More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded) (Columbia Business School Publishing)

Offering invaluable tools to better understand the concepts of choice and risk, __More Than You Know__ uniquely blends practical advice and sound theory, sampling from a variety of sources and disciplines. Michael J. Mauboussin builds on the ideas of visionaries, including Warren Buffett and E. O. Wilson, but also finds wisdom in a broad and deep range of fields, such as casino gambling, horse racing, psychology, and evolutionary biology. He analyzes the strategies of poker experts David Sklansky and Puggy Pearson and pinpoints parallels between mate selection in guppies and stock market booms. For this updated and expanded edition, Mauboussin adds material on human cognition, management assessment, game theory, the role of intuition, and the mechanisms driving the market's mood swings, and he explains what these topics show about smart investing. Since its first publication, Michael J. Mauboussin's popular guide to wise investing has been translated into eight languages and has been named best business book by __BusinessWeek__ and best economics book by __Strategy+Business__. Now updated to reflect current research and expanded to include new chapters on investment philosophy, psychology, and strategy and science as they pertain to money management, this volume is more than ever the best chance to know more than the average investor. Offering invaluable tools to better understand the concepts of choice and risk, __More Than You Know__ is a unique blend of practical advice and sound theory, sampling from a wide variety of sources and disciplines. Mauboussin builds on the ideas of visionaries, including Warren Buffett and E. O. Wilson, but also finds wisdom in a broad and deep range of fields, such as casino gambling, horse racing, psychology, and evolutionary biology. He analyzes the strategies of poker experts David Sklansky and Puggy Pearson and pinpoints parallels between mate selection in guppies and stock market booms. For this edition, Mauboussin includes fresh thoughts on human cognition, management assessment, game theory, the role of intuition, and the mechanisms driving the market's mood swings, and explains what these topics tell us about smart investing. __More Than You Know__ is written with the professional investor in mind but extends far beyond the world of economics and finance. Mauboussin groups his essays into four parts-Investment Philosophy, Psychology of Investing, Innovation and Competitive Strategy, and Science and Complexity Theory-and he includes substantial references for further reading. A true eye-opener, __More Than You Know__ shows how a multidisciplinary approach that pays close attention to process and the psychology of decision making offers the best chance for long-term financial results. CONTENTS Acknowledgments Introduction PART 1: Investment Philosophy Introduction 1 Be the House: Process and Outcome in Investing Hit Me From Treasury to Treasure Prioritizing Process 2 Investing—Profession or Business? Thoughts on Beating the Market Index The Scouting Report Evaluating the Winners The Investment Profession Versus the Investment Business 3 The Babe Ruth Effect: Frequency Versus Magnitude in Expected Value Batting with the Babe The Downside of Hardwiring Bulls, Bears, and Odds From OTC to OTB A Useful Analogy 4 Sound Theory for the Attribute Weary: The Importance of Circumstance-Based Categorization Circumstance Over Attributes The Three Steps of Theory Building When, Not What 5 Risky Business: Risk, Uncertainty, and Prediction in Investing Rocket Science From Uncertainty to Probability How Predictions Change Future Payoffs 6 Are You an Expert? Experts and Markets Man Versus Machine Where Do Experts Do Well? 7 The Hot Hand in Investing: What Streaks Tell Us About Perception, Probability, and Skill Finding the Hot Shot Streaks and Skill Toss Out the Coin Toss Streaks and Luck 8 Time Is on My Side: Myopic Loss Aversion and Portfolio Turnover One or One Hundred Explaining the Equity-Risk Premium The Value of Inactivity Pictures Worth a Thousand Words 9 The Low Down on the Top Brass: Management Evaluation and the Investment Process Management Counts Leadership Incentives Capital Allocation The Bottom Line PART 2: Psychology of Investing Introduction 10 Good Morning, Let the Stress Begin: Linking Stress to Suboptimal Portfolio Management Why Zebras Don’t Get Ulcers Why Money Managers Do Get Ulcers Shortening Horizons Imitating Ulysses 11 All I Really Need to Know I Learned at a Tupperware Party: What Tupperware Parties Teach You About Investing and Life A Tip from Shining Shoes You Can Fool Mother Nature All I Really Need to Know The Psychology of Investing 12 All Systems Go: Emotion and Intuition in Decision Making Emotions and Decisions Two Follows One The Affect Heuristic When the Experiential Fails Affect: Individual Versus the Collective 13 Guppy Love: The Role of Imitation in Markets Guppy See, Guppy Do Feedback—Negative and Positive Follow the Ant in Front of You Herding from the Grapevine 14 Beware of Behavioral Finance: Misuse of Behavioral Finance Can Lead to Bad Thinking Sorry Syllogism Mug’s Game? Bombs Away Money See, Money Do 15 Raising Keynes: Long-Term Expectations, the El Farol Bar, and Kidding Yourself What Do You Expect? Speculation and Enterprise Visiting El Farol Kidding Yourself 16 Right from the Gut: Investing with Naturalistic Decision Making Guns and Better (Decisions) Chopping Down the Decision Tree Investing au Naturel The Fine Print 17 Weighted Watcher: What Did You Learn from the Last Survey? I Do—Do You? Sifting Weights Misleading by Sample Tell Me Something the Market