Michael J. Mauboussin > Quotes

“There's a quick and easy way to test whether an activity involves skill: ask whether you can lose on purpose.”
― Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

“Deliberate practice works when skill dominates, while a focus on process and probability is appropriate when luck is the greater force.”
― Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

“Once an innovation reaches a certain level of popularity, its success is virtually assured. By the same token, great innovations can fail because the domino effect doesn't kick in.15”
― Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

“When luck plays a part in determining the consequences of your actions, you don't want to study success to learn what strategy was used but rather study strategy to see whether it consistently led to success.”
― Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

“There are no good or bad horses, just correctly or incorrectly priced ones. This principle holds across all probabilistic domains: again, the goal is to get more than you pay for.”
― Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

“However, once you realize the answer to most questions is, “It depends,” you are ready to embark on the quest to figure out what it depends on.”
― Michael J. Mauboussin, Think Twice: Harnessing the Power of Counterintuition

“Not everything that matters can be measured, and not everything that can be measured matters.”
― Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

“Statistics don't appeal to our need to understand cause and effect, which is why they are so frequently ignored or misinterpreted. Stories, on the other hand, are a rich means to communicate precisely because they emphasize cause and effect.”
― Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

“In a probabilistic environment, you are better served by focusing on the process by which you make a decision than on the outcome”
― Michael J. Mauboussin, Think Twice: Harnessing the Power of Counterintuition

“When most people come to believe the same thing, large gaps open up between price and value.”
― Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

“In one study, a trio of professors from Harvard Business School tracked more than one thousand acclaimed equity analysts over a decade and monitored how their performance changed as they switched firms. Their dour conclusion, “When a company hires a star, the star’s performance plunges, there is a sharp decline in the functioning of the group or team the person works with, and the company’s market value falls.”20 The hiring organization is let down because it failed to consider systems-based advantages that the prior employer supplied, including firm reputation and resources. Employers also underestimate the relationships that supported previous success, the quality of the other employees, and a familiarity with past processes.”
― Michael J. Mauboussin, Think Twice: Harnessing the Power of Counterintuition

“Further, the size of the sample you take and the length of time over which you measure are essential elements of making a prediction. And of course, you have to be using valid data. So it's important to balance the statistics and the context.”
― Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

“To see another distinction between risk and uncertainty, we consult the dictionary: Risk is “the possibility of suffering harm or loss.” Uncertainty is “the condition of being uncertain,” and uncertain is “not known or established.” So risk always includes the notion of loss, while something can be uncertain but might not include the chance of loss.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“None of this is to say that experts are inflexible automatons. Experts act with demonstrably more flexibility than novices in a particular domain. Psychologists specify two types of expert flexibility. In the first type, the expert internalizes many of the domain’s salient features and hence sees and reacts to most of the domain’s contexts and their effects. This flexibility operates effectively in relatively stable domains. The second type of flexibility is more difficult to exercise. This flexibility requires experts to recognize when their cognitively accessible models are unlikely to work, forcing the experts to go outside their routines and their familiar frameworks to solve problems. This flexibility is crucial to success in nonlinear, complex systems. So how do experts ensure they incorporate both types of flexibility? Advocates of cognitive flexibility theory suggest the major determinant in whether or not an expert will have more expansive flexibility is the amount of reductive bias during deliberate practice.4 More reductive bias may improve efficiency but will reduce flexibility. To mitigate reductive bias, the theory prescribes exploring abstractions across diverse cases to capture the significance of context dependence.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“None of this is to say that experts are inflexible automatons. Experts act with demonstrably more flexibility than novices in a particular domain. Psychologists specify two types of expert flexibility. In the first type, the expert internalizes many of the domain’s salient features and hence sees and reacts to most of the domain’s contexts and their effects. This flexibility operates effectively in relatively stable domains. The second type of flexibility is more difficult to exercise. This flexibility requires experts to recognize when their cognitively accessible models are unlikely to work, forcing the experts to go outside their routines and their familiar frameworks to solve problems. This flexibility is crucial to success in nonlinear, complex systems.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“At our annual meetings, someone usually asks “What happens to this place if you get hit by a truck?” I’m glad they are still asking the question in this form. It won’t be too long before the query becomes: “What happens to this place if you don’t get hit by a truck?” —Warren E. Buffett, Berkshire Hathaway Annual Letter to Shareholders, 19931”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“Other psychological tricks we play on ourselves include the recency bias and sample size bias. The recency bias says that we weight recent information more heavily than a body of past evidence. As a result, we tend to overrate players who have done well recently even if they did poorly in the past. Sample size bias is related. The natural tendency is to extract more meaning from small samples than the data warrant. Psychologists who study these biases can teach us a great deal about why we struggle to sort out skill and luck.”
― Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

