More Than You Know
MICHAEL J. MAUBOUSSIN
Reviewed by Todd
Michael Mauboussin is chief investment strategist at Legg Mason Capital. He, like everyone else in the stockbroking trade, spends his days researching companies and industries in search of insights that can lead to buy and sell recommendations for his clients. As you can imagine, this is a tough business. Everyone is looking at the same data yet needs to conclude something different. The only way to be original is to take a different approach and that is exactly what Mauboussin does in his work and in this book, More Than You Know.
Mauboussin believes in knowing a little about a lot, and that through this diversity of thought, we become better problem solvers. The original versions of the thirty-eight essays in More Than You Know were originally written while Mauboussin worked at the Credit Suisse Group, a Swiss financial service company, and released under that company’s newsletter column, “The Consilient Observer.” Consillience—the idea that all knowledge can be unified into a single working system—has heavily influenced Mauboussin’s investing philosophy. Breadth of knowledge creates, rather than opposes, depth of knowledge.
Each essay ties an accessible metaphor to a piece of specific research and its implications for investors. Don’t be scared off by the financial angle. The essence of Mauboussin’s work lingers on investigating how humans can make better decisions—something we can all use help with. To dismiss the work as not in your purview would be to miss the richness of sources Mauboussin draws from and miss the very point of using a broader base of knowledge to make better decisions.
Mauboussin’s essay “From Honey to Money” draws on research into the collective intelligence observed in bees and ants. The author marvels at the ability for these colonies to generate “complex, adaptive, and robust results” with decentralized decision making that works against much of the command and control structure we have built into our organizations. Looking to examples that mimic this organization and behavior, Mauboussin focuses on the decision markets. Iowa Electronics has accurately predicted elections at a variety of government levels, and the Hollywood Stock Exchange has shown amazing accuracy for predicting both box office receipts and Oscar nominees. The individuals in these markets closely resemble the ant or bee with their self-determined actions, the motivation to be right (earning money), and active feedback through the pricing on the markets themselves.
The last step of Mauboussin’s analysis is to ask if the jump from hive to decision market to stock market holds true. “Hives don’t have prices,” he says, and this makes decision making in nature less susceptible to the positive feedback loops that send market prices soaring (or crashing). He also points out that in decision markets the bet is always placed on a specific outcome and this eliminates some of the strategies available to stock traders, such as following momentum.
Mauboussin unveils other unpredictable musings through the book: What can Tupperware parties teach us about influence? What can the evolution of Tiger Woods’s golf swing say about finding optimal solutions? The breadth of subjects Mauboussin draws from and his central message that we should never put limits on what we know should inspire each of us to develop more numerous sources of inspiration as we try to make better sense of what we do and of the greater world around us. TS
“There are too many layers of interactions in the brain. The parts don’t explain the whole.”
More Than You Know: Finding Financial Wisdom in Unconventional Places, Updated and Expanded, Columbia Business School Publishing, Hardcover 2007, ISBN 9780231143721
WHERE TO NEXT?
Here for
why stock traders trounce Marines in trading
pits and war games 
Here for
why understanding baseball statistics can help
with decision making |
EVEN MORE: Consilience by Edward O.
Wilson; Creative Destruction
by Richard Foster and Sarah Kaplan;
Fooled by Randomness by Nassim Nicholas Taleb