Podcast Info
Podcast Description
Michael Mauboussin is the author of The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing, Think Twice: Harnessing the Power of Counterintuition, and More Than You Know: Finding Financial Wisdom in Unconventional Places. Michael is currently Head of Consilient Research at Counterpoint Global.
Michael has also held roles as Director of Research at BlueMountain Capital Management, he was a Managing Director and Head of Global Financial Strategies at Credit Suisse, and he was Chief Investment Strategist at Legg Mason Capital Management.
Mr. Mauboussin has been an adjunct professor of finance at Columbia Business School since 1993 and currently is Chairman of the Board of Trustees for the Sante Fe Institute.
Checkout the Show Notes from Michael’s Episode
Transcript 👇
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Transcript
Sean Delaney: Michael, welcome to What Got You There. How are you doing today?
Michael Mauboussin: Thanks Sean, great to be with you.
Sean: I’m very much looking forward to this conversation, and I thought a fun place to begin would be with lacrosse. We’re both former lacrosse players, you played attack at Georgetown in the 80s, and I’d love hearing do you have a favorite lacrosse memory?
Michael: Well, Sean, I’d have to say probably my favorite memory is post college. Yeah, so I played at Georgetown, the program has improved a lot, but it was a time when it was really transitioning, so it was… The quality of the play was not what it is today, but I played a fair bit after school in my Master’s program. And probably about a dozen years ago, I was with a team, playing in a tournament, and we had… We had just not that many guys, we had 13 or 14 guys, so everybody was playing a lot of positions, actually, I was playing midfield for that, and we were sort of a scrappy underdog team, and we ended up pretty early on winning a game in overtime that was sort of unexpected. And then we went on to beat the Navy team in the semis, and then we ended up being X Hobart guys in the final, so we won the Vale championship. So actually as a lacrosse moment, that was actually the most exciting thing I ever went through. And again, we were sort of underdogs in each of these games and everyone thought we were gonna lose. The great thing was the Hobart guys had brought cigars and champagne for themselves so they thought they had it locked up. They very generously and kindly, wholeheartedly shared the cigars and champagne with us after we won but that was great.
And part of it is, as you know, as an athlete that that was a team that was small and obviously were coming together to play a tournament, but one of the things I remarked about that team was it was obviously closely knit, and we had great players at each position, but there was an enormous amount of trust on that team, so every guy, obviously every guy had to contribute his capabilities, but there was just in the enormous amount of trust, which was really, a really fun to be part of that and also for that to come together in a good outcome.
Sean: Anything besides trust that has really stuck with you and translated from the sports field onto the business realm and investing world?
Michael: Yeah, so I’m sure you have the same sensation. There’s very little in life that gets done without hard work, and I think in athletics, that’s certainly the case as well. So who are the guys that really are working hard, who the guys are grinding it out, going the extra mile to get things done. To me, there’s no substitute for hard work, and I certainly see in athletics. I obviously never played at an elite level, but you can be sure that anyone playing in an elite level, they all have tremendous underlying talent. And really that hard work, I think, is a huge component. So that to me is another thing it translates directly over. But trust, yeah, that’s just a big component is having trust in your partners and your teammates, and not all athletes do it, and not all, certainly, business people do it, but I think that’s an incredibly powerful thing when you have that in terms of a collective success. Sean: No, I absolutely agree. You’ve been a leader, both on the sports field at being a co-captain at Georgetown, and then also everything you’ve done outside of that, are there differences between leadership at an elite sports level and in business or of the investing world?
Michael: Yeah, I don’t know. I would say that I was at an elite level, I will mention Sean, there’s a book called The Captain Class. Do you know this book?
Sean: Yeah, so we’ve actually had the author on that was a pretty…
Michael: I’m starting… So I thought that that’s the most definitive discussion, I think about leadership and probably a number of those things crossover, and you know more about this than I do probably, but… Right, it’s often the case that the leader on a sports team is not always the best player, whatever that means, but a guy, he had this phrase he called a water carrier, right.
Someone was just ready to do basically anything it takes to succeed, great communication skills, really important, they don’t have to be verbal, they can be other cubes. And I thought the great… That discussion about Tim Duncan was really fascinating.
So yeah, I think a lot of those things do a map over pretty differently… Part of it is just being yourself, being authentic, right. So you, whenever you emerge as a leader in any… Or even I observe leaders, you want them to be authentic and to do it in a way that’s consistent with their own personality and so forth. So it’s a little bit different for everybody. And I think a lot of, even coaches and teachers sometimes can go early on astray by trying to be someone else, and the best is… The best thing to do is to be the best version of yourself, right.
Sean: So one of the things that comes up over and over again, especially with current athletes and trying to figure out that transition into the business world and for you, ended up being finance. How did that happen for you?
Michael: Well, listen I knew I had no future in athletics, so… By the way, I just go back, it’s funny, I played three sports in high school. And I probably could have played all those sports in college on some level, but I remember I played ice hockey and I was this junior or senior in high school, and I’m playing against this guy Clark Donatelli, by the way, who’s actually going on and I think he made it to the NHL, he didn’t have a big career, but he’s coaching, but I’m playing against this guy, I’m thinking to myself, “I am working as hard as I possibly can just to not make a fool of myself,” right. I’m not thinking about anything that I’m just trying to… I just try to keep this guy in check to some degree, I’m thinking, “Okay, well, I have no future in that, right, so I better hit the books.”
So yeah, I knew pretty much that there was gonna be no future for me in athletics, and it is interesting because I know that you’ve got experience coaching and I’ve done some… I teach, and I think that there’s a lot of parallels between coaching and teaching, maybe we could talk about that, but… Yeah, so I knew I was gonna have to go into the business world and so… And I have to say candidly that in my youth really, even through college, I spent a lot of time and energy on athletics, and that was probably to some degree to the detriment of my academic development. I was never a bad student, but not probably what I could have been. And I think that as I turned to the business world, I had to get a little bit more serious both just in terms of getting a job, but also developing or catching up a little bit intellectually and academically. Yeah, it’s very fortuitous my first job was at Drexel Burnham Lambert back in the mid-1980s. And back then, there were a lot of really wonderful training programs the banks held, and so I was able to get into a training program, which in a sense gave… Laid out the framework for what I needed to understand. And the other thing about that training program that was really unique and I think very valuable for me and probably the other people in the program, is that we rotated through… We did classroom instruction first, but then we rotated through different departments of the investment bank, so you spent time on a trading desk, and time in investment banking, time in research, time in operations.
So as someone who is trying to match your skills to understand what you’re good at, what you think, where you think you can contribute, what is aligned with how you operate, it’s a tremendous opportunity to do sampling and figure that out, so that for me was also very useful. Some people go on trading desks and get very fired up, and that’s what they love to do, that was not my thing. Other people get to go into research settings and work on projects that gets much more exciting, so it was a really a very valuable opportunity to have an opportunity to match the magic, personality and skills with a job.
Sean: No, I just wanna highlight what you mentioned, just in terms of being true to yourself and understanding what skills you have and how to exploit them, how did you end up getting your foot in the door, that training program?
