More Than You Know Quotes

“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

“This book celebrates the idea that the answers to many of these questions will emerge only by thinking across disciplines.”
― 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

“David Durand took up this question in his classic 1957 article, “Growth Stocks and the Petersburg Paradox.”10 He encourages a good deal of caution, emphasizing reversion-to-the-mean thinking and modeling. But if anything, the challenge of valuing the low probability of significant value is even more pressing today than it was when Durand took on the challenge almost fifty years ago.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“Woods would have to risk getting worse in the short term in order to get better for the long term. He didn’t hesitate. Working with Harmon, Woods improved his strength and changed his grip, allowing him to maintain his power while gaining more control. Even as Woods managed to win only one Tour event from July 1997 to February 1999, he insisted he was a better golfer than before. “Winning is not always the barometer of getting better,” he asserted. In the spring of 1999, the new swing gelled. Woods went on to win ten of the next fourteen events in 1999, including eight PGA Tour victories. He tacked on another nine PGA Tour wins in 2000, and after capturing the 2001 Masters, he was the first golfer to be the reigning champion in all four majors simultaneously.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“Pandolfini stresses to his students that his goal is not to make them great chess players but great thinkers: My goal is to help them develop what I consider to be two of the most important forms of intelligence: the ability to read other people, and the ability to understand oneself. Those are the two kinds of intelligence you need to succeed at chess—and in life.4”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“At a business forum I attended, a senior executive of a Fortune 100 company proclaimed that his company manages “not for the next quarter, but for the next quarter century.” Ugh. Such platitudes do not instill confidence in investors. Most managers don’t have any idea what’s going to happen in the next five years, much less the next twenty-five years. How do you manage for an ambiguous future? Yet managers must clearly strike some balance between the short term and the long term. It’s like speeding down the highway in a car. If you focus just beyond the hood, you’re going to have a hard time anticipating what’s coming. Look too far ahead, on the other hand, and you lose perspective on the actions that you need to take now to navigate safely. There’s a tradeoff between the short term and the long term, and the appropriate focal point shifts as conditions warrant.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“You know that you’re over the hill when your mind makes a promise that your body can’t fill. —Little Feat, “Old Folks Boogie”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“Imagine a baby’s brain as a market, with each synapse representing a company or entrant. When the baby is born, the market is buzzing because the brain is creating a lot of synapses and some will be wildly successful. Enthusiasm reigns. Introduce prices, and you have a foundation for a mania. Investors use price as an important cue, among others, toward a business’s potential success. As the price is bid up, humans naturally want to participate. A positive-feedback loop kicks in, which bootstraps a mania. But as we know, many synapses, or companies, don’t make it. The path to innovation is paved with failure and waste.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“From a child’s birth to the age of three, there is a huge increase in the number of synapses—connections between neurons—in the brain. In fact, a toddler has roughly 1 quadrillion synaptic connections, twice as many as an adult. Children have brains that are more active, more connected, and more flexible than those of grownups.2 But following this synaptic proliferation is a significant pruning process. Through experience, useful synaptic connections are strengthened, and those that aren’t used get pruned (known as a Hebbian process after psychologist Donald Hebbs).3 Estimates suggest that young children lose approximately 20 billion synaptic connections each day.4 This process fine-tunes the brain to survive in its particular environment. By the time we are adults, synaptic selection has shaped our brains to succeed. This process of synaptic overproduction and pruning may not seem remarkable, except when you consider that it’s an incredibly expensive tactic in terms of neural components and energy cost. Why has evolution allowed this wasteful process to persist? Nature is pretty smart.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“I think that’s exactly what you see going on here. Every experiment [on the Internet] is getting tried. Many of them are going to succeed, and many of them are going to fail. —Jeff Bezos, Internet summit, 1999”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“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

“How did the Wright brothers achieve their world-changing feat? They neither relied on divine inspiration nor started with a clean slate. You could best describe the first plane as a recombination of known ideas and technologies. 1 As management professor Andrew Hargadon says, all innovations represent some break from the past, built from pieces of the past. The Wrights’s genius was the insight that combining a light gasoline engine, some cables, a propeller, and Bernoulli’s principle would result in a flying contraption.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“Researcher Ray Christian sheds some light on the possible role of the unconscious in decision making. He notes that what we perceive at any given moment—our conscious bandwidth—is an extremely small subset of the information stream flowing to the sense organs. Specifically, he estimates that the capacity of our sensory system is 11 megabits per second while our conscious bandwidth is just 16 bits per second.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“Mark Twain defined a classic as something everyone wants to have read and nobody wants to read. One classic that deserves the attention of all investors is John Maynard Keynes’s General Theory of Employment, and more specifically chapter 12, “The State of Long-Term Expectation.” Expectations are embedded in all the decisions we make, especially investment decisions, but we rarely step back and consider how and why we form our expectations. Keynes guides this reflection.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“A dominant idea in Western society is that we should separate emotion and rationality. Advances in science show that such a separation is not only impossible but also undesirable. Yet successful investing requires a clear sense of probabilities and payoffs. Investors who are aware of affect are likely to make better decisions over time.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“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

“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

“Ulysses had the crew bind him to the mast of his ship to protect him from the call of the Sirens. Money managers, especially when feeling a loss of predictability and control, are drawn to short-term activity. Like Ulysses, money managers should take the steps necessary to focus on the long term if they are to optimize long-term fund performance. If the source of stress is largely psychological, so too is the means to cope with it.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“What kinds of things do we do in response to stress? Sapolsky notes that our reactions are “generally short-sighted, inefficient, and penny-wise and dollar-foolish.” The body mobilizes to deal with the immediate threat. This stress response is effective in a crisis but can be very costly if you experience every day as an emergency.2”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

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

“So when you’re dealing in markets, it’s not enough to have your own view, you have to consider what other people think. Neoclassical economics likes to treat humans as deductive processing machines; we can go from general premises to specific conclusions. The trouble is, in all but the simplest situations (think tic-tac-toe), we simply don’t have the computational ability to operate deductively. Indeed, humans tend to be superb pattern recognizers—so good, in fact, that we see patterns where none exist. Toss out rational decision making, and things start to get complicated.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“So for the most part, a true picture emerges from lots of investors erring independently. Since each individual is a small part of a greater whole, asking an individual to explain the whole is folly. Once you recognize that point, you’ll realize the talking heads on television satisfy a human need for an expert, without providing the value of an expert.”
― 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

“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

“If Benartzi and Thaler are right, the implication is critical: Long-term investors (individuals who evaluate their portfolios infrequently) are willing to pay more for an identical risky asset than short-term investors (frequent evaluation). Valuation depends on your time horizon. This may be why many long-term investors say they don’t care about volatility. Immune to short-term squiggles, these investors hold stocks long enough to get an attractive probability of a return and, hence, a positive utility.”
― Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places

“The attractiveness of the risky asset depends on the time horizon of the investor. An investor who is prepared to wait a long time before evaluating the outcome of the investment as a gain or a loss will find the risky asset more attractive than another investor who expects to evaluate the outcome soon. —Richard H. Thaler, Amos Tversky, Daniel Kahneman, and Alan Schwartz, “The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test”
― 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

“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