turns out badly is due to an error. We live in a world of uncertainty, in which there's an imperfect link between actions and outcomes. Even good decisions sometimes turn out badly, but that doesn't necessarily mean anyone made an error. Second, not every error is the result of overconfidence. There are many kinds off error: errors of calculation, errors of memory, simple motor errors, tactical errors, and so forth. They're not all due to overconfidence."

10- "The Trouble with Overconfidence," the single word—overconfidence—has been used to mean three very different things, which they call overprecision, overestimation, and overplacement...Overprecision is the tendency to be too certain that our judgment is correct...He's referring to overprecision: the tendency to believe a prediction is more accurate than it turns out to be...Overestimation, the second kind of overconfidence, is a belief that we can perform at a level beyond what is objectively warranted...Overestimation is an absolute evaluation; it depends on an assessment of ourselves and no one else...Overplacement, the third kind of overconfidence, is a belief that we can perform better than others...She calls it the superiority bias and says it's a pervasive error."

11- "My suggestion is that anyone who uses the term should have to specify the point of comparison. If overconfidence means excessively confident, then excessive compared to what? In much of our lives, where we can exert control and influence outcomes, what seems to be an exaggerated level of confidence may be useful; and when we add the need to outperform rivals, such a level of confidence may even be essential."

12- "When we have ability to shape events we confront a different challenge: making accurate estimates of future performance. The danger here is not one of overlooking the base rate of the broader population at a point in time, but neglecting lessons of the past and making a poor prediction of the future. Very often people place great importance on their (exaggerated) level of skills and motivation. The result is to make forecasts on what Kahneman and Tversky call the inside view. Unfortunately these projections, which ignore the experiences of others who have attempted similar tasks, often turn out to be wildly optimistic."

13-"The question we often hear—how much optimism or confidence is good, and how much is too much—turns out to be incomplete. There's no reason to imagine that optimism or confidence must remain steady over time. It's better to ramp it up and down, emphasizing a high level of confidence during moments of implementation, but setting it aside to learn from feedback and find ways to do better."

14- "Duration is short, feedback is immediate and clear, the order is sequential, and performance is absolute. When these conditions hold, deliberate practice can be hugely powerful. As we relax each of them, the picture changes. Other tasks are long in duration, have feedback that is slow or incomplete, must be undertaken concurrently, and involve performance that is relative. None of this is meant to suggest their deliberate practice isn't a valuable technique. But we have to know when it's useful and when it's not."

15- "When we use models without a clear understanding of when they are appropriate, we're not going to make great decisions—no matter how big the data set or how sophisticated the model appears to be."

16- "To get at the root of the problem, Capen looked at the auction process itself. He discovered an insidious dynamic: when a large number of bidders place secret bids, it's almost inevitable that the winning bid will be too high. Capen called this the winner's curse."

17- "But do some kinds of acquisitions have a greater chance of success than others? A significant number—the other 36 percent were profitable, and they turned out to have a few things in common. The buyer could identify clear and immediate gains. rather than pursuing vague or distant benefits. Also, the gains they expected came from cost savings rather than revenue growth. That's a crucial distinction, because costs are largely within our control, whereas revenues depend on customer behavior, which is typically beyond our direct control."

18- "The real curse is to apply lessons blindly, without understanding how decisions differ. When we can exert control, when we must outperform rivals, when there are vital strategic considerations, the greater real danger is to fail to make a bold move. Acquisitions ah ways involve uncertainty, and risks are often considerable. There's no formula to avoid the chance of losses. Wisdom calls for combining clear and detached thinking—properties of the left brain—with the willingness to take bold action—the hallmark of the right stuff."

19- "Starting a new business involves many of the same elements we have seen in other winning decisions: an ability to distinguish between what we can control and what we cannot; a sense of relative performance and the need to do better than rivals; the temporal dimension, in which decisions do not always produce immediate feedback; and an awareness that decisions are made in a social context, in which leaders sometimes need to inspire others to go beyond what may seem possible. Together, these elements help new ventures get off to a winning start."

20- "To make great decisions, we need above all to develop the capacity to question, to go beyond first-order observations and pose incisive second-order questions. An awareness of common errors and cognitive biases is only a start. Beyond that, we should ask: Are we making a decision about something we cannot control, or are we able to influence outcomes?...Are we seeking an absolute level of performance, or is performance relative?...Are we making, a decision that lends itself to rapid feedback, so we can make adjustments and improve a next effort?...Are we making a decision as an individual or as a leader in a social setting?...Are we clear what we mean by overconfidence?...Have we given careful thought to base rates, whether of the larger population at a point in time or historical rates of past events?...As for decision models, are we aware of their limits as well as strengths?...When the best course of action remains uncertain, do we have a sense of on which side we should err?"

21- "In his profile of longtime St. Louis Cardinals manager Tony LaRussa, Buzz Bissinger wrote that a baseball manager requires "the combination of skills essential to the trade: part tactician, part psychologist, part river-boat gambler." That's a good description for many kinds of strategic decision makers. The tactician plays a competitive game, anticipating the way a given move may lead to a counter-move and planning the best response. The psychologist knows how to shape outcomes by inspiring others, perhaps by setting goals or by offering encouragement or maybe with direct criticism. The riverboat gambler knows that outcomes aren't just a matter of cold numbers and probabilities, but that it's important matter of cold numbers and probabilities, but that it's important to read an opponent so as to know when to raise the stakes, when to bluff, and when to fold. Winning decisions call for a combination of skills as well as the ability to shift among them. We may need to act first as a psychologist, then as a tactician, next as a riverboat gambler, and perhaps once again as a psychologist. In the real world, where we have to respond to challenges as they arise, one skill or another is insufficient; versatility is crucial. Even then success is never assured, not in the competitive arenas of business or sports or politics. Performance is often relative and consequences of failure are harsh. A better understanding of decision-making, however, and an appreciation for the role of analysis as well as action, can improve the odds of success. It can help us win."

I didn't always agree with the examples used to illustrate a point.