Michael: Well, you may read this story, but I grew up in Ithaca, New York, central New York, and my father was a car dealer, and so actually for a couple of summers I spent on the floor selling cars. And I was not very good at that, by the way, but I did learn a lot about sales, and I thought those skills, by the way, are very valuable for anybody to learn basic skills, techniques. And so I’m looking for a job and I say, I know I need to get a job. And so one of the firms that recruited was Drexel, they came on to campus and they were looking for a program that… This program ultimately led you to be a financial advisor, so essentially a broker, so selling would be part of that job, so I think that I had enough to say about that that let me get to the New York, to New York interviews.
So when I went to New York and there were quite a few kids that were interviewing for these jobs, this is always a fun story to tell, they got all the students in a conference room in the morning and you’re looking at each other very nervously, wearing your fanciest suit, right? And they said, “Well, you’re gonna meet with all different people in the training program, but then you’re gonna have 10 minutes with the head guy.” And so you do your very best, and so I go meet the big guy, right, he’s got this beautiful office, and expansive, and I was super nice, but as I walked into his office, he had a Washington Redskins trash can sitting by his desk, and I was going to school in DC, I wasn’t a particularly big Redskins fan, but they were doing a really well at the time, I’d gone to a couple of games, so I was sort of on the bandwagon, so I said, “Hey, this is a great trash can,” and as I like to say it hit him like emotionally, so my 10-minute interview ended up being 15 minutes of me basically nodding my head and him going on about the virtues of athletics and how he loved living and Washington and so on, so forth. And so that was fine, so I really said nothing or very little, and he was just going on. And so I go off and I get the job offer, which is great, so I start and a few months into the program, one of the guys who runs the program sort of pulls me aside, he says, “Hey, I just wanna tell you you’re doing great, and we’re really pleased with your performance, but I have to just… I’ll let you know now that the other people you interviewed with voted against hiring you, and the head guy came in and said, “Hey, this kid is really great, we should bring him into the program.” So as I like to say my career was launched by a trash can, it was really this sort of fortuitous thing. And look, I think that in retrospect, I hope that he feels like he made the right decision, but that’s an interesting example of connecting with somebody on a level that really wasn’t about just pure business, but he obviously… It sparked off an emotional reaction with him that ultimately led me down this path, which is again, a lot of life is sort of these lucky turns and that was one of them for me.
Sean: Yeah, we’re gonna talk a lot about luck, something I’ve learned a great deal from you from, but one of the things I wanna hit on first is you are one of the clearest business thinkers I’ve ever come across, if not the clearest, and this makes me wonder just about your ability to think about business and your thinking process in general. Do you have an actual process that you allocate towards thinking?
Michael: Not really, but I do think you’re making a couple of points that are really important, and I’ve had in my career, I’ve been very fortunate to be able to do two things that I think help in that regard a lot, maybe three things. One is I’ve been able to allocate a lot of time to it, so whereas a lot of people are really doing things… I had to do things when I was an analyst and I was a strategist, but I’ve had for a long time, quite a bit of time to allocate to study as a professional, and that’s a tremendous, tremendous benefit. The second thing is writing, and so I’ve had the opportunity to write a lot as part of my job, and even working on writing some books, and I’ll mention one of my books, I had an editor work with me, a guy named Lawrence Gonzalez, who was amazing. And when I sent Lawrence, I first just sent it to him very casually, and he said, “Well, I’d like to line edit this for you,” and so I was like, alright, great. So he sent it back and not only did he line edit my book, he actually wrote basically in the margins, “Here’s this mistake you keep making, here’s why you’re always muddled in these particular situations, you’re using this expression the wrong way.” He was actually teaching me about writing as we were going through this, and I just recall going through his edits was one of the most difficult weeks I’ve ever had professionally, but incredibly valuable in terms of understanding how to communicate more clearly and cut out a lot of fluff and so forth. And then the last thing I’ll say is teaching, and as you know, just teaching and coaching, same thing, it’s one thing to think you know what something means or how to do something, it’s a very different thing to communicate it, to get that into the mind of another, and I think teaching instills incredible discipline. You really can’t teach something until you understand it, and so you can’t fake it, and if you do fake it, especially with graduate students, it’s gonna be clear pretty quickly. And I always like to say great teachers are great students, and I think great coaches, by the way, are great students, so it’s a circular process, never ends. And so those things, really having time to allocate, writing and the discipline of writing, and then teaching all sort of work together, I think, to move toward that objective, like you said, to get clearer and more correct about ideas whenever possible.
Sean: This is fantastic, Michael. I think this is really gonna set a good framework for the next few minutes here. You identified these three things, did you have early models that you also saw these men and places you wanted to be emulating these three characteristics and traits?
Michael: Yeah, it’s a great question. I grew up in, as I mentioned, I grew up in Central New York. I grew up in a family without really any books, and I was so… My parents were both bright, they never went to college, but they were bright, and they were very focused on education, but they weren’t modeling this kind of stuff very much at all. I will say that I had an epiphany moment in my training program when one of my training colleagues gave me a copy of Al Rappaport’s book called Creating Shareholder Value, that was probably 1987 or 1988. Rapaport had written that book in 1986. And as I like to say, I was a humanities major, right, I was a government major going on to Wall Street, and I knew none of the stuff, I knew none of the jargon, the way people communicated and the way they did everything, and so it was all brand new to me, and by the way, very confusing to me, and I read Rappaport’s book and for me, it was like a lightning bolt of clarity, and so I would say that reading that book started to give me a framework to think about the world more effectively.
Al, by the way, has grown into… Become a very dear friend. We collaborate on a lot of stuff, and we wrote a book together 20 years ago, and I just say that almost, and to this day, my conversations with him are incredibly valuable to help flesh out ideas, and it’s interesting, I would never admit this publicly, but sometimes as a teacher I’m a little bit stuck about how to think about something or how to communicate something, and I just make my call to him and say, “Here’s sort of where I’m stuck here, I don’t know how to say this,” and just spending a few minutes with him on the phone allows me to be able to work through that, so yeah, he would be great.
And then I just say the other thing that really helps, I think with writing and thinking to a large degree is reading. So if anybody said, “How do I become a better writer? How do I become a better thinker?” I think the answer is really that you have to allocate time to reading. When you read a lot, you start to realize the kinds of language that resonate with you, who writes clearly? Who gets ideas into your mind? What is memorable to you? And so I think you start to understand, again, you bake it into what your own writing style is, but it’s like listening to other musicians, you probably integrate… You hope to integrate the things that are really helpful to embellish on your own styles, so reading, it’s been another huge component in all of this, not only just to learn, but also to understand what you like and how to communicate more effectively.
Sean: I’d love to jump into your writing process, but do you have any examples of people you look to in terms of clear writing?
