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The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing von [Mauboussin, Michael J.]
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The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing Kindle Edition

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“Really enjoyed reading The Success Equation by @mjmauboussin over the last few days. A smart, insightful book.” — As tweeted by Daniel Pink

“… a fascinating book that forced me to reflect on my decision-making processes for investments.” — Tomasz Tunguz, Inc. magazine

"Mauboussin’s latest, excellent, book attempts to show how to work out what decides the outcome of a given situation. — James von Simson, portfolio manager at Thurleigh Investment Managers

"Mauboussin has always been a must-read. His 2013 book is no exception." — Tadas Viskanta, founder and editor of Abnormal Returns

The Success Equation makes a valuable contribution to the literature on decision making…thoroughly researched and well written…I highly recommend the book to anyone interested in making better investment choices.” — Financial Analysts Journal

“With this book, Mauboussin takes an important step in making a case for the role of statistical analysis in decision-making in various contexts, ranging from CEO compensation to child rearing to college rankings and even picking the next musical superstars. It is almost as if the number crunchers heralded in Michael Lewis’ Moneyball have found their second voice.” — Business World magazine

“Mauboussin excels at explaining his ideas, many of which are based on complex neuroscience in accessible terms, using case studies and examples from investing decisions, college rankings, and hospital procedures.” — Publishers Weekly

“… for investors and business executives wishing to minimise the risk of bad luck, this is a book worth reading.” — Financial Times

“there is a lot of thought-provoking stuff in the book, for sports fans as well as investors.” — The Economist

“For investors who don't mind wading into some technical weeds, though, Mauboussin suggests some concrete tools.” — U.S. News & World Report

“Well written and analytical, this book completely changed how I think about success.” — The Motley Fool (

“There are tons of statistics and abstractions, yet there is coherence and precision in Michael J. Mauboussin’s new book, The Success Equation. Filled with instances from sports and markets, it’s an insightful read.” — Mint (

“It’s always hard to get the balance between detail and readability right when writing a popular book about math. But Mauboussin manages it well.” — MoneyWeek

“…the clarity of Mauboussin’s writing, and the quality of the examples makes the book a worthy addition to the managerial library.” — strategy+business Magazine

The Success Equation makes a valuable contribution to the literature on decision making when both luck and skill are involved. It is thoroughly researched and well written. I highly recommend the book to anyone interested in making better investment choices.” — CFA Institute

“an engaging book.” — Choice Magazine

“In The Success Equation, Mauboussin explores the contributions of skill and luck, and discusses how interpreting past results through the ‘skill-luck continuum’ can help leaders to make better decisions...This can be a useful way to look at business leadership… [He observes that] luck becomes more important and skill less so, as people climb up the hierarchy, which also raises interesting questions about how leaders can continue to grow and enhance their skills… what leaders can do, is to improve their understanding of the impact of fortune on their decisions.” —The Sunday Times

“…a fine and different approach business readers will find involving.” — The Bookwatch, Midwest Book Review

“In dealing with success and luck Mauboussin presents a useful model.” — Eric Falkenstein, Seeking Alpha

"I just finished reading the most enjoyable business book I’ve read in a long time – although relegating 'The Success Equation,' by Legg Mason Chief Investment Strategist Michael J. Mauboussin to this category would be a grave disservice, significantly understating its sophistication and selling short its achievement." — David A. Shaywitz on

"Fascinating. Michael Mauboussin's insights into the relationship between skill and luck are clearly and simply explained, relentlessly logical and often counter-intuitive. This makes for great reading and provides powerful tools for understanding sports and markets. Anyone who wants to understand sport or business beyond the platitudes and assumptions routinely trotted out as expert analysis should read this book." — Ivan Gazidis, Chief Executive Officer, Arsenal Football Club

“If you liked Michael Lewis’s Moneyball, with it’s mix of data and great storytelling, you’ll very much enjoy Michael Mauboussin’s Success Equation.” — Jack Covert, 800 CEO READ

“Michael J. Mauboussin is always worth reading. … almost everyone will find something in this book that either he hadn't thought about before, or that he thought about incorrectly.” — Brenda Jubin, Seeking Alpha

ADVANCE PRAISE for The Success Equation:

Philip Tetlock, Leonore Annenberg University Professor, Wharton School and School of Arts and Sciences, University of Pennsylvania; author, Expert Political Judgment
“Mauboussin seems to know everything there is to know about how to skillfully disentangle skill from luck. He also knows how easy it is to botch the job and has great stories—from music studios to baseball dugouts to the New York Stock Exchange—that bring statistical abstractions to life.”