Doesn’t Know PART 3: Innovation and Competitive Strategy Introduction 18 The Wright Stuff: Why Innovation Is Inevitable Take Off with Recombination How Does Wealth Happen? Sic Itur ad Astra (This Is the Way to the Stars) Creative Destruction—Here to Stay 19 Pruned for Performance: What Brain Development Teaches Us About Innovation Too Clever by Half The Dynamics of Innovation Investors: Use the Brain 20 Staying Ahead of the Curve: Linking Creative Destruction and Expectations Losing Pride Goldilocks Expectations: Too Cold, Too Hot, Just Right Out with the Old, In with the New The Mind Makes a Promise That the Body Can’t Fill Expectations and Innovation 21 Is There a Fly in Your Portfolio? What an Accelerating Rate of Industry Change Means for Investors Fruit Flies and Futility Speed Trap? Investor Evolution 22 All the Right Moves: How to Balance the Long Term with the Short Term Managing for the Long Term Deep Blue’s Lessons Strategies for Winners Strategy as Simple Rules 23 Survival of the Fittest: Fitness Landscapes and Competitive Advantage A Peek at Another Peak Fitness Landscapes Look Before You Leap? Tools of the Trade-Off 24 You’ll Meet a Bad Fate If You Extrapolate: The Folly of Using Average P/Es Social Versus Security Nonstationarity and Historical P/Es Why the Past May Not Be Prologue Bounded Parameters Unpacking the (Mental) Baggage 25 I’ve Fallen and I Can’t Get Up: Mean Reversion and Turnarounds Returns and Growth Death, Taxes, and Reversion to the Mean I’ve Fallen and I Can’t Get Up 26 Trench Cooperation: Considering Cooperation and Competition Through Game Theory The War Metaphor—Death or Life? Why a Date and a Marriage Are So Different Price and Quantity 27 Great (Growth) Expectations: On the Limits of Corporate Growth Compounding and Confounding Reality Check The Bigger They Are, the Slower They Grow (or Don’t Grow) Refuse Refuge in Castles in the Air PART 4: Science and Complexity Theory Introduction 28 Diversify Your Mind: Thoughts on Organizing for Investing Success Ant Brain A-Mazing Getting a Diversity Degree Creativity and Investing 29 From Honey to Money: The Wisdom and Whims of the Collective Smart Ant Traveling Salesman? Follow the Ant Delphic Decision Markets The Stock Market—the Ultimate Hive? Swarm Smarts 30 Vox Populi: Using the Collective to Find, Solve, and Predict The Accuracy of Crowds Needle in a Haystack Weighing the Ox with the Vox Estimating Printers with Populi And Now, For the Real World 31 A Tail of Two Worlds: Fat Tails and Investing Experience Versus Exposure Tell Tail What Fat Tails Mean for Investors 32 Integrating the Outliers: Two Lessons from the St. Petersburg Paradox Bernoulli’s Challenge What’s Normal? St. Petersburg and Growth Stock Investing Integrating the Outliers 33 The Janitor’s Dream: Why Listening to Individuals Can Be Hazardous to Your Wealth Beyond Newton Sorting Systems The Stock Market as a Complex Adaptive System Using What You’ve Got 34 Chasing Laplace’s Demon: The Role of Cause and Effect in Markets Evolution Made Me Do It Laplace’s Demon Interpreting the Market Investor Risks 35 More Power to You: Power Laws and What They Mean for Investors Zipf It The More Things Change Catch the Power 36 The Pyramid of Numbers: Firm Size, Growth Rates, and Valuation Why Big Fierce Animals Are Rare Find Your Niche Dear CEO: We’ve Made It to the Fortune 50! You’re Fired Extrapolative Expectations 37 Turn Tale: Exploring the Market’s Mood Swings Hush Puppies and Dogs of the Dow Ah Choo Economists, Meet Mr. Market No Progress in Human Nature Maintain Perspective 38 Stairway to Shareholder Heaven: Exploring Self-Affi nity in Return on Investment I Could Do That Stairway to Shareholder Heaven Making the Art Less Abstract Order and Disorder Conclusion: The Future of Consilience in Investing Notes References and Further Reading Index Since its first publication, Michael J. Mauboussin's popular guide to wise investing has been translated into eight languages and has been named best business book by BusinessWeek and best economics book by Strategy Business. Now updated to reflect current research and expanded to include new chapters on investment philosophy, psychology, and strategy and science as they pertain to money management, this volume is more than ever the best chance to know more than the average investor. Offering invaluable tools to better understand the concepts of choice and risk, More Than You Know is a unique blend of practical advice and sound theory, sampling from a wide variety of sources and disciplines. Mauboussin builds on the ideas of visionaries, including Warren Buffett and E. O. Wilson, but also finds wisdom in a broad and deep range of fields, such as casino gambling, horse racing, psychology, and evolutionary biology. He analyzes the strategies of poker experts David Sklansky and Puggy Pearson and pinpoints parallels between mate selection in guppies and stock market booms. For this edition, Mauboussin includes fresh thoughts on human cognition, management assessment, game theory, the role of intuition, and the mechanisms driving the market's mood swings, and explains what these topics tell us about smart investing. More Than You Know is written with the professional investor in mind but extends far beyond the world of economics and finance. Mauboussin groups his essays into four parts-Investment Philosophy, Psychology of Investing, Innovation and Competitive Strategy, and Science and Complexity Theory-and he includes substantial references for further reading. A true eye-opener, More Than You Know shows how a multidisciplinary approach that pays close attention to process and the psychology of decision making offers the best chance for long-term financial results.