Michael: Well, look, I think that there are two people I mentioned right off the top of my head, Michael Lewis is like a freak. He is so good and so talented. And it almost makes me like, I don’t know how the guy is so good, so he’s one example. Matt Levine writes a column for Bloomberg, which is like the highlight of my day when that thing hits my inbox. He’s so funny, he’s lucid, he’s clear, he’s provocative, he’s got a great nose for stories, so that’s another… He’d be another guy I would point to. But there are a lot of, obviously a lot of great writers. I do like science writers too, that can write clearly and informatively, Steven Pinker or Richard Dawkins, are examples of guys that their prose really connects with how I think about things, so those would be some examples of good ones, I would say.
Sean: Yes, Steven Pinker I know has put something out online, I think it’s his 13 examples of clear writing, we can add that one into the show notes. You mentioned reading, and that’s where you pull a lot of ideas from. I take it your idea generation process just far outweighs the capabilities of your output, so I’d love to know how do you balance the exploration verse exploitation problem?
Michael: I love that. I’m always worried that I’m going to run out of things to write about. So I do keep a little running list of things and I’m like, so you cross off the top one as you write about it, and then you add some to the bottom, and it does seem like an endless, an endless journey. That’s one of the virtues of being involved with business and of being involved with the markets is that there… You never leave the game, you always have something to learn, there’s always something new, some development, so on, so forth.
It’d be nice to say, I wish I could be ahead of a more systematic answer to this. I basically just sort of follow my nose and what seems to be interesting to me at a particular time, or because my curiosity in a particular topic, I just… I either don’t understand something or I’ve not read anything that allows me to understand something, those tend to be the areas where I gravitate.
A lot of the work we do is, I would say, I would really call it synthesis, we do some original stuff, but a lot of it is synthesis, which is to say really trying to garner the best ideas or thoughts and upon a particular topic and bring them together in a way that that allows, hopefully allows us and some other people some insight as to how it works. So yeah, I just sort of follow my nose around is the best answer to that question.
Sean: Yeah, sometimes synthesis is just an indication of better understanding, so yeah, the deeper you can go on that always seems to be incredibly beneficial. You mentioned a second ago about you love when you don’t understand something, what does it look like in the first couple of days when you come across something new you’re unfamiliar with, what does that look like for you?
Michael: Yeah, it’s a great question that really does speak to just my writing process in general, so what I tend to do is phase one is to just read as much as I can about the particular topic. And for us, if it’s an investing-related topic, it usually means identifying often academic papers, but also things from the business press, but usually academic papers, and literally trying to identify and cast as wide a net as possible as to what papers will be relevant, and then I basically just try to read them all. And as I’m reading them, I’m trying to take notes, so I have some mental references, so that’s writing on the margins and so on, so forth, and almost always have a legal pad near me, so I’ll jot down notes and so I’ll just sort of bomb through that. And that takes time, right, but there could be a lot of other things going on, so I’ll just allocate time to that over some period, and then the second phase is really trying to sit down with that legal pad and just organize some sort of an outline for that, I know some people write without outlines, I don’t know how those people do it, but I write everything… I try to outline everything before I write it, just so I know that I know where I’m going, I know where I can refer back to material and so and so forth. I think it just helps me.
And by the way, I struggle, sometimes these things look like they come out okay, but often it’s a real struggle to come up with an outline that seems to flow at least the way, the way I would think about the topic. And Sean, I suspect this is true for you as well, but a lot of the time where I’m sort of working through those kinds of concepts is usually, like when I’m working out or something like that, I’m doing something different. I’m walking the dogs or I’m working out, or before I go to sleep, or right when I wake up, sort of these quiet… Or in the shower, right? Literally, these quiet moments where I posed the problem to my mind and let the mind work through it and eventually churn it out, and so then once I have the material, I’ve read it, I’ve outlined it. And by the way, as I go through the outline, I’ll refer back, paper X, this page, go back to that. And then I try to put pen to paper, and the other thing that we are relentless about is editing, so not the first drafts, I try to make them pretty decent, but we spend enormous amounts of time going back and editing and improving and refining and that process I think that most of us don’t wanna do that, you just wanna hand your paper to the teacher and get an A, but you realize in the real world that editing and that iteration process is really, really vital.
Sean: Yeah, I’m smiling over here just because in preparation for this interview, which is one I mentioned to you, I’ve been looking forward to for years. So this morning, I happened to take an extra long shower just so I could really visualize this conversation, then even yesterday afternoon, a long walk, because that is when I do my clearest thinking, it seems very similar to you. I’d love to dive on some of your papers, and we’ll call them your white papers, and you would know better than me when you first started doing it, was it around 2003 you first started publishing these?
Michael: Probably, there’s some in the 90s.
Sean: Okay.
Michael: For sure, some in the 90s, late 90s. But yeah, yeah.
Sean: So multiple decades, I’m wondering, over those multiple decades, has there been much of a change in terms of how you go about writing these? Do you just feel like you have a more intuitive sense of how to uncover these problems and then clearly synthesize them?
Michael: I think so. I think like anything in life, it’s an accumulated… There’s just more accumulated knowledge, so I just know more stuff, I have seen more stuff and so could integrate more stuff. And it’s interesting, for example, Al Rappaport and I are discussing the prospects of doing a revised version of Expectations in Investing, that book that came out in 2001, so this would be roughly 20 years later, and we were just commenting and reflecting on how much we’ve learned in 20 years, so a lot of the bones of what we wrote about are still really good and really relevant, but there’s been so much stuff that’s happened in so much that we’ve learned in the past two decades. So I think that that cumulative learning process just adds a lot of spice even if the core ideas are the same, and I find that even for my course on, you know I’ve been teaching my course since the early 1990s, and it’s a very good question to ask how much is different versus 25 or 30 years ago, and the answer is a lot of it is actually the same because some of the concepts are sort of immutable concepts, but there’s just so much around the edges about what I’ve learned and what I think the collective world has learned that can get integrated into an effective way. I hope that I get better at this as time goes on because A) I just get more practice doing things and B) there is just more, I think, general knowledge out there that we can integrate it to what we’re doing.
Sean: Yeah, you mentioned those immutable concepts, and I was spending a large chunk of time a few months ago just diving deep on some of your early work and believe me, they still hold true today and certainly resonate. You’re speaking about that accumulated knowledge and I’m wondering though, is there a skill mindset of yours that you just find the most difficult to transfer to even the most talented people on your team?
Michael: Can you re-say that one more time?
Sean: So besides accumulated knowledge, I’m just wondering, is there a certain skill or mindset of yours that’s just…
Michael: Oh yeah, yeah. No, I mean, I’m one of those guys, there’s nothing special about me and what I do. I think that everybody’s gotta be true to themselves to some degree, so for example, I tend to spend a fair bit of time reading and people are sometimes impressed by how much I read, but it’s trade-offs as I’m not doing something else, if I’m reading, right?
And so the kind of work that I do is not everybody’s cup of tea, nor should it be everybody’s cup of tea, and there are a lot of other people to do things that I can’t do very effectively at all. And trading is an example, I think I would be horrible at that. And I mean, I know actually my first job as a financial advisor, I did that for about a year and was an abject failure at it, so I’ve experienced failure and understand that. So yeah, no, not really.