Howard Marks, Chairman and cofounder, Oaktree Capital Management; author, The Most Important Thing
“In The Success Equation, Michael Mauboussin helps us understand the difference between skill and luck and, importantly, how to tell how much each contributed to a given outcome. He reminds us that in fields where luck plays a big part, like investing, outcomes are of limited relevance in assessing performance. And, indispensably, he points out how important it is for practitioners ‘to develop an attitude of equanimity toward luck.’ I love that!”

James Montier, GMO; author, The Little Book of Behavioral Investing
The Success Equation is a brilliant and insightful book packed with interesting anecdotes and rigorous analysis. Anyone dealing in fields that blend some combination of luck and skill—which is most of us—will find their understanding enhanced by reading it. The central role of process in such environments is often underestimated. This book helps redress the balance.”

Paul DePodesta, Vice President of Player Development and Scouting, New York Mets—
“Few people acknowledge or care to accept the central role that luck plays in our lives. Michael Mauboussin not only understands the separation between skill and luck, but more importantly, provides a mental framework to deal with the reality. This is an important read.”


“Much of what we experience in life results from a combination of skill and luck.” — From the Introduction

The trick, of course, is figuring out just how many of our successes (and failures) can be attributed to each—and how we can learn to tell the difference ahead of time.

In most domains of life, skill and luck seem hopelessly entangled. Different levels of skill and varying degrees of good and bad luck are the realities that shape our lives—yet few of us are adept at accurately distinguishing between the two. Imagine what we could accomplish if we were able to tease out these two threads, examine them, and use the resulting knowledge to make better decisions.

In this provocative book, Michael Mauboussin helps to untangle these intricate strands to offer the structure needed to analyze the relative importance of skill and luck. He offers concrete suggestions for making these insights work to your advantage. Once we understand the extent to which skill and luck contribute to our achievements, we can learn to deal with them in making decisions.

The Success Equation helps us move toward this goal by:

• Establishing a foundation so we better understand skill and luck, and can pinpoint where each is most relevant
• Helping us develop the analytical tools necessary to understand skill and luck
• Offering concrete suggestions about how to take these findings and put them to work

Showcasing Mauboussin’s trademark wit, insight, and analytical genius, The Success Equation is a must-read for anyone seeking to make better decisions—in business and in life.


  • Format: Kindle Edition
  • Dateigröße: 1070 KB
  • Seitenzahl der Print-Ausgabe: 312 Seiten
  • ISBN-Quelle für Seitenzahl: 1422184234
  • Verlag: Harvard Business Review Press (16. Oktober 2012)
  • Verkauf durch: Amazon Media EU S.à r.l.
  • Sprache: Englisch
  • ASIN: B00A07FR4W
  • Text-to-Speech (Vorlesemodus): Aktiviert
  • X-Ray:
  • Word Wise: Aktiviert
  • Verbesserter Schriftsatz: Nicht aktiviert
  • Durchschnittliche Kundenbewertung: 5.0 von 5 Sternen 1 Kundenrezension
  • Amazon Bestseller-Rang: #136.005 Bezahlt in Kindle-Shop (Siehe Top 100 Bezahlt in Kindle-Shop)

  •  Ist der Verkauf dieses Produkts für Sie nicht akzeptabel?


