Supported by Greenhaven Road Capital, finding value off the beaten path.
If you aren’t familiar with Michael Mauboussin’s work the best introduction is this FT interview from 2017. Our notes will focus on his 2019 Invest Like the Best Podcast with Patrick O’Shaughnessy.
Stakeholders. One of the ILTB principles is that the podcast is a way to find better ways to invest both your time and your money. We have numbers for the latter but the former is more important.
One way to think about that is by stakeholders.
Each bill to pay is a call on your income and lean on your time.
Each relationship is a mental and physical commitment to someone.
Everything is denominated in time.
One life-hacky solution is Taleb’s via negativa, remove the jerks from your life. Mauboussin addresses the opposite, add good partners to your life. “Seth Klarman of Baupost said something like, ‘The definition of a great client is someone who cashes a check when we write one and writes a check when we ask for one.'”
Rich Barton gives this advice to founders. “You want to take money from somebody who adds value and wants you to succeed and has the experience to help. Those are radically different dollars from someone who’s looking for a quick return.”
Stakeholders are important because returns are lumpy and great opportunities are scary. Someone who would have bought LTCM’s portfolio would have been fine. Someone who invested in Lyft in 2016 would have quintupled their money at the 2019 IPO. Someone who bought Bitcoin, well, let’s sit on that one.
But how much wandering is allowed? Most investors, Mauboussin said, are directed to “invest in large-cap equities or whatever so go do your thing.” But what-if there are opportunities elsewhere? When Mohnish Pabrai was asked how to be the best railroad analyst, Pabrai said it was the wrong question. “The question should be ‘where should we put our money in the entire universe of possibilities.'”
Sports. Mauboussin uses sports a lot in his conversations and books like The Success Equation. He also said that people like Daryl Morey, Sam Hinkie, and Jeff Luhnow do good work.
Decision making. Michael Mauboussin teaches a value investing course at Columbia and the early versions didn’t address decision making “But it is probably the most important component.”
There’s a YouTube playslist of most of the researchers.
Why is decision making so important? “You can have incredibly smart people in hard-charging organizations but they aren’t as efficient as they could be because they’re not thinking about how they’re making decisions.”
Machines. Is a machine going to take your job? That’s the wrong question said Paul Daugherty who titled his book Humans + Machines because it’s the “+” that’s most important. Machines are supplements first, not surrogates.
Mauboussin said the biggest change he’s seen is the rise of the machine. “Most noteworthy is the introduction and seriousness of integration of systematic approaches. How do we get to this holy grail of taking the very best of what machines do and allowing them to do that? And the very best of what humans do and allow humans to do that. I think, no question, there’s a role for humans in all this stuff. Even if it’s just in how you’re going to set up your algorithms and the judgments in that.”
We’ve adopted and adapted to machines already. Accountants use computers, carpenters use power saws, doctors use electronic records.
When the Oakland A’s – as told in Moneyball – started to use different analytics to evaluate players they didn’t simply rely on the algorithms. Michael Lewis wrote, “‘Bad makeup’ is a death sentence. ‘Bad makeup’ means this kid’s got problems we can’t afford to solve. The phrase signified anything from jail time to drinking problems to severe personality disorders.”
Billy Beane and Paul DePodesta would tell someone to “put a Milo on him” (these were magnetic whiteboards) with the name ‘Milo’, from a player who looked great on paper but never panned out.
The NFL has moneyballed less than the MLB but is using algorithms to supplement their peoples. Josh Hermsmeyer explained on the Wharton Moneyball podcast that scouting then counting tends to work well for anticipating quarterback success.
People should let machines do what they do best, count and repeat.
People should let people do what they do best, ask questions.
Thanks for reading.
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