I do think that it’s great to be part of a team or an organization where there is a lot of intellectual curiosity, where there is open-mindedness, and so those qualities I think that you can sort of presort for them to some degree, but you can also cultivate those as an organization, so I don’t find any… And the other thing is interesting, just in the investment business too is that, it’s actually everywhere, sports, is that sometimes success can lead people to think that what they’re doing is the only thing they need to know. Success sometimes brings a little bit of, I don’t know whether it’s inertia or complacency, and as you know, the greatest, the greatest athletes, the greatest coaches, the greatest organizations, are ones that are constantly striving to improve and to learn, and so that’s also another… But I’m not trying to confer anything that I do with anybody outside the… I’m trying to learn from other people more than try to impart anything on them.
Sean: Yeah, I love the humility. And you’re just even talking just about just those people who are constantly learning and improving, and you obviously know one of the most important pieces that is feedback, and you were talking about the editing process with your writing, what other ways are us incorporating feedback loops into your life?
Michael: Yeah, I think it’s really important, especially I think the quality of the feedback is very different in different types of activities. So when your activity is largely skill-based and you think about playing the piano or, you know music is just a great example, or a tennis player or something. So a teacher can really observe you and give you very pointed feedback that can be helpful, but when you get more on the luck side of things, when there’s more randomness, and I think markets are a really good example, investing is generally a very good example, it’s very difficult to get high-quality feedback, so I think the answer is to focus as much on process as possible. Now, the feedback for what we do is I… The clearest example where I get feedback is actually in the classroom, because as I present ideas, I can see people whether they understand what I’m talking about or not. So I get visual cues, obviously I get questions, but also visual cues, and so the key is to tune, to tune the presentations in the message to make sure that you’re getting maximum impact.
Over the years also, I do a fair bit of presenting, whether they’re client meetings or whatever… And I’ll tell you something else, it’s funny for me, for example, I would show… I would have a concept or even have a joke in my presentation or something I thought was light-hearted, and people look at me like I’m an idiot, so I was like, I can now understand what these comedians are like, they go to these clubs and they’re trying out the material and something you think is really clever may not go over well and something you may think is not very clever, tends to go over well and you just have to sort of go with what works, right. So there’s some of that as well. I try to be attuned to that.
By the same token over the years, from time to time, I’ve gotten the same people saying to me like, “You should do this, that or the other,” and if it didn’t feel right to me, if I felt that what I was doing was more, was better or more authentic, I would actually not pay attention to some feedback. So part of it is gathering proper feedback, especially from sources that you respect, and I think an audience of a student body, for example, is great, but also to make sure that… And I think that’s great… Any successful organization is gonna have people along the way saying like what you’re doing is not right, or why would you be doing this way, or whatever, and you have to have a little bit of fortitude of the vision and the backbone of what you’re doing to also understand when you shouldn’t pay attention to feedback.
Sean: Yeah, you’ve been teaching since ‘93, Columbia School of Business, and earlier you were just kinda mentioning some of the parallels even to coaching that there is in teaching, what else in teaching do you think is very important for the teacher to help his students or their students?
Michael: Yeah, I think that… And Sean, I’m not sure what your experiences were like, but if you reflect back on the great teachers or coaches you’ve had in your life, and by the way, they tend to be quite memorable, but I think that one of the qualities, what I always find is, so as I mentioned they’re great, there’s usually a few things, one is their good communicators, so they have the capability of taking what can be complex ideas and making them understandable so that you walk out and you say, “Man, that’s cool. I now understand something I didn’t understand before.”
I think great teachers are great learners, so it’s not like they have a body of information they’re trying to convey and just do it in the classroom and then that’s it. They’re constantly learning themselves and that speaks to the intellectual curiosity as well. So those would be… Those would be, to me, some of the very big qualities of great teachers. Yeah, those would be two big ones.
Sean: Yeah, I’ve never had the honor of sitting in one of your classes, but I’ve seen a number of your presentations and different videos you’ve been a part of, and your communication skills are second to none. You’re so clear, so concise, your work is so buttoned up, I would love to know how much work goes into, let’s call an hour-long talk for you?
Michael: Yeah, that’s a good question. And the other thing is that I’m a fairly strong introvert, so these kinds of things are not… I can now do presentations, but it’s not necessarily a comfort zone for me. I’ll mention in the mid-1990s, I went to a place called the Buckley School of Public Speaking, so it’s down in Camden, South Carolina, and it’s a couple of day… Two and a half day training session on public speaking, and they teach you a lot of techniques to improve the quality of your speaking. I’m not sure I do all the things I was supposed to do all the time, but it was very helpful for me. But I think you’ve hit on the key point, and again, this also relates to business and athletics and so forth, which is the importance of preparation, and I think that many people feel that they can, maybe wing it is a bit of a strong term, but they under-prepare and my tendency is probably to over-prepare. So I prepare a lot for those things. So I… When you say one hour presentation, and often I’m doing those things, the first time. what you’ve probably seen is after a bunch of practice and having done it, refined it and so forth, but no, I spend a lot of time on it. And I’ll give you one or more concrete thing, when I was an analyst back in the day, we would go in the morning meeting and you talk about a particular idea, I’m upgrading the stock or downgrading the stock or whatever it is, and you would get three minutes to do that. Three minutes, so you have to be able to communicate your idea as effectively and compelling-ly as possible in three minutes, and I would spend an hour or 60 to 90 minutes crafting that three-minute presentation to really make sure I was picking the right words, that I was introducing the right statistical, the right numbers to animate the ideas and so forth, and I think that that ends up paying off, right. And, and again, that’s a case where you’re getting feedback, so if you do it well, you realize what worked, if you do it poorly, you realize what didn’t work.
And the other thing I’ll say for that is I also like to listen. Also, it’s like reading, I like to listen to other people and see what works. Again, maybe it’s idiosyncratic, what works for me, but who is a good speaker? Who is clear? Who is compelling? And yeah, so just observing other people and trying to, again, take their greatest hits and say, look, that’s a quality I wanna emulate.
Sean: Yeah, well, envy is a strong word and believe me I envy the amount of work that is so apparent that you must put in in order to execute those hour-long conversations.
I was pretty blown away a second ago, you mentioned the Buckley School of Public Speaking, which was just some two-day course years and years ago. Are there any other things like that that you’ve done your life that just had such a tremendous, long lasting impact for you?
Michael: Not that I could think of, but I will say that the Buckley experience has been, it wasn’t just like a one-off, it was something that ended up really… First all was very useful from the very beginning, but integrating that stuff has been helpful, and so actually I do… In my course, I have my students do presentations at the end of the course, and so they’re working groups, but I give them a module in how to do a presentation, and so I teach them some of the techniques. Some of them are things I learned from Buckley, some of the things I’ve learned from other sources, but I teach them how to do it. A number of students come back and say, “I love the course, but actually, that no one had ever told us exactly how to do a presentation,” and having those guidelines in place, were very helpful. So yeah, but I think a lot about that. But again, we do talk about those, I would say that reading Rappaport’s book was an epiphany moment, I would say that reading Mitch Waldrop’s book about the Santa Fe Institute called Complexity and going out to Santa Fe Institute, that was sort of this epiphany moment for me.