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Von Christian B. am 1. August 2013
Format: Kindle Edition Verifizierter Kauf
einfach ein gutes buch zum thema wie die welt gesehen werden kann. Der Autor geht davon aus das alle entscheidungen zwischen "100% Luck" und "100% Skill" getroffen werden. DAs wird anhand mehrerer guter Beispiele aufgezeigt. Sehr lesenswert
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3.0 von 5 Sternen Decent book with some interesting references to follow up 24. Dezember 2012
Von Jackal - Veröffentlicht auf
Format: Gebundene Ausgabe
Be aware of all the five-star reviews that have only read one book, or those that have read three books from the same author and nothing else.

This book is neither a masterpiece nor the author's best book, but still an interesting book.

I think most of the book is based on the author's blog entries. I personally prefer the blog entries which are more concisely written. I feel that this book has a bit too much filler material. The book is clearly not written for professionals in the investment community (even though they too can profit from reading the book).

I would have liked the book to go one step further than just present extended blog entries. Sometimes the author lack a critical eye. Sometimes he presents an interesting academic finding and then moves on to the next thing. One is left with a lot of lose ends. What was the point of including the stuff on disruptive technologies for instance. We don't know because the author does not tell us. Personally, I still found some chapters interesting and especially the references to more specialised sources in psychology and management. This requires extra work, but the author has a good ability to read widely. If you do not want to do this extra work I don't know if the book will provide you with value. After finishing the book you are not left with a clear way to distinguish luck and skill. You are left with the general notion that luck plays a big role in investing. Not sure that is sufficient for even most lay-persons.

One thing the author misses is that luck and skill are not cast in steel. Luck is like a Russian doll. What is luck for an investor is not necessarily luck for the CEO. What is luck for the CEO is not necessarily luck for the R&D department. Etc. Failure to realise this point makes some of the discussion feel very superficial.

The book contains a lot of sports analogies. The author is talking about US sports, so these sections will not be fun readings for non-Americans. I am not a sports fan in general, so I think that these sections are a bit too lengthy (~30% of the book). In fact, the book contains more sports discussion than investment discussion (~10%). And even more psychology (~60%). Another weakness with the book is that the author is not pushing the investment parallels strongly enough.

Some advice if you have read Taleb. Mauboussin's book is more in the informal style of Taleb's Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets. Personally, I would prefer Taleb's The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: "On Robustness and Fragility".

If you have not read any of the author's books, pick up More More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded) (Columbia Business School Publishing) instead. That book is richer in providing various ideas. I would also advice you to check out the author's blog (on Legg Mason site) to get a feel for his writing. The blog is written for a professional audience, so it is more to the point and largely lacks the filler material.

This book is worth between three stars a bit depending on your own writing style preferences (more academic vs more informal).
35 von 43 Kunden fanden die folgende Rezension hilfreich
5.0 von 5 Sternen How and why to "untangle" skill and luck to improve at "the art of good guesswork" when making decisions 7. November 2012
Von Robert Morris - Veröffentlicht auf
Format: Gebundene Ausgabe
I have read all of Michael Mauboussin's HBR Blog posts and thus have eagerly anticipated the publication of this volume in which he examines - in much greater depth than the articles permit -- a common mistake when making predictions: failing to recognize the existence or miscalculating its influence, "and as a consequence we dwell too much on the specific evidence, especially recent evidence. This makes it tougher to judge performance...The problem is that we commonly twist, distort, or ignore the role that luck plays in our successes and failures. Thinking explicitly about how luck influences our lives can help offset that cognitive bias."

Obviously, luck can be an important factor. The challenge that Mauboussin embraces is to explore and thereby understand "the extent to which luck contributes to our achievements, successes, and failures." He shares what he has learned so that those who read this book will be much better prepared to take luck into full account when making decisions, especially those that serious implications and could have major consequences.

