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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
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 However, it suffers from a common problem among compiled essays: despite the revisions, some material is out of date and other material is repeated.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)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved. --This text refers to an out of print or unavailable edition of this title.
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)
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Top customer reviews
Michael does an excellent job of explaining his multidisciplinary perspectives for investing in a very accessible and practical way - assuming very little prior knowledge. The separate essays are very focused and direct to the point, making this book very easy and relatively quick to ready. A refreshing and very interesting take on investing that can be extended to numerous other fields. A must read!
Below are key excerpts from the book that I found particularly insightful:
1- "Rubin - "It's not that results don't matter. They do. But judging solely on results is a serious deterrent to taking risks that may be necessary to making the right decision. Simply put, the way decisions are evaluated affects the way decisions are made."
2- "I would argue that many of the performance challenges in the business stem from an unhealthy balance between the profession and the business. Many of the investment managers that do beat the market seem to have the profession at the core."
3- "...The leading thinkers and practitioners from somewhat varied fields have converged on the same formula: focus not on the frequency of correctness but on the magnitude of correctness."
4- "The lesson from the process of theory building is that sound theories reflect context. Too many investors cling to attribute-based approaches and wring their hands when the market doesn't conform to what they think it should do."
5- "Investors need to pay a great deal of attention to what influences their behavior. Three of Cialdini's six tendencies are particularly relevant for investors: consistency and commitment, social validation, and scarcity."
6- "A dominant idea in Western society is that we should separate emotion and rationality. Advances in science show that such a separation is not only impossible but also undesirable. Yet successful investing requires a clear sense of probabilities and payoffs. Investors who are aware of affect are likely to make better decisions over time."
7- "In markets, a symbiotic relationship between positive and negative feedback generally prevails...But the evidence shows that positive feedback can dominate prices, if only for a short time."
8- "So The issue is not whether individuals are irrational (they are) but whether they are irrational in the same way at the same time."
9- "In effect, when the environment is uncertain, it helps to start with lots of alternatives (e.g., synaptic connections) and then select (via pruning) the ones that are best given the environment. The process is undoubtedly costly because lots of energy and resources necessarily go to waste, but it's the best one going."
10- "Chess master Bruce Pandolfini observes four behaviors that are consistent among chess champions and useful in thinking through the short-term/long-term debate. 1) Don't look too far ahead...2) Develop options and continuously revise them based on the changing conditions...3) Know your competition...4) Seek small advantages."
11- "Idea diversity allows you to find what Johnson calls "weak signals." A weak signal may be the start of a trend away from the dominant path (such as new technology or development) or the right piece of information at the right time from an unexpected source."
12- "In his 2001 letter to shareholders, Warren Buffett distinguishes between experience and exposure. Experience, of course, looks to the past and considers the probability of future outcomes based on occurrence of historical events. Exposure, on the other hand, considers the likelihood - and potential risk - of an event that history (especially recent history) may not reveal. Buffett argues that in 2001 the insurance industry assumed huge terrorism risk without commensurate premiums because it was focused on experience, not exposure."
13- "If the stock market is a system that emerges from the interaction of many different investors, then reductionism - understanding individuals - does not give a good picture of how the market works. Investors and corporate executives who pay too much attention to individuals are trying to understand markets at the wrong level. An inappropriate perspective of the market can lead to poor judgments and value-destroying decisions."
14- "The stock market has all of the characteristics of a complex adaptive system. Investors with different investment styles and time horizons (adaptive decision riles) trade with one another (aggregation), and we see fat-tail price distributions (nonlinearity) and imitation (feedback loops). An agent-based approach to understanding markets is gaining broader acceptance. But this better descriptive framework does not offer the neat solutions that the current economic models do."
I also found the conclusion (that there is simply a ton that is unknown about how markets function in practice) refreshing.
Although much of the content is common to experienced investors, the book contains many helpful insights for the new trader and/or average reader. Among the insights that I have gained reading the book, I think the most blatant one that I liked is the "quality investment philosophy themes". These themes are as follows:
- In any probabilistic field, you're better off focusing on the decision making process than on the short term outcome.
- Taking the long-term perspective is essential, because short term has too much randomness.
- Internalizing a probabilistic approach to investing is essential.
The book has several references to other finance-related stuff (there exists a 52-page references list at the back of the book). These references might trigger some deeper studies for the reader. I would like to finish this review with one of those references, a quote from Peter L. Bernstein: "The fundamental law of investing is the uncertainty of the future."
Great book! You have to have good emotional control to perform optimally in the markets, so reading these types of books is just as important as those books that teach you how to pick stocks, if not more!