So there have been certainly moments that have been, in many ways, professionally life-changing that are worth noting, but that you know, the Buckley thing is a skill development thing, and I would say Lawrence Gonzalez too, having him edit that one book, and then he edited my later book, having him work through that and teach me, so graciously teach me as he was correcting me was super powerful. And even when I try to edit, if I edit my kids’ papers, for example, for college or whatever, I never change any of the ideas, but what I’m hopeful that they’re getting when I’m editing, for me, is understanding what I’m doing and why I’m doing it, so that they can learn how to do it properly the next time. So it’s not just about correcting it, it’s really about trying to teach how to do it properly so that they need me less and less as they go on.
Sean: Michael, I’m not even sure if you’re aware of just how much wisdom you’re putting out right now, so I’m so appreciative of this, you mentioned just giving the presentation for your students and helping them through that, most of them have never experienced that. Is there anything else that they just take away that seems incredibly valuable that you do as a teacher?
Michael: If there’s anything there, I would have to ask the students. But I guess the other component on teaching, which I probably neglected to mention, was just passion. And as you know, people who are passionate about their topic, I think it tends to come through and animate the whole concept. And one thing I’ll say that I do, I do in my teaching, which I didn’t see all the teachers do for me or for my classes, was to learn the history of ideas, and I’ve always found that to be fascinating. By the way, you look at great coaches, for instance, almost all of them understand the history of their sport and the history of the ideas and how they’ve come along, and they spend time to understand the evolution of their game, and I’ve always found that to be fascinating. So in the world of business and investing and finance, there are obviously very long, deep and rich traditions and there are paths that the, intellectual paths, that these different disciplines take and just understanding that and understanding where these ideas come from, and how in the arose in the first place. I find that stuff to be fascinating, and I think it’s a very valuable component of pedagogy, so a very valuable come into teaching is to say, “Here’s this idea that we have, here’s where it came from. Here’s why it’s valuable. Here’s how to think about it,” right?
And I will say to my course that we don’t have official mottos, but we have two mottos. I share with them the very first day, one is, it’s a Latin phrase, that’s the motto of the Royal Society. It’s called Nullius in verba. But the translation of Nullius in verba is really don’t take anybody’s word for it, think for yourself. So I say to the students, “I’m gonna guide this, I’m gonna sort of lead this discussion over the next semester, and I’m gonna impart from frameworks and tools, I’m hopeful that you’ll find useful as you go through life,” but it’s Nullius in verba, right? Don’t take my word for it. Think for yourself always. And if something doesn’t make sense to you, you should always ask or challenge, right?
And the second is, there was a quote from the mathematician, Carl Gauss, and he said… It’s also in Latin, but basically said, Not notations, but notions, right, so in other words, don’t worry about math before you understand concepts. So concepts first and then bring on the tools and all that to specify that, but concepts first. By the way, I think that’s also very important, even in analytics and sports and so forth, certainly in the world of finance and business is to understand concepts first and then having those notations, the numbers, animate that rather than the other way around. So people sometimes go right to these equations or numbers and don’t really have the full context, so those will be some other things that I’ll just throw out there that I think… That’s behind the scenes, I’m not sure the students are so aware that I’m thinking about this stuff, but that’s the stuff that I think might be helpful in the bigger equation.
Sean: No, the behind the scene stuff I find is a lot of times where the gems lay. So I’m gonna ask you to wrap up all of human history here in terms of double-clicking on the history of ideas, and if you’re gonna dive a little bit deeper on that, just in terms of finance and business, what are some of those broad things you’ve uncovered there?
Michael: Well, I recommend a couple of books in terms of finance. The two books I think are just outstanding in this regard are Peter Burstein wrote a book called Against the Odds: The Remarkable Story of Risk.
Sean: It’s awesome.
Michael: Yeah, and so you know the book, and it’s a history of our understanding of risk, that there are chapters that are yet to be written, so that’s fascinating. And I always say to my students, it’s an exciting time to be young because there are so many things we don’t understand, and in your careers, you’re gonna be able to explore those things and define them and that’s cool. And the second book he wrote was called Capital Ideas, which is really an… There are two versions of it, but I sort of the history of the development of ideas and capital markets and capital theory, so those to me would be… And so they’re not sorting the ideas of mankind, but in terms of the finance, I think those are two really valuable books, but I do spend… Even John Burr Williams wrote a book in the 1930s called Theory of Investment Value. So this is a really early treatment of how to think about valuation, and understanding Williams’ place in how we think about valuation today is really… Those are the kinds of things I find to be really cool because it puts things into the proper intellectual context.
Sean: You always know people love hearing book recommendations, so this is gonna be a little treasure trove here, so I appreciate that.
When you started at Columbia in ‘93, I have to assume, you guys don’t even have behavior finance courses, and if we’re gonna fast forward 30 years in the future and look back, where do you think people are gonna be dumb founded that we didn’t concentrate more right now on?
Michael: A great question, by the way. There were no behavioral finance courses, but what I suggested to my students, even back then, was that they take negotiations courses because negotiations was the closest thing that they could get to understand it, and what’s powerful about negotiation, as you know is… And I’m not negotiations teacher, but I think that this idea, it’s really a valuable idea in life, which is understanding the other person’s point of view, right. So you have to understand what is acceptable to you and you have to understand where the other person is coming from, and then obviously what you are trying to do is find a solution that’s mutually advantageous.
So this idea of just literally understanding other people, and I think a lot of what comes down in behavioral finance is actually understanding the behaviors and thought processes of other people. I do think that, look, they’re a bunch of areas that we just don’t understand… I tell my students very first day, I’m like, I’m gonna… There are more questions than there are answers in finance, so there are a lot of things we don’t really understand very well, some core ideas, I think don’t fully understand our market, things like market efficiency and market inefficiency. So what makes asset prices “correct?” I know we have ideas, and I certainly have written a little bit about this, but I don’t think that’s button down. What is the concept of risk? Do we really understand what risk is? Are there better ways to think about that, might we be able to do that?
Going back to this idea of market efficiency, one of the areas that I’ve always found fascinating is sort of the society of the wisdom of crowds, and the key to the wisdom of crowds working is you have to have diversity of the underlying agents. In this case, investors, you have to have an aggregation mechanism, so a way to bring that information together and you need proper incentives. Well, we don’t really know how to measure diversity all that well, and that’s another area, I think, if you said 30 years from now looking back, I really hope that we do a better job of really thinking about diversity. And when we talk about diversity and organizations, we always talk about social categories, diversities of age, gender, ethnicity, and so forth. But really what we’re after is cognitive diversity. So the ways we think and our mental models in our training, in our experience, and I think we’re… We’re making some strides, but how we understand that stuff is still, I think still quite nascent. So that’s another… And then last theory, there’s been a ton of ink spilled on this obviously, but even things like competitive strategy, so what makes for a good business? What makes for a sustainably good business? That’s a big area. And maybe I’ll mention one more, which is, we spent a lot of time and written a lot about this concept called base rates, which is essentially a repository of history, of corporate performance in particular, for instance. So how have companies grown? What’s happened to their profits? And all these kinds of things. And the premise is that some understanding of history can be helpful and understanding potential outcomes for the future, so that whole area in terms of building out databases, if you will, of past performance, I think that’s still vastly underutilized and vastly underdeveloped, and that might be something in 20 or 30 years that we’re much more robust in doing.