These are among the dozens of passages that are of special interest and value to me:

o Skill, Luck, and Prediction (Pages 5-10)
o The Luck-Skill Continuum and Three Lessons (23-29)
o Stories, Causality, and the Post Hoc Fallacy (34-38)
o The Paradox of Skill -- More Skill Means Luck Is More Important (53-58)
o Simulation: Blending Distributions to Match the Results (70-73)
o Gauging Luck: Independent and Dependent Outcomes (110-116)
o Power Laws and the Mechanisms That Generate Them (116-123)
o Deliberate Practice: Structure, Hard Work, and All About Feedback (157-163)
o When Success Is Probabilistic, Focus on Process (167-174)
o How to Live in a World That We Do Not Understand (190-195)
o Mean Reversion Mistakes (200-206)

Some of the most valuable material in the book focuses on the difficulties that result from attempting to "untangle" skill and luck. (Many people are unaware of that "tangle.") Mauboussin suggests that there is "a basic desire to find cause and effect in every situation, whether or not that view represents reality." He identifies several reasons that help to explain misjudgments. They include the aforementioned desire to see causality where none exists, the regency bias, mean reversion, nd the sample bias. He also has much of value to say about what I characterize as "reverse causality," indicated by the assertion that wet highways cause rain. How to improve the odds when making an important decision? Be sure to check out "Ten Suggestions to Improve the Art of Good Guesswork in a World That Combines Skill and Luck" (Pages 215-233).

No brief commentary such as mine can possibly do full justice to the scope and depth of material that Michael Mauboussin provides in this volume but I hope that I have at least suggested why I think so highly of him and his work. Also, I hope that those who read this commentary will be better prepared to determine whether or not they wish to read it and, in that event, will have at least some idea of how the information, insights, and wisdom could perhaps be of substantial benefit to them and to their own organization.
18 von 22 Kunden fanden die folgende Rezension hilfreich
5.0 von 5 Sternen Entertaining Read, Valuable Guide for Coping with Luck in Work and in Life 23. November 2012
Von C. Eaton - Veröffentlicht auf
Format: Gebundene Ausgabe
I would highly recommend "The Success Equation" for anyone looking to better understand how luck affects our lives. Thankfully, Mauboussin's new book also provides a host of mental tools that can be used to cope with the fact that luck - not just our ability or skill - determines a large portion of our fate. In fact, it is for that reason that "The Success Equation" goes well beyond one of my other favorite books on the topic, "Fooled by Randomness" by Nassim Taleb. Taleb's excellent book rightly highlighted the human tendency to overestimate causality in certain environments, such as the business world. I credit "Fooled by Randomness" for making me more cautious in my assessment of the perceived skill (or lack of skill) of many individuals or groups (companies, teams, etc.), but I regret that it did not provide many tools (aside from Monte Carlo) or mental models for figuring out the relative contributions of luck and skill to a particular outcome. Mauboussin's book does just this, and for that reason alone it should be a mainstay on the bookshelf of anyone who works in a field where luck plays a central role ("which is most of us," as one of the blurbs says).

Now, Mauboussin doesn't argue that one can make an exact science out of this attempt to disentangle the relative contributions of luck and skill, but he does provide some tools for properly framing the discussion and for at least making the attempt to do so. The author says his goal is to help readers make better decisions than those completely in the dark. I agree with him that this is an important exercise. At least in the business world, it seems like on a daily basis one encounters muddled thinking when it comes to discussing the success or failure of businesses and individuals. And that's despite excellent work from researchers such as Jerker Denrell and Phil Rosenzweig, who dismantled much of the pseudoscience endemic to popular explanations of business success.

Now, I'll just share a few of my favorite takeaways:

