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Great Thoughts
      from Great Investors
 A regular feature of The Sine Wave Investortm monthly newsletter
 

Recent Guest
MICHAEL MAUBOUSSIN
Chief Investment Strategist
Legg Mason Capital Management
 

 

 


MICHAEL MAUBOUSSIN'S NEXT BOOK TO BE ON
SKILLS OF A STRATEGIST

Michael Mauboussin, author and Chief Investment Strategist at Legg Mason Capital Management, will pick up in his next book (due out late 2012) where he left off in Think Twice: Harnessing the Power of Counterintuition. In this exclusive interview with The Sine Wave Investortm, Mauboussin (named one of the most influential people on Wall Street) gives a sneak preview of the skills he finds most important to a strategist's success, lays out his investment outlook for the next 12 months, and shares his latest multidisciplinary insights for which he is so famous.

SWI: What conclusions will your book draw about skill versus luck in investing?

Mauboussin: Skill for the investor boils down to three key areas: The first is having an analytical edge, which means finding discrepancies between price and value. One analytical point that is often overlooked is portfolio construction and position sizing - not just finding attractive situations but also knowing how much to invest in them, how big a bet to make. Almost every investment organization is going to say they seek undervalued securities. Fewer of them have thoughtful approaches to position sizing.

The second is the list of lessons from behavioral finance, which you and I have talked about over the years - acknowledging and mitigating common biases that arise from the heuristics that we all use. Easy to say but hard to do. I would include in behavioral a basic understanding of how the market works. The best metaphor is still Ben Graham's notion of Mr. Market - this sort of accommodating fellow who shows up every day offering to buy and sell stakes. But he's a manic depressive. Sometimes, he can only see blue skies and growth and will only sell you his stake at a very high price. Other times, he's very depressed and is willing to dump his shares at a very low price.

MORE AMAZON BOOK LINKS  BELOW

I've talked to some amazing people for my regular column on the capital markets for the National Association of Real Estate Investment Trusts (NAREIT) - John Bogle, Jim Cramer,  Jeremy Siegel, etc. - many of whom have written books. Link to the columns and find their books on Amazon below.

bullet All the interviews below are FREE! 
bullet The newer ones are in e-zine format  Look for the Capital Markets column in the Contents
bullet The links to the older ones no longer work in all browsers  Try Internet Explorer

Jim Cramer BOOK -  CNBC's Mad Money
 ("I like to find stocks with great fundamentals selling at a reduced price-to-earnings multiple versus their growth rate or, alternatively, that pay good dividends.")

Michael Mauboussin BOOK - Legg Mason
 ("In stable and linear situations, intuition will work beautifully. But in unstable and nonlinear situations, all bets are off.")

Michael Mauboussin BOOK  - Legg Mason Chief Investment Strategist
("Buying a basket of large-cap stocks will deliver good results over the next few years.")

Robert Shiller BOOK -  noted Yale economist (Case/Shiller Index)
("The parallels to Japan are important. The Japanese economy had both a real estate bubble and a stock market bubble in the 1980s. When these major bubbles burst together, that led to a long slow period and crises in the banking system.")

John C. Bogle BOOK - Investment legend and Vanguard founder
("The most important single thing being lost is the notion of long term investing")

Jeremy Siegel BOOK - Wharton professor and author of Stocks for the Long Run
("The average historical PE of 15 is way too low for today's market.")

Burton Malkiel BOOK - Princeton professor and author of the classic text A Random Walk Down Wall Street
("The evidence is now remarkable how much better off individuals are in index funds than with actively managed mutual funds that try to pick winners. ")

Byron Wien - Morgan Stanley senior investment strategist
("There are hundreds of variables that reflect on the stock market and some of them are very important at certain times and unimportant at other times. The skill of a strategist is to know what counts when. ") 

 Niall Ferguson BOOK -  noted historian
 ("The historical process is non-linear and unpredictable, the very reverse of cyclical theories like Spengler’s. Some civilizations survive for centuries and then collapse very suddenly, while others have much shorter life spans.")

Jeremy Grantham - celebrated value manager
("value will usually win in a 3-5 year timeframe")

David Swensen BOOK - book author and market-beating manager of the Yale University endowment portfolio
("Investors are far-better served in a not-for-profit environment. Vanguard and TIAA-CREF are the two large not-for-profits that provide investment management services to individuals.")

Robert Arnott - financial innovator on fundamental indexing
("A cap-weighted index loads you up on growth stocks and trendy stocks, most of which have put their run of performance behind them. They are less likely to deliver the goods in the future....")

 Joel Greenblatt BOOK - author of The Little Book That Beats the Market
("If you can buy a portfolio of "good" companies at below average prices, you will have a successful investment strategy.")

Keith Fitz-Gerald  BOOK -  Money Map Press
("By not taking part in the massive capital expansion that is modern China, investors may doom themselves to years of subpar returns and executives risk losing adequate access to capital because the rules of the game are being entirely re-written in front of our eyes. The scale of what is happening is simply unprecedented.")

Harry S. Dent, Jr. BOOK - baby boom spending wave theorist
("The baby boom generational spending wave has been rising since the early 1980s. The economy and the stock market have followed it very closely.... The wave will start to turn downward approximately in 2010.")

 Roger Gibson BOOK - wrote the book on asset allocation (Asset Allocation: Balancing Financial Risk)
("We don’t try to time markets and we don’t abandon asset classes when they take their turn in the doghouse")

James K. Glassman BOOK - author and columnist
("a diversified portfolio of stocks is no more risky than bonds over the long term")

 Richard Lehmann BOOK  - book author and Forbes bond columnist
("Preferreds have mushroomed as a type of security to suit precisely small individual investors....")

Lester Thurow BOOK - prominent MIT economist and best-selling author (e.g., 'Fortune Favors the Bold')
("globalization ... is placing downward pressure on U.S. wages, no question")

Marvin Zonis BOOK - country risk expert, book author, and University of Chicago professor
("The Chinese economy is very vulnerable, and I don’t think it can continue such growth without a severe setback. How severe I don’t know, but I think there will be political instability, which will be significant.")

Craig Israelsen BOOK - Brigham Young University
 ("A lot of people can’t take the pain of a down market and will tell their brokers to sell at the worst possible time.")

Benoit Mandelbrot BOOK - inventor of fractal geometry and co-author of The (mis)Behavior of Markets
("In records of any financial price series, you will see long periods of relatively stable prices and short periods of extraordinary variation I call 'storms' or 'clusters'. ")

 Alphabetical by author last name