Sean: Yeah, it’s certainly an exciting time, the ability to then dive deeper and explore more of these. One of the things I love exploring, one of my passions is just around understanding behavior and psychology so that I can make better decisions, and hopefully those decisions lead to better outcomes. When did you start looking at heuristics and biases and just their overall impact on investors?
Michael: It’s a great question, Sean. I think that as I started teaching my course, the thing that I really ended up, the biggest change over the years, has been precisely what you described is of the behavioral stuff, and I probably became aware of that in the mid 90s, late 1990s, and started reading about it fairly actively, at that time. As I mentioned, I had sat in on some negotiation classes and learned a little bit of those techniques, that was very fascinating to me, but I was just stepping back and saying, and investing, for instance, you know what distinguishes the good from the great, and it really is that they have better information, it really is that they have better spreadsheets or something like that. It’s almost always that they’re making better decisions, especially under stressful circumstances, and so that got me very interested in sort of learning more about all that stuff and so, yeah, probably the late 1990s, and that has been… So that’s been probably a 25-year journey, learning more about that stuff, and obviously it’s been a field that’s really blossomed in the last quarter century as well. I mean, obviously controversy, if you actually read the original stuff in the 1970s, it’s remarkably lucid and interesting, even from 50 years ago.
But yeah, so probably the last 25 years, and obviously I’ve written some books about this and try to integrate it. I just think it’s an internally fascinating thing, and as you said, once you’ve learned some of these techniques and some of the ideas are very accessible ideas, once you’ve learned these techniques and integrated them and internalize them, I think gives you a lot of help and sort of navigating through life and the decisions you make.
Sean: Yeah, absolutely. Two of your books, Think Twice and More Than You Know, a treasure troves and just underlined and highlighted multiple times, so I’m a huge fan of your work there, I’m thinking about looking for an edge, and this doesn’t only have to pertain to the investing world, this could just be life in general, but do you think behavioral mistakes are where the most opportunity to find an edge is right now?
Michael: Yeah, it’s almost always… We wrote a piece about this a little while ago about market inefficiencies, and I know you’re talking about something broader, and we talked about things that all of them probably do apply in life to some degree, but we talk about behavioral, analytical, informational, and technical. So analytical, I’ll come back to behavioral last, analytical just says you and I have the same information, but we analyze it differently, and that could be someone with better frameworks, mental models can have an edge in that regard, if you’re competing with people who don’t think about it, as well. And you could think about, by the way, even assessing athletes, for instance, that could be an example where we all have the same data on this particular athlete, but somehow you see something that others haven’t seen, and that gives you an edge.
Informational means you know something others don’t know, that happens. It’s difficult to do, certainly in the context of markets, it’s challenging. Technical I’ll leave aside, but technical shows up in everything, which is sometimes people make decisions for reasons that have nothing to do with what their actual preferences are. And so I was talking to, actually a GM of an NBA team, and the guy said, I was talking about a particular trade, and he goes, well, you know, these guys had a salary cap problem, and he was just talking about all these moving pieces about things that had nothing to do with the economics of the business, rather than necessarily the values of the players, and he said we were able to fashion this trade that addressed these issues that had nothing to do really, or not, nothing but less to do with the actual player values.
But if you go back and circle around, say behavioral stuff, that’s the one that… It’s unlikely that human nature is gonna change any time soon, even with all our understanding of these behavioral issues, people are people.You see it every day. So that I think those will be persistent. Ben Graham, who is obviously the father of security analysis, had this metaphor of Mr. Market to think about markets. And in a sense, what he was trying to do is anthropomorphize this concept of markets as people and having these different moods, and I think that idea, those sets of ideas will be around for a long time, so people will collectively become too optimistic or too pessimistic and collectively. That’s always been true, and I think that for the foreseeable future it will also be true. So I think the behavioral stuff is huge. And that was a little bit the point, I think twice, which is say, hey, as you go through life, A) try to be better at it for yourself. None of us will be perfect, but try to be better at it yourself, so you make fewer, for example, mistakes. But second, I recognize that these mistakes are going to be made by others, and you may have an opportunity, I don’t like to use the phrase, but to take advantage of or to take advantage of other people’s mistakes, right, to some degree. So it’s a dual benefit to understanding these things, A) being better for yourself, but B) also seeing when other people are making mistakes that may be advantageous for you.
Sean: Yeah, speaking about that dual benefit, I know you’re a big fan of Daniel Kahneman’s work, and I’m pretty sure that he said at some point that he studied all of these biases and he’s no different for it.
Do you have the same view or do you think these have been…?
Michael: Oh yeah, I think that it’s almost… They’re fairly universal, I think most of us have different proclivities to various things, but they’re almost all universal, so I feel them all myself. And it’s interesting, even all these little experiments, the psychologists give classrooms to demonstrate these points, I did all those things going into them blind, got smoked by them every single time, so it was a less… I just really don’t… So I don’t hold myself above anybody on the stuff, but I will say that, and I think I recount this story in Think Twice, is that I went… There’s a really wonderful program at the Kennedy School at Harvard called “Investment Decisions and Behavioral Finance,” it’s hosted by Richard Zeckhauser and Arnie Wood, and Richard’s been doing this thing for probably 30 years. And I went as an attendee in 2004, and Dick Thaler was there who won the Nobel Prize, and he gave one of these overconfidence tests, and then he did this thing called the two-thirds game. So these are two kind of common things, and there are probably 70 people there, and I won both of them, so I did better than 70 people in both of them. So one, you might say it was luck, to would say is probably unlikely, and I was lucky twice and row, and so as I like to say in full disclosure, I had done both of those exercises before and I had failed miserably, embarrassingly, but I learned the lesson, so I learned how to deal with those two things, and as a consequence, every time I see that thing going forward, I will know how to deal with it, at least maybe not perfectly, but least more perfectly than the average person. So it was not any sort of brilliant insight on my part, it was more that I learned the lesson, and that was precisely the point, which is once you’ve learned these lessons, hopefully on the margin, you can just make somewhat better decisions and then those decisions add up to better outcomes.
Sean: I absolutely, I’m loving this. What other behavioral biases do you just find the most joy exploring?
Michael: Well, I think that there are a couple of ones that are really big ones in investing in particular, but these are big deals in general. One is called confirmation bias, which is once you’ve made a decision about something, you tend to seek information that confirms your view and you just miss count or disavow information that doesn’t confirm your view, and by the way, if it’s information that’s a jump ball, the jump all always goes to you, right. I always go to the base rubber. And so that’s a big one. And how do you counter that? It would be things like actively open-mindedness, so this idea that really not only you’re willing to entertain different points of view, but you seek them out. And that’s cognitively challenging by the way, it’s taxing to some degree, but just keeping an open mind about everything, and so just consider, and this goes back to even the things on negotiation, what is the other person’s point of view?