* Which information to focus on when making statistical predictions: Mauboussin applies Kahneman and Tversky's ideas of base rates (prior information) and specific evidence to skill and luck. In realms where skill is dominant, use specific information (you know Usain Bolt is the fastest guy so you predict he wins the race). In realms where luck dominates, use base rates (just because a mutual fund manager beat the market on a one-year basis doesn't necessarily tell you she will outperform next year).
* Let's relax with the aphorisms: many people react to the notion of luck with comments like "you make your own luck," etc. These are really just word games. If you work hard and put yourself in a greater position to succeed, that's arguably not luck but rather skill (e.g., "skill" by improving your odds).
* Process versus outcome: when luck exerts a large influence, it is better to focus on the individual's process, not the short-term results. If skill exerts a large influence, you're likely to see a strong link between cause and effect, process and outcome. Similarly, the greater the influence of luck, the larger the sample size you need to make any sensible conclusions. Can we please make knowledge of that fact a requirement for high school graduation?!
* Paradox of skill: Defensive readers take note (at first I was a little offended by all the luck talk!). As skill improves, the variance of skill gets smaller, which paradoxically increases the influence of luck on outcomes. Mauboussin offers examples of this from business, investing, and sports, but I particularly liked the example he borrowed from Gould regarding Ted Williams' .406 season.
* Methods for parsing the relative contribution of skill and luck: there's definitely some art involved here but I think the tools here should be more widely used in various fields. The methods presented include a subjective analysis (using a few key questions), simulations, and true score theory.
* Social influence: the success of many songs, movies, and books is contingent to some extent on social interactions, which means that one person's propensity to purchase an item is dependent on external factors (e.g., his social group or the popular media). This positive feedback amplifies success for the luckiest and vice-versa. Here, the author nicely ties in Watts' fascinating work on social influence (Everything Is Obvious) to the skill/luck discussion.
* Identifying and applying useful statistics: use a statistic that is both persistent - you can expect something to recur -- and predictive - it leads to the objective you seek. The test for persistence relates to the skill/luck discussion - skill is the driving force for statistics that are more persistent, or reliable, and vice-versa. In terms of prediction, we can simplistically think of field goal percentage in basketball, whereby a better percentage translates into your goal of scoring more points on offense. The author presents some interesting findings on a variety of statistics in different fields: in baseball, on-base percentage is more useful than batting average; in business, the two most popular stats, earnings per share and sales, provide mixed usefulness - earnings per share is less persistent than sales but it is more predictive of a corporation's goal, to deliver returns to shareholders; and in investing, the author was unable to proclaim "useful" some statistics commonly relied upon to choose future outperformers, such as past performance or expense ratio. He does however find promising a statistic known as active share.
* Managing luck: includes techniques for diluting the skill of an opponent if you are disadvantaged, and the recommendation to utilize small controlled experiments to better understand perceived randomness. And since we are in the realm of randomness, the author is careful to cite Taleb's crucial advice to know our limits of what can be known, particularly surrounding events with incomputable probabilities and massive consequences.
* Improving guesswork when skill and luck are involved: includes a long list of recommendations, including "always consider a null hypothesis," "assess sample size, significance, and swans," "make use of counterfactuals," and "develop useful statistics."
3 von 3 Kunden fanden die folgende Rezension hilfreich
5.0 von 5 Sternen Integrating Intuition with Deep Thinking 19. Januar 2013
Von Andrea M. Schara - Veröffentlicht auf
Format: Gebundene Ausgabe Verifizierter Kauf
Wondering what makes it so hard to make good decisions? Reading or really seriously studying Mauboussin's new book ( is a fascinating education in how the brain misperceives the environment in predictable ways.

Mauboussin identifies the ways we can be tricked by short cut thinking and rules of thumb decision-making. He even makes it seem possible, before breakfast, to understand a bit about correlations and decision-making linkages, statistical thinking and reversion to the mean. By carefully explaining the difference between luck and skill and how we often mistake one for the other, Mauboussin helps us enhance our ability to perceive the world.

For example, it makes sense but still requires untangling luck and skill to acknowledge that luck plays a significant role in which team wins the Stanley Cup or the Super Bowl. Once skill is evenly matched among the participants, there is some room for luck to make a difference. There can be interplay between skill and luck when one is very disciplined in acquiring skill. Often people mix up luck and skill as in a coin toss. The fact that one event is not influencing another is lost when people begin to feel lucky and believe that a hot hand can influence outcomes.

Good luck in coin tosses or other activities where one event is not influencing another, can automatically cause our brains to revert to cause and effect thinking, leading us down a rabbit hole where we can easily misperceive the world around us. For example, it is common to think that because you flipped a coin and got heads seven times you are somehow a bit lucky but mostly skilled and therefore you are willing to bet that heads will come up on your next toss. We actually have to learn that one coin toss is not influencing another, no matter our feelings or the story we tell ourselves about our hot hands. A feeling about our hot hand cannot predict the next toss of the coin or the next team that will win or the next great stock, but luck can play a role in our success (or failure).

