By Michael Mauboussin
This week, I am reviewing More Than You Know: Finding Financial Wisdom in Unconventional Places. This is an ongoing process, so send me your feedback as to how I can provide you with more value in reviewing these books (send me an email here or leave a comment below). See below to learn how you can win this book!
Today’s book is unique among investment books. Rather than being a treatise on a particular investment style, or tales of Mauboussin’s investment exploits (he is the Chief Investment Strategist at Legg Mason Capital Management), Mauboussin combines practical investment advice with cutting edge academic theory to present, in 38 short chapters, a cohesive approach to investing that all investors can learn from.
Readers familiar with Charlie Munger will recognize the same spirit in Mauboussin, who advocates the importance of creating mental models and then drawing upon these models in different aspects of your life. In that context, Mauboussin takes a multidisciplinary approach to the markets, synthesizing the results of academic research in a broad range of fields. He manages to accomplish this while ensuring that the book remains accessible to a broad range of readers. Each chapter is a separate essay beginning with an interesting scientific finding, and then an explanation of how this should be applied to an investor’s thinking about the markets. These essays are grouped into four categories:
- Investment Philosophy
- Psychology of Investing
- Innovation and Competitive Strategy
- Science and Complexity Theory
For those readers interested in learning more, Mauboussin includes a substantial list of reference material, allowing readers to dive deeper into any of the many topics covered in the book.
Some of the things Mauboussin advocates in More Than You Know:
- Focusing on process rather than outcome will improve the likelihood of long term success
- Thinking in terms of expected values provides emotional cover and avoids many behavioural biases
- Categorizing based on circumstances rather than attributes will lead to more effective decision-making when the market fails to act as you expect
- Recognize the leptokurtic (fat tail) nature of the market and avoid assumptions of a normal distribution (often used for simplicity, rather than accuracy!)
- Power laws are much more relevant to investors than the normal curve
- In certain situations, being an expert is a detriment, as reduced cognitive flexibility will lead to deteriorating performance
- Markets can be rational despite individuals acting irrational
This is easily within the best books I have ever read on investment philosophy, and so I highly recommend it. For those interested in reading some specific examples from this book, Motley Fool has a review which is worth reading.
Buy This Book Here or Win This Book!
As I have done with the last few book reviews, I will be using this book as an award for the best investment idea sent to me during the next month. Email me your investment ideas here.
Note: In assessing the quality of your investment idea, I will be looking at how it fits with the investment philosophy I espouse on this site and the strength of the supporting arguments (which can include excel models) as well as the identification of potential pitfalls. I hope that all of those who submit ideas will get some value out of the ensuing discussions.
Author Disclosure: This review is based on a copy provided by the publisher.