Golden words of Michael Mauboussin – Explained by Savart

Michael J. Mauboussin is the Director of Research at BlueMountain Capital Management. He is also the Ex-Managing Director and head of Global Financial Strategies at Credit Suisse. He is also an adjunct professor of finance at the Columbia Business School. His work has inspired several theories, strategies, and processes in the world of investment.

  • A sound knowledge of finance is an essential part of becoming a successful executive/entrepreneur. Everything we do in business has some effect on the “number”, whether they are sales, costs, profits, returns on investments or over-all solvency. If you take a position of responsibilities of a company, it is very difficult to manage effectively, and harder still to advance without a basic grasp of the financial implications of your actions. If you don’t have that level of fiscal know-how, you can be sure to be fooled by Mr. Market. In the investment, being financially literate does not just mean understanding straight financials, it also includes understanding things between the numbers too.
  • You must be able to appraise the potential of your investment including costs, benefits of the portfolio, the future path of profits, cash flow & any associated risks. If you do not understand these basics, your portfolio will sooner or later become worthless.
  • Becoming a financial strategist feels perilous because your planning is founded on uncertainty. Money expected in the future is worth less than the money in the bank today. Your strategies must demonstrate that the value of money spent now will be justified by the eventual result.
  • Investors must be a comparison machine: values versus growth, stock A versus stock B & now versus later. Fundamentals capture the sense of the company’s future financial performances & expectations reflected by the stock prices.
  • An investor should have probabilistic reasoning that is using logic and probability to handle uncertain situations. An investor with probabilistic thinking uses the past situations and statistics to predict the outcome.
  • The most important aspect of behavioral finance is peace of mind. By having a thorough understanding of your risk appetite, the purpose of each investment in your portfolio and the implementation plan of your strategy, you feel more confident about your investment plan and be less likely to make common behavioral mistakes. A good financial planner can help investors recognize and understand their own individual behavioral bases & predispositions and thus be able to avoid making investment decisions based on those biases.
  • For investors, information is a fact. They use financial statements to obtain valuable information used in valuation & credit analysis of the company. It is important to collect, interpret and use the right data in the right way without bias.
  • Investors are in a position to determine how many units of a security they can purchase, which helps them control risk and maximize returns. It is important to be judicious in this regard.
  • To invest early is to obtain the power of compound interest. At the same time, it is important to invest wisely. Reading good books or investing can provide indispensable business & financial insights to investors: “The Essays of Warren Buffett”, “The Intelligent Investor” by Benjamin Graham, “Think & Grow Rich” by Napoleon Hill are some of the books worth reading. 
  • We will be sharing a comprehensive list of books to read for all investors.