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More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded) (Columbia Business School Publishing) Hardcover – October 18, 2007
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From Publishers Weekly
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved. --This text refers to the Paperback edition.
More Than You Know is a lucid explanation of the exciting new developments in behavioral economics and cognitive science on the rationality and irrationality of people's economic choices. Michael J. Mauboussin has an excellent understanding of the science of what it does and does not imply for investing, purchasing, and other real-life decisions. This book is essential reading for anyone interested in the science of human nature and its relevance to the world of finance.(Steven Pinker, Harvard University)
Refreshingly intelligent... engagingly shows how a multidisciplinary perspective can deepen your sense of how financial markets work.(Wall Street Journal)
Few readers could come away from this book without being stimulated and intrigued.Los Angeles Times(Los Angeles Times)
Wonderfully thoughtful and insightful... sophisticated and accessible, intriguing and entertaining.The Washington Post(The Washington Post)
A fun read that draws insights from a wide range of scholarly disciplines.(BusinessWeek)
Anyone can appreciate its flashes of Oliver Sacks-like insight.(Bloomberg Magazine)
Mauboussin is not your average Wall Street equity analyst... [his book] can be read for entertainment... or to broaden your investment thinking.(Publishers Weekly)
A conceptually brilliant, highly practical book that every investor and analyst needs to read-several times. Mauboussin has no peers; he understands how value is created better than anyone, anywhere.(Clayton Christensen, Harvard Business School)
Mauboussin has found great insights about the science of human behavior in unconventional places and has written superbly about it.(Robert Sapolsky, Stanford University)
A fascinating compendium-like a Ph.D. in investment wisdom. If you want to understand how the world's best investors think, you must read this book.(Bill Miller, Chairman and Chief Investment Officer, Legg Mason Capital Management)
An insightful book on investing and investment management.(Tom Bradley Globe & Mail)
Top Customer Reviews
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.
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.
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.