The other big one in investing, but also probably in life, is this concept of overconfidence that we tend to be… And there are certain benefits to overconfidence and even optimism that sort of goes with it that are good and psychologically healthy, but… But you wanna be… You don’t wanna be overconfident and you don’t wanna be under-confident, you wanna be just well-calibrated if possible. You mentioned you brought up a really good point about feedback before, and one of the questions is, are there ways to set up feedback mechanisms for yourself so that you get better calibrated in your decisions and then your overconfidence over time? And I think there are ways to do that. Part of it is to think about the world probabilistically, and the second thing is to document how you’re thinking about certain outcomes. And when I met Daniel Kahneman for the first time, which was just an absolute thrill, the first question I asked him was, What can I do to become a better decision maker? And his immediate response was, “Keep a journal of your important decisions,.” Write down what you expect to happen, why expected to happen, and assign probabilities to various outcomes and then just keep that journal and refer back to it and score yourself on how things actually turn out. And sometimes you’ll be right for the wrong reasons, and you have to ding yourself in those situations, and sometimes you’ll be wrong for the right reasons, in other words, the 20% outcome happened, which is gonna happen 20% of the time, right, one in every five cases, but I thought those things are really… And they’re not super time consuming, they’re not, certainly not expensive, but they require a lot of discipline, and that could also be something that’s also like athletics, which is sometimes disciplines are really important components are to make sure that you’re doing things properly every time… If you’re the receiver, you run your route properly every time at the right speed, you break the right spot and so on, so forth. Disciplines another important thing that probably carries over to almost everything.
Sean: Yeah, you were mentioning human nature is unlikely to change, I was laughing a minute or two ago when you brought a confirmation bias and the Greek statesman, Demosthenes, he had a great quote, “What a man wishes, so shall he believe.” So it holds true thousands of years later, so I’m pretty sure in a few thousand years, they’ll be looking back to the same thing.
You mentioned the decision journal, I’m really intrigued about that. That’s one I’ve kept as well. How much of this is just intuitive sixth sense for you at this point, and how much do you have to look to decision journals or other systematic ways to understand these?
Michael: Sean, the truth is I don’t really make that many business decisions since we’re mostly doing research. But I obviously, I work with investment organizations, and so part of it is that… So for me, I hope that I’m able to think about most kinds of problems I bump into reasonably well, but I don’t really have that many of these kinds of decisions where we’re gonna make money or lose money or whatever it is, but I will just say that I find that… There’s a great quote from Barb Mellers at University of Pennsylvania, she says something like, “We find prediction very hard, but rationalization of what happened very easy.” There’s a lot of truth to that, which is that I think that most of us don’t like to keep track of our decisions or keep track of, for example, investment decisions. You’d rather just let the chips fall where they are and then come up with a story to explain what happened, and by the way, that story tends to make you look pretty flattered in the whole outcome.
So I think it depends a lot on the kinds of things you’re doing. I’ll mention I was speaking with an executive, senior executive for a major league baseball team the other day, and he was saying, this is actually something they struggle a lot with, which is how… When they think about, for example, player assessment, how do they really know that they are thinking about things properly? And they’re trying to work on documenting their decision-making process as they go along, and again, contrasting for example, what the analytics department may say versus a scouts’ and so forth to see if they can glean information from how they think about these kinds of problems. But part of it is, can you quantify, for example, can you quantify measures of success and those kinds of things can be a little bit challenging. But I think the degree to which people are willing, especially when you have things like discrete outcomes that we can agree upon, and time periods that we can agree upon, that kind of setup it lends itself very much to giving quality feedback, and by the way, I think very few people do it, and that’s something I would imagine the next five, 10, 15 years that we’ll see more of that, and that will be good.
Sean: That’s very helpful. So very insightful. I know we’ve gotta wrap up here shortly, I’d love to spend a little bit on the Santa Fe Institute, and it’s unlikely you’re gonna gain insight of your inputs are identical to everyone else’s, and that’s one of the things that really fascinates me about the Santa Fe Institute. Could you explain just for a minute what the Santa Fe Institute is and then your role there?
Michael: Sure. It was founded in the 1980s by a number of very eminent scientists who felt that academia had become very siloed, so the physicists talked to physicists and the biologists talked to the the biologists, but many of the vexin,g important problems in the world laid at the intersection of disciplines. By the way, I was also deeply influenced by E. O. Wilson, the late 1990s called Consilience. And E. O. Wilson is probably the most famous entomologist, bug guy, ants in particular, and Consilience is this idea of the unification of knowledge, and what Wilson argued was, again, that we’ve made enormous strides to reductionism in the last few hundred years, but that much of our advancements and science would be again, at the intersections of disciplines, across disciplines.
So this database was founded to essentially bring together scientists to understand vexing problems. The unifying theme is the study of evolving complex systems. I mentioned that the wisdom across a few moments ago the cartoon version of a complex system would be an individual agent, so it could be a neuron, your brain, or a person in the city, or an investor in the stock market. They interact with other agents. So there’s interaction, which is really important, and they interact using decision rules about how they’re gonna approach things, and then what emerges from that is sort of a global system. So that could be consciousness for the performance of an ant colony, or the performance of a city, or obviously a market. And one of the keys is that the characteristics, the properties or origins of the market, or the broad system, global system are different from the underlying agent, so it’s a really interesting intellectual set of conditions.
So you go out there and it’s incredibly intellectually intoxicating because it is self-selected for scientists and people who are open-minded. Most of the scientists, in fact I say almost all of the scientists we have out there, are eminent in their own field, but again, very open to different fields. So that’s great. So the conversations are fascinating, and I think some of the biggest ideas and understanding in the market is an incredible example, maybe a canonical example of a complex system. And there have been other things out there that I found, I would call it wondrous, like Jeffrey West and Jim Brown did some incredible, and Luis Bettencourt, some great work on scaling and biological and social systems. In other words, there had been an empirical observation observed decades ago that these guys figured out exactly why it is the case. Fascinating stuff.
So yeah, it’s just an incredible… It’s an incredible organization. I’m now Chairman of the Board, my tems ends in the fall, but I have been Chairman for the last seven and a half years, which has been a great honor, and we’ve got an incredible board of trustees as well, and yeah, so it’s been a real pleasure to serve on that board and to interact with our scientists. And for those that are interested, we have some podcasts and so forth that are in some… That will allow people to be initiated with some of the concepts and again, super fun.
Sean: Yeah, absolutely. A huge fan there. We’ve been fortunate out to have Brian W. Arthur as well, talking about complexity, he’s someone I admire greatly, I know you do as well. As we wrap up here, are there any big projects you’re currently working on or even something that’s really just fascinating to you right now?
Michael: I’ll mention two things. One piece we’re working on is taking a multi-decade look at the evolution from public markets inequities to private markets inequities in the United States. So in other words, there are fewer, there are half as many public companies today as there were 25 years ago, and there’s been a huge rise in the buy-out industry and to a lesser degree, the venture capital industry. So we’re looking at doing a really deep dive on that trend and why it’s happened and so forth. And that’s been fascinating. You mentioned Brian Arthur, who we cite in that paper, and others, Paul Romer who won the Nobel Prize. So there’s a ton of stuff in there. So that’s a fascinating one.
