Mauboussin writes, “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. . . . The best investors among us recognize that the world changes constantly and that all of the views that we hold are tenuous. They actively seek varied points of view and update their beliefs as new information dictates. The consequence of updated views can be action: changing a portfolio stance or weightings within a portfolio.”
The Netflix Prize was a competition begun in 2006 to predict user ratings for films. Competitors were given ratings scrubbed of information about the users, and were challenged to find, using machine-learning methods, an algorithm based only on the raw data.
Factor investing is all the rage. Fama and French showed the way, many have followed, and now it’s all nailed down. It certainly seems that way when we see factors working as we think they should.
Whenever you come up with a new investment idea—whether it’s a new security to buy, a new factor to consider, or a new strategy to implement—you naturally ask yourself whether this new idea will increase your portfolio returns or cause you to lose money (and, of course, how much). Thinking probabilistically involves assessing the probabilities and coming up with a reasoned answer.
Understanding the rules of probability—how to bet—can be a valuable asset for investors. Every day I come across investors who think that regression to the…
I just finished reading Alphanomics by Charles M. C. Lee and Eric So, published by a small academic press in 2015. The subtitle is The…
Investors compare all day: stocks versus bonds, active versus passive, value versus growth, stock A versus stock B, and now versus later. Humans are quick to compare but not very good at it. Perhaps the most important comparison an investor must make, and one that distinguishes average from great investors, is between fundamentals and expectations.
Every business has a strategy, a plan for beating its competitors. It’s a good idea for an investor to assess that strategy before investing in the company. But doing so is complicated.
Obviously, an orange has some intrinsic value. It is nutritious and tasty and can be used in a variety of ways. It has value on its own and has value as an ingredient. But what is that value? Fifty cents? Three dollars?
In 2016, the analyst, teacher, writer, and researcher Michael J. Mauboussin published a white paper called “Thirty Years: Reflections on the Ten Attributes of Great Investors.” In it, he outlines “the top ten attributes” that he believes “great fundamental investors share.”