New Mauboussin Paper: Thirty Years

“But great investors do two things that most of us do not. They seek information or views that are different than their own and they update their beliefs when the evidence suggests they should. Neither task is easy.”

―Michael J. Mauboussin, Thirty Years

Thirty Years: Reflections on the Ten Attributes of Great Investors

Credit Suisse’s latest report is out: Thirty Years – Reflections on the Ten Attributes of Great Investors

“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.”

• The world of investing and business has seen a great deal of change in the past 30 years.
• This report shares thoughts on the ten attributes of great fundamental investors.
• Accounting is the language of business and you need to understand it to appreciate economic value and to assess competitive positioning.
• Investors face a slew of psychological challenges. Perhaps the most difficult is updating beliefs when new information arrives.
• Position sizing and portfolio construction still do not get the attention they warrant.
• The substantial shift from active to passive management has profound implications for the investment industry.

Ten Attributes of Great Fundamental Investors

The top ten attributes discussed in the paper are:

1. Be numerate (and understand accounting)
2. Understand value (the present value of free cash flow)
3. Properly assess strategy (or how a business makes money)
4. Compare effectively (expectations versus fundamentals)
5. Think probabilistically (there are few sure things)
6. Update your views effectively (beliefs are hypotheses to be tested, not treasures to be protected)
7. Beware of behavioral biases (minimizing constraints to good thinking)
8. Know the difference between information and influence
9. Position sizing (maximizing the payoff from edge)
10. Read (and keep an open mind)

See here for a collection of links to other Mauboussin papers.