Zweig: The Challenge of a Smaller Stock Pool

For stock pickers, choosing among a smaller universe of stocks is much more difficult, writes Jason Zweig in a recent Wall Street Journal article. Zweig cites data from the University of Chicago’s Booth School of Business showing that the number of publicly traded equities has dropped from 7,355 in 1997 to the current level of less than 3,600. The decreased number of stocks, writes Zweig, is attributable to regulatory tape (that makes it tougher for smaller companies to go public), the large sums of venture-capital funding available (so smaller companies can stay private for longer periods of time), and the increase […]

Mauboussin on Active Vs. Passive Management

A paper co-authored by Michael Mauboussin of Credit Suisse addresses important issues to consider in relation to the continued and increasing shift from active toward passive fund management. Those investors who are moving their money to passive funds, the paper argues, are “less informed than those who stay.” For every winner, it says, there must be a loser—and if there are fewer losers, the game becomes less interesting. In other words, as markets become more efficient (fewer losers) the potential upside for the winners (passive funds) is reduced. While associated with lower costs, passive fund management also “introduces the possibility […]

What Makes a Great Investor? Count to Ten.

“Perhaps the single greatest error in the investment business is a failure to distinguish between the knowledge of a company’s fundamentals and the expectations implied by the market price,” writes Michael Mauboussin, managing director and head of Global Financial Strategies at Credit Suisse, in a paper published last week. Mauboussin shares his insights and reflections on how the investing world has changed over the past 30 years, the challenges investors face, and the importance of accounting as the “language of business.” He also outlines what he views as the “Ten Attributes of Great Fundamental Investors”: Be numerate. To be a […]

4 Ways On How to Improve Forecasting Skills, a Credit Suisse Report by Mauboussin

In the aggregate, forecasters may be “roughly as accurate as a dart-throwing chimp,” but some forecasters are particularly and consistently far better than average. Credit Suisse reports that the book Superforecasting: The Art and Science of Prediction by Philip Tetlock and Dan Gardner provides important insights into how to improve forecasting skill, perhaps by as much as 60%.  In other words, there are measurable differences between run-of-the-mill forecasters and “superforecasters,” and these differences can be a guide to improving forecasting skill. Drawing on Tetlock’s work, the Credit Suisse report, which was written by Michael Mauboussin and Dan Callahan, provides four key ingredients for managers seeking […]

Mauboussin: Understanding the Process Can Help Separate Luck and Skill in Investing

AAII editor Charles Rotblut, CFA, interviewed Michael Mauboussin, head of Global Financial Strategies at Credit Suisse, about the role of both luck and skill in investing (subscription required). According to Mauboussin, to separate skill from luck, you first have to look at the process that generates the output you are looking to achieve. In order to assess the process, you need to look at three important elements: Analytical: “having an ability to find situations in which you believe something the world doesn’t believe and in which you have a good foundation for such a belief. Behavioral: “we are all subject […]

Is It Skill, or Luck?

Are successful investors good, or just lucky? In a recent interview with Morningstar, Credit Suisse’s Michael Mauboussin says they’re luckier than you think — but still have some skill. Mauboussin, who has done extensive research into the topic of skill vs. luck, says one way to test whether any skill is involved in an activity is to see if you can lose on purpose. “If you can lose on purpose, there has to be some skill,” he says. In investing, he adds, “we know that it’s hard to create a portfolio that beats a particular benchmark, but actually given the […]

Siegel: Stocks Are Cheap

Several top strategists recently spoke at the CFA Institute Equity Research and Valuation Conference, and The Motley Fool’s Bryan Hinmon and Michael Olsen highlighted a few pieces of advice from these gurus. One was author and Wharton Profesor Jeremy Siegel, who advised that “stocks are cheap”. Siegel said stocks are trading below average historical valuations, and noted that there has never been a 20-year period where real returns on a diversified U.S. stock portfolio have been negative. Michael Mauboussin, Legg Mason’s Chief Investment Strategist, talked about the importance of figuring out what is already priced into a stock or the […]