Some Thoughts From Michael Mauboussin On Process

“We have no control over outcomes, but we can control the process. Of course, outcomes matter, but by focusing our attention on process, we maximize our chances of good outcomes.”

Michael Mauboussin

“A thoughtful investment process contemplates both probability and payoffs and carefully considers where the consensus – as revealed by a price – may be wrong. Even though there are also some important features that make investing different than, say, a casino or the track, the basic idea is the same: you want the positive expected value on your side.”

Michael Mauboussin


Currently Reading: Faster, Higher, Stronger By Mark McClusky

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I am currently about two-thirds through with Faster, Higher, Stronger by Mark McClusky. The author is the editor of and was formerly a founding editor of Sport’s Illustrated’s website. The chapter that I absolutely love the best is Chapter 8 entitled What Getting Tired Means. Being a former athlete (tennis player and teaching pro), I never truly understood the aspect of fatigue in my sport and others. I always assumed it was because of lactic acid.

I love this paragraph from this chapter in helping my thinking on this. From page 150:

“We propose that fatigue is a combination of the brain reading various physiological, subconscious and conscious signals and using these to pace the muscles in order to ensure that the body does not burn out before the finish line is reached. I am not saying that what takes place physiologically in the muscles is irrelevant. What I am saying is that what takes place in the muscles in not what causes fatigue. Instead, metabolic and other changes in the muscles provide part of the information that the brain needs to be able to calculate the appropriate pace for events of different distance and in different environmental conditions.”

Also, from page 150:

In a sentence, the central governor theory claims that our physical performance is regulated by the brain, not limited by our hearts, lungs, or muscles.”

This book has given me quite a bit to contemplate about incremental progress toward any of my goals as well as reaffirming what Michael Mauboussin speaks of when he talks about process vs. outcome. Read this book and let me know what you think.

I have included a video from Google Talks from the author about the book:

Currently Reading: The Success Equation By Michael J. Mauboussin

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I love reading anything by Michael Mauboussin. His most recent book is The Success Equation, which really explains the difference between skill and luck and how it plays out in our lives. By understanding skill and luck hopefully will help with predictions in our lives and by being able to make better predictions will help us in our success.

Some thoughts from the book: On page 8:

“Useful statistics are persistent (the past correlates highly with the present) and predictive (doing well or poorly correlates strongly with the desired goal).”

From page 10: I love this because I put too much emphasis on trends and really overlook the limitations of analysis.

“Knowing what you can know and knowing what you can’t know are both essential ingredients of deciding well. Not everything that matters can be measured, and not everything that can be measured matters.”

Here are some thoughts on skill which to me are worth the entire price of the book.

From page 19:

“So here’s the distinction between activities in which luck plays a small role and activities in which luck plays a large role: when luck has little influence, a good process will always have a good outcome. When a measure of luck is involved, a good process will have a good outcome but only over time.”

And this is my favorite quote of the book from page 19:

“There’s a quick and easy way to test whether an activity involves skill: ask whether you can lose on purpose. In games of skill, it’s clear that you can lose intentionally, but when playing roulette or the lottery you can’t lose on purpose.”

From page 31:

“One of the main reasons we are poor at untangling skill and luck is that we have a natural tendency to assume that success and failure are caused by skill on the one hand and a lack of skill on the other. But in activities where luck plays a role, such thinking is deeply misguided and leads to faulty conclusions.”

These are just several thoughts that Mr. Mauboussin brings to the table concerning luck and skill and I must say having read his previous books that he is one of the better writers in bringing a subject that may be difficult to understand where the reader after he reads, has a much clearer understanding of the subject. To me, that is the mark of an excellent writer and communicator.

I have also included some video from the author discussing some of his ideas in the book.

Key To Forecasting From Nate Silver In The Signal And The Noise

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The author in the chapter on baseball makes the point of what is the key to forecasting. On page 100, this is what he says:

“The key to making a good forecast, as we observed in chapter 2, is not in limiting yourself to quantitative information. Rather, it’s having a good process for weighing the information appropriately. This is the essence of Beane’s (The Oakland Athletics General Manager) philosophy: collect as much information as possible, but then be as rigorous and disciplined as possible when analyzing it.”

This immediately made me go back and think about process vs. outcome which Michael Mauboussin really stresses. I am working on starting a new business and I must remember to focus on being rigorous and disciplined in my decision making. I plan on going back to Mauboussin and reading to make sure I haven’t missed anything.

Assorted Links December 28, 2013

(1)                                             Paper from Paul Slovic 1973 More Info–> More Confidence But No Better Results Tweet  From Michael J. Mauboussin

(2) From Scientific American Tweet: 13 Obvious Scientific Findings Of 2013              

(3) 15 Countries At High Risk Of Causing Resource Supply Disruptions From Charles C. Mann Tweet

(4) From The Wall Street Journal Tweet: Is 2014 The Year Of The Israel IPO Wave? 

(5) From The Atlantic Cities Tweet: San Francisco Is Loving Its Sewers.                     

Currently Rereading: Think Twice By Michael J. Mauboussin Part Three

I want to backtrack and share an example that the author uses in explaining the anchoring-and-adjustment heuristic. This is a tremendous illustration of how our mind works in these situations. mauboussin-bookshelf.jpg (553×369)

From page 17:

“Here’s an example of how this heuristic works, based on an exercise I did with my students at Columbia Business School. I gave them a form requesting two numbers. If you have never done this exercise, take a moment and jot down your responses.

(1) The last four digits of your phone number.

(2) An estimate of the number of doctors in New York City’s Manhattan borough:

The anchoring-and-adjustment heuristic has a bias, which predicts that the phone number will influence the doctor estimates. In my class, the students with phone numbers ending in 0000-2999 guessed an average of 16,531, while those with 7000-9999 reckoned 29,143, higher by 75 percent. (As best as I can tell, there are approximately 20,000 doctors in Manhattan.)

Of course, individuals know that the last four digits of their phone number have nothing to do with the population of doctors in Manhattan, but the act of thinking about an arbitrary sum prior to making an estimate unleashes the powerful bias. What’s also obvious is that the students would have most assuredly give a different estimate if I had reversed the order of the questions.”

I found this illustration most intriguing and I would like our readers to comment and share some similar illustrations.

Currently Rereading: Think Twice By Michael J. Mauboussin Part Two

We are continuing on sharing notes from Think Twice by Michael J. Mauboussin.416ZsptOLEL.jpg (333×500)

From page 19:

“First, people reason from a set of premises and only consider compatible possibilities. As a result, people fail to consider what they believe is false. Consider a hand of cards, about which only one of the following three statements is true:

(1) It contains a king, an ace, or both.

(2) It contains a queen, an ace, or both.

(3) It contains a jack, a ten, or both.

Given these statements, can the hand contain an ace?

Johnson-Laird has presented this problem to many bright people, and most believe the answer is yes. But that is wrong. if there were an ace in the hand, the first two statements would be true. You can think of the premises and their alternatives as a beam of light that shines only on perceived possible outcomes, leaving lots of viable alternatives in the dark.”

“Second, and related, is the point that how a person sees a problem—how it’s described to him, how he feels about it, and his individual knowledge—shapes how he reasons about it.”

I have previously given the definition of a mental model but I feel it is important to do it again.

“Last, a mental model is an internal representation of an external reality, an incomplete representation that trades detail for speed. Once formed mental models replace more cumbersome reasoning processes, but are only as good as their ability to match reality. An ill-suited mental model will lead to a decision-making fiasco.”

I believe this book is vital in understanding your thought process in decision making and how you make decisions and where we all need improvement.