In the old days we could rely on stories we heard, or even gossip from a neighbor, to predict the future and understand others. But Mauboussin reminds us that serious scientists are careful about sources of evidence and the challenges of prediction. To overcome habits of believing stories, he suggests we need a disciplined approach. Mauboussin references the work of Daniel Kahneman and Amos Tversky, the foremost authorities in the psychology of predictions, to give us well-tested examples. Mauboussin helps us increase our ability to get beyond automatic ways of sensing how the world works and engage in more challenging ways of perceiving the environment.

Mauboussin notes that we can, with some effort, break down the function of the brain into two parts, an automatic system (that can be influenced by the higher centers of the brain), and the analytic system. The latter can analyze and make complex computations that over time may become an automatic response that is skillful. Feedback is an essential part of altering our automatic responses. Those who want to become a strong and skilled performer can work on:
1) the analysis of how to do things properly,
2) the psychology of the effort, and
3) the influence of the social system that one is a part of. To learn a new skill may take only 50 hours, but to become more of an expert requires a thousand hours of effort.

Many of our automatic ways of thinking are based on the way our ancestors managed to survive. Now days there are dangers that lurk in ignoring a more fact based and mathematical way through the social jungle. We have to learn how stories that mix up luck and skill can lead us astray. Be careful when your friends tell you which stock to buy or when your doctor tells you how his last patient did, without benefit of knowing the base rate of how most patients did. Calling into question our automatic ways of understanding the world costs our brain a lot of energy. Comprising only 2% of our bodies in weight, the brain requires 20% of our energy so we tend to want to conserve energy and therefore question embracing the mental effort.

One-way around this problem is to makes it fun to look at processes that enhance out ability to predict. Mauboussin does this by using sports examples and creating web-based games that connect to his book. You can watch one tennis player win a point to see how this influences who will win the match. [...] Then just what can we learn from Colonel Blotto about spreading our resources to defeat Goliath? [...] My favorite is trying to beat the mind reader. [...] But I probably should spend more time understanding how the reinforcing property of success works. [...]
Another challenge Mauboussin discusses is the idea of a continuum for predictions. Even if we are reasonably good at figuring out the likely outcome in sports, when we move into larger social systems there are more unusual events that can occur and for which we cannot prepare. Tail events, which are outside our expected range of possibilities, like 9/11 are "black swan" occurrences that by definition not only cannot be predicted but are difficult to prepare for. Think how many people are angry because they believe that someone should have seen "it" coming. There are many possible outcomes Mauboussin shows us to any one event. History is not destiny. Moreover, if you do see it coming then you still have to have an emotional backbone in order to hold onto one's beliefs in the face of intense opposition. Benjamin Graham said, "Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it - even thought others may hesitate or differ". (Mauboussin, Page 172)

A few knowledgeable leaders can alter the social system and its habitual way of doing business. In the book Money Ball, recruiters used insider information to hire the best people. They talked about how the players looked, hit and fielded, but there was not a fact-based process to look at the link between behaviors and team wins. By correlating behaviors, like: when do they hit, how often did they get on base, and when did they drop the ball, Billy Bean began to see patterns of behaviors correlate with team wins. Bean not only identified some links between the talents of individual players and team outcomes, he then altered the way players were selected. He used facts to show a connection between who gets on base and the team's ability to win a game, and this was a more successful perception of success than highlighting a player's batting average. Billy Bean was able to see the more complex variables using statistics and seeing connections.

Mauboussin notes the importance of understanding reversion to the mean. Reversion to the mean identifies system level properties enabling us to consider an individual's very good or bad performance outcomes over time. Put another way, extreme results are unlikely to continue, like the upward trajectory of the price of Apple stock. Regression analysis allows us to see how individual performance, which in some case may be influenced by luck, smooth out over time. Out performing may be luck, but in some cases, as in mutual fund success, superior skill can be clearly distinguished. In that case it takes long periods of time to see who can do better than luck alone would predict. You can see some of this in game format on Mauboussin's web site. [...]

