Man + Machine, Moats, and Power of the Outside View, w/ Michael Mauboussin [Invest Like the Best, EP.37]

My guest today is Michael Mauboussin, who is the head of global financial strategies at Credit Suisse and is on my short list of must-read writers on all things investing. If you read his entire catalog, Howard Marks’s memos, and Buffett’s shareholder letters, you be sitting pretty. Michael was also a big reason for the early success of this show appearing as my second guest and now my 37th. He and his team have been prolific in the last six months, publishing several long research reports on the most interesting aspects of the investing landscape. In this conversation, we talk about business moats, industry analysis, and how to combine man and machine when building an investment strategy and portfolio. As I tell Michael at the end, you won’t be able to listen to this episode at two times speed, because we go deep quickly.

Books Referenced

Links Referenced

Since the end of 2006, investors have withdrawn nearly $1.2 trillion from active

The Base Rate Book

Assessing The Magnitude And Sustainability Of Value Creation

On the Impossibility of Informationally Efficient Markets

Adaptive Markets: Financial Evolution at the Speed of Thought

Wealth Transfers via Equity Transactions

Buyout Firm Buys $800 Million of Assets From Itself (WSJ)

Amazon’s Empire (Economist)

Stock Market Prices Do Not Follow Random Walks

Show Notes

2:15 – (first question) – Where is the point for equilibrium between active and passive, starting with a look at the Berkin Green model.

2:31 – Since the end of 2006, investors have withdrawn nearly $1.2 trillion from active

2:44 – The Base Rate Book

2:45 – Assessing The Magnitude And Sustainability Of Value Creation

4:31 – On the Impossibility of Informationally Efficient Markets

8:13 – A look at how four factors; technology, regulation, market environment, and the balance between informed and uninformed sellers.

10:49 – What do you think of the distortions that are created by active

17:54 – Adaptive Markets: Financial Evolution at the Speed of Thought

19:50 – Back to exploring the behavioral gap

21:53 – Wealth Transfers via Equity Transactions

23:26 – What about companies that are less prone to list and their value is captured in the private markets.

30:34 – What are the negatives that are keeping companies from going public and can we fix those issues?

36:02 – Is there a way for main street investors to get access to venture capital action?

37:22 – Buyout Firm Buys $800 Million of Assets From Itself (WSJ)

40:47 – What is a base rate

42:13 – Regression towards the mean

44:30– Amazon’s Empire (Economist)

48:46 – Narrative and Numbers: The Value of Stories in Business

49:21 – What’s the formula for plugging inside views vs outsides views because it appears the combination of both is probably stronger than either alone

53:01 – Where are the best opportunities to getting an edge using some of this data

59:33 – What are some examples of people buying for non-fundamental reasons

1:02:53 – Taking a deep dive into moats and the components that make them up.

1:04:31 – Michael Porter books

1:16:20 – One example of a conscious tradeoff for competitive position

1:18:28 – The competitive pressures in the asset management industry

1:22:35 – A look at harvest strategies and what that means

1:24:58 – Some of the recent resources that Michael finds fascinating

1:25:28 – Deep Work: Rules for Focused Success in a Distracted World

1:25:57 – The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction

1:26:03 – A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation

1:27:02 – Stock Market Prices Do Not Follow Random Walks