“Economist Paul Romer often starts with a very simple question, How is it that we are wealthier today than we were 100 or 1,000 years ago? After all, the underlying quantity of the world’s raw materials—in the extreme, the earth’s total physical mass—hasn’t changed, and we have to divide this mass among a much larger human population. Yet worldwide per capita GDP is roughly thirty times what it was a millennium ago, with much of the increase occurring in the past 150 years (see exhibit 18.2).2 Romer’s rather straightforward explanation is that we have progressively learned how to rearrange raw materials to make them more and more valuable.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“The issue is not which horse in the race is the most likely winner, but which horse or horses are offering odds that exceed their actual chances of victory.... This may sound elementary, and many players may think that they are following this principle, but few actually do. Under this mindset, everything but the odds fades from view. There is no such thing as “liking” a horse to win a race, only an attractive discrepancy between his chances and his price.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“I enthusiastically recommend a book by Clayton Christensen and Michael Raynor, The Innovator’s Solution, which provides managers with a useful innovation framework. But the truth is that not all companies can grow rapidly forever.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“While weather forecasters and handicappers get accurate and timely feedback, long-term investors don’t. Maybe one day we’ll create a simulator that provides investors the training they need to make better decisions. Of course, the result will be markets that are even harder to beat.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“What gets measured, gets managed.” If we measure the wrong things, we will not achieve our goals.”
― Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

“As Puggy Pearson once said, “Everything’s mental in life.”2”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“When an activity is near the all-skill side of the continuum, you can predict reasonably well. The main issue to consider is the rate at which skill changes. A related point is that a useful statistic is one that is persistent, which means the current outcome is highly correlated with the previous outcome. At the opposite side of the continuum, prediction is very difficult. In cases where there's a drop of skill in a sea of luck, you need a very large sample to detect the influence of skill.”
― Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

“While most of us are comfortable acknowledging that luck plays a role in what we do, we have difficulty assessing its role after the fact. Once something has occurred and we can put together a story to explain it, it starts to seem like the outcome was predestined. Statistics don't appeal to our need to understand cause and effect, which is why they are so frequently ignored or misinterpreted. Stories, on the other hand, are a rich means to communicate precisely because they emphasize cause and effect.”
― Michael J. Mauboussin, The Success Equation

“But perhaps the single most important facet of the Tupperware formula is the tendency to say yes to people you like. The purchase request comes not from a stranger, but rather a friend. Indeed, the Tupperware handbook counsels the salespeople to use the “feel, felt, found” method, effectively encouraging similarity through empathy while still highlighting product features. Combine these effects, and it’s not hard to see why many people try to avoid going to Tupperware parties in the first place: they know that once they are there, they will buy something. For example, the Times reported that one attendee spent “far more than she had planned,” no doubt swept up by the lollapalooza effect.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“Cigar-chomping Puggy Pearson was a gambling legend. Born dirt poor and with only an eighth-grade education (“that’s about equivalent to a third grade education today,” he quipped), Pearson amassed an impressive record: he won the World Series of Poker in 1973, was once one of the top ten pool players in the world, and managed to take a golf pro for $7,000—on the links. How did he do it? Puggy explained, “Ain’t only three things to gambling: Knowin’ the 60-40 end of a proposition, money management, and knowin’ yourself.” For good measure, he added, “Any donkey knows that.”1”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“shows the most difficult environment: a probabilistic domain with high degrees of freedom. Here the evidence clearly shows that collectives outperform experts.8 The stock market provides an obvious case in point, and it comes as no surprise that the vast majority of investors add no value. In this domain, experts can, and often do, hold diametrically opposite views on the same issue.9”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“Klarman has a wonderful line: “Value investing is at its core the marriage of a contrarian streak and a calculator.”35 He's saying that you have to be different from others and focus on gaps between price and value. This idea extends well beyond the world of investing.”
― Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

“Anybody familiar with the workings of a Tupperware party will recognize the use of various weapons of influence. —Robert Cialdini, Influence: The Psychology of Persuasion”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places