Mauboussin usefully suggests ways for readers to improve skills, such as using checklists, encouraging feedback and/or hiring a good coach to give an outside viewpoint and help manage "magical thinking". He also suggests writing down the outcome we expect when making decisions. These disciplines enable us to learn from mistakes and exercise humility about our ability to evaluate risk and to predict outcomes,

As Mauboussin points out, we are all in the business of forecasting. Considering the psychological, analytical and procedural barriers to untangling luck and skill, this book gives us clarity on processes involved in decision-making and tips to improve performance. Reading or studying this book helps us to learn about deep processes that are not commonsense or intuitive. We can develop discipline about decision-making processes that impact our lives and have fun while we are doing it. Or we can also depend on skill and hope for luck.

Andrea Schara
3 von 3 Kunden fanden die folgende Rezension hilfreich
5.0 von 5 Sternen Could become a best seller 13. Januar 2013
Von investingbythebooks - Veröffentlicht auf
Format: Gebundene Ausgabe
Michael Maboussin is a strategist at Legg Mason and previously at CSFB. He is also a teacher at Columbia, a trustee board member of Santa Fe Institute and one of the two persons that have influenced my financial thinking the most. Maboussins's new book aims to explain the elements of skill and luck in business, sports and investing. Most activities are a blend of skill and luck and hence the job becomes to place them on the luck-skill continuum. Investing is mainly dominated by luck.

With deeper understanding of luck vs. skill we can design rational operations, do better forecasts and develop skill in ways that fit the activity. "The key to statistical prediction is to figure out how much weight you should assign to the base rate and specific case." When skill dominates, the specific case should be given higher weight. When luck dominates, the base rate (the probabilities according to evidence from prior similar situations) should be prioritized. The more random a process the stronger the reversal to the mean will be. This means that in areas of skill a few observations can sort out skill from lack of skill. In more random areas the skill that exists will only be observable after a large number of observations.

The greatest misunderstandings occur in the areas where randomness dominates. Humans create stories of cause-and-effect to make sense of the world and hence see developments as more non-random then they really are. One fallacy due to an inability to understand reversal to the mean, in this book called "the dumb money effect" is when capital is allocated to assets, investment managers, investment styles etc. because of recent outperformance the last few years. An effect estimated to have cost investors one yearly percentage point of returns historically.

Maboussin brings forward useful methods on how to specify and estimate the rate of reversal to the mean and also dissects the most common mean reversion mistakes. One of these, "the illusion of declining variance", is a mistake you see all too often - for example, as the author points out, when it comes to the reversal to the mean in companies' return on invested capital. This reversal does not mean that all companies in the future will earn the same returns.

In areas where skill dominates, say basketball, the way to improve is through so called deliberate practice. In more mixed areas checklists is a good tool to improve performance. In more random areas the way to improve is to focus on process.

Even though the author shows that which song (or book) that becomes a smash hit, due to complex social interactions and feedback loops, is close to random, The Success Equation could very well become a best seller. Maboussin combines the deep knowledge, logical ability, pleasant language and pedagogical skills from previous books with a broadening of scope. This is a book on popular science more than on investments. The origin to the book is four or five reports that made their way to Maboussin's two excellent previous books. He has now expanded on these topics mainly by adding material and examples from the world of sports. The topics are vital for investing and a must to understand, but for those who have read the author's previous texts there is not much new material directly linked to investments.

The topic that occupied my mind after finishing the book was whether I agreed with Maboussin or not on his definition of investing skill and expertise; "Deliberate practice and the concept of expertise apply only to the skill side of the luck-skill continuum." It's true that you can't make ten thousand investments just like you practice free throws and by time automatize skill by adding myelin onto neural path ways. However, couldn't expanding your knowledge and understanding of the best processes also be seen as a type of deliberate practice on a higher level? Over time you will internalize what is likely to work and what is not.

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