Sean, the other one I’m interested in a lot is, and these are interesting, ’cause these are slow-moving trends, but they accumulate to be very profound over time, is in companies… And we’ll just pick the United States, stay in the United States for a moment. But companies, they used to invest primarily in physical assets, so think about factories, and stores, and warehouses, and all that kind of stuff, inventory, and increasingly investments the companies are making are intangible, so things like customers and marketing, and so forth. And where they show up on the financial statements is in different spots, so I’m gonna call it a distortion, because it’s not really… It’s all acceptable accounting, but I think that the way people have to think about economic value from the financial statements has evolved in the last 30 or 40 years in such a way that it compels people to think about things, I think more progressively. So we’re spending a lot of time now, hopefully writing about this idea of the rise of intangibles and how one might think about that from an accounting point of view, so as to get a better sense of the value of businesses in the value creation prospects of businesses so that’s another area that’s fascinating.
I’ll mention a third one. You used a really fascinating phrase, “explore versus exploit,” so I don’t know if any listeners caught that, but… But that’s another area I’ve always been very interested in, and I think that as a business, you could think about sort of exploitation as doing more of what we do now, which is obviously completely fine, but exploration is trying to go out and find something to find the next big thing. And it’s really interesting to ask from a resource allocation point of view, how much should I allocate to exploitation and how much would I allocate to exploration? And if you look at nature, by the way, what’s interesting is in environments that don’t change much, the skew towards exploitation and there’s very little exploration. Why? Because exploration is not that valuable ’cause stuff doesn’t change, right? By contrast, in rapidly changing environments, and you could think about ecosystems, for example, rapidly changing environments, there’s a much greater premium put on exploration and less on exploitation, because what you’re exploiting is gonna go away and you need to figure out what’s gonna be next. So I’d love to think about a way to codify that to some degree, even in a corporate setting, are the ways that we can think about measuring rate of change in the environment and as a consequence, ways of thinking about maybe not optimal, but at least directionally correct allocations of exploitation versus exploration. So to me, that’s another area that we’re playing around, there’s some new books out on this, but that’s another area that I’d like to do a deeper dive into.
Sean: To say my antennas are up right now with all three of those would just be an absolute understatement. I’m very much looking forward to diving into that, I just have two final ones.
I know you’ve already mentioned a ton of books, we have a lot of young listeners as well, recent college grads, if you’re gonna gift five books to a recent college grad right now, what do you think would be incredibly helpful?
Michael: Oh jeez, five is a lot.
Sean: You’re sitting on what appears to be thousands from your unbelievable library.
Michael: That’s true, that is true. But I’ll say that that a lot of it depends on the flavor, so it depends on what someone’s interested in, but I’ll just mention three core ones. So historically, when we’ve had interns, called student interns who work with us, at the end of the internship, I usually give three books to those interns. The first is Steven Pinker’s How the Mind Works. That book is one of his older books, but I still think it’s a really interesting book in particular chapter five is fantastic. The second is the book I just mentioned a few moments ago, Consilience by E. O. Wilson, again, the idea to try to get people to think about the intersections of disciplines. And the third one is a little bit off the beaten path, but it’s the book called The Metaphysical Club by Louis Menand, and The Metaphysical Club is a history of the philosophy of pragmatism in the United States. So it actually traces the full philosophical tradition of pragmatism. Menand’s a wonderful writer, and it’s very interesting walk through pragmatism.
It would be really hard, if someone’s interested in psychology, it’d be really hard for me not to recommend Thinking Fast and Slow by Daniel Kahneman. Obviously, I think just think that’s a… That’s a really wonderful book. And then a more recent one that I really liked from an author who I love is Range by David Epstein. So David wrote his first book I read that I loved was called The Sports Gene. And pretty much like it sounds, it talks about the role of genetics and sports performance, super interesting topic, and there’s much more to go on that. Range is his latest book, which is also fantastic and speaks to the balance between generalists and specialists. So in life do you wanna be a specialist or do you wanna be a generalist? In Chapter 1, he contrasts Tiger Woods who is sort of the canonical specialists versus Roger Federer, who actually defined himself as a tennis player quite late, relatively speaking, and I was actually very active in other sports, and I suspect Sean, you’re probably in my camp as well, that I think young people, high school athletes in particular, to the degree which is possible, I really recommend that they play multiple sports because I think it’s a really healthy thing, and I actually think it makes you better in your core sport. It actually may slow down your improvement in your course sport a tiny bit, but I think that David and others have given a lot of evidence to show that in the long run, you do much better being in different sports, so maybe those would be my five.
But again, and what I’ll do, Sean, is I’ll send you, I don’t if you have the capability to post it, but I’ll send you a reading list that I share with people and… And that’s broken up into different sections, and so a little bit is, Hey, what are you excited about now? What suits your taste, and then you sort of flip through and see if there’s anything that tickles your fancy.
Sean: That would be tremendously beneficial. And I have to highlight the three books of yours that I’ve read , and we didn’t really get to talk about any of them, but I certainly want the listener picking them up. The Success Equation, Think Twice, and then More Than You Know, these are books that sit on my shelf and I love the final one, Michael, I really cannot thank you enough for this time. This has been tremendously helpful. But if you were gonna sit down, you’re gonna be holding the microphone, get to spend an evening with anyone dead or alive, not a family member or friend, who would you spend the evening interviewing?
Michael: Oh, I don’t know, that’s a really interesting one. Especially since you said dead or alive. There are some people, the guy who I probably admire the most, I don’t if this would be my ultimate answer, ’cause you probably think about very famous figures, but the guy who I admire deeply, deeply is Charles Darwin. I don’t know if he’d be an interesting guy to hang out with for an evening, he might be boring to hangout with for an evening. But I’ve always been very taken with the idea of evolution, and I’ve always been amazed by his temperament and his work process and so forth, so maybe I would pick Charles Darwin. He’s my hero and intellectual hero. And I’ll go eith that one.
Sean: Yeah, I found myself re-reading his autobiography the other day. So huge fan as well.
Michael, I mentioned this a minute ago, this has just been so impactful, the number of years I’ve been looking forward to this conversation, we didn’t even get to hit the tip of the iceberg in terms of what I would love to talk with you at some point, but where do you want the listener staying connected with you? I know you’ve got some unbelievable information out there on the web, anywhere you want them going?
Michael: I think that the main way to keep up, you can follow my Twitter, my handle is @mjmauboussin is my Twitter handle, and I have website, michaelmauboussin.com. So there’s some stuff on the books, you mentioned some of the books, thank you for doing that, but some highlights of books and free chapters if people are interested in checking those out, it would be at michaelmauboussin.com
Sean: We’ll have everything linked up in the show notes, but once again, like I cannot thank you enough for joining us on What Got You There.
Michael: My pleasure, Sean. Thank you.
