Michael Mauboussin
Investment strategist, Columbia Business School professor and author of The Success Equation
Where to hear and read about Michael Mauboussin1 episode or test
Michael Mauboussin is an investment strategist, Columbia Business School professor and author of The Success Equation. The most useful thing to learn from him is his loop of learning deeply, outlining hard, and handing the draft to an editor who is not an expert.
Learning is a prerequisite to writing.
Write Like Wall Street’s Best — Michael Mauboussin
Michael Mauboussin: the story and the lessons
1How Mauboussin turns learning into research and books
Mauboussin works as a loop of learning, then writing or teaching. His job has three parts: helping investors with their process, doing research and writing, and speaking to outside audiences. He is in his 32nd year teaching security analysis at Columbia Business School.
Input without output leaves him unable to synthesize, and output without input leaves him feeling out of balance. He notes that his best teachers were all great learners.
He treats each research topic as a bounded project. Each topic gets a beginning and an end, which keeps research from becoming a rabbit hole. He researches what he feels he should know better, and notes loose ends as possible future projects.
The luck and skill chapter was his chapter two in Think Twice, and his editor moved it to the back. Readers kept asking for more on it, which led to The Success Equation.
He joined Fooled by Randomness and Moneyball to build The Success Equation. Fooled by Randomness (2001) showed life is more random than we thought, but not how much. Moneyball (2003) showed numbers can find skill where people don't look. He asked whether the two ideas could be combined to weigh luck against skill.
Nassim Taleb says all his books were born out of the ribs of his previous book. Mauboussin follows the same pattern of one question opening the next.
He borrows frameworks from other fields to explain how industries develop. The brain's synaptic connections surge until about age three, then get pruned. Steven Klepper's work shows industries follow the same pattern, with competitors multiplying, peaking, then thinning out.
The dot-com era fits it, such as shipping 50-pound bags of dog food, which looks wasteful in hindsight but was the industry searching the space. He credits Stephen Jay Gould fully for the paradox of skill.
Measuring the Moat was one of his hardest syntheses. He read Porter, Christensen and microeconomics, but nothing combined them into a checklist. He organized it from the big picture to industry issues to firm-specific issues.
It was written more than 20 years ago and still circulates widely. It looks obvious now that he teaches it, but building it was extremely difficult.
2Why Mauboussin says there is always something new to say
Mauboussin holds that markets can never be perfectly efficient, so there is always work to do. The 1980 Grossman and Stiglitz paper, On the Impossibility of Informationally Efficient Markets, argues that gathering information has a cost someone must be paid to bear. Investors who dig up information trade on it and leave an efficient price behind.
Ordinary people who buy an index fund benefit from that work. He turns the same logic on writers: the reader's ignorance is the writer's opportunity.
He revisits topics everyone calls finished. Paul Krugman was told in the late 1970s that international trade was done, reworked it, and won a Nobel Prize. Increasing returns goes back to Adam Smith's pin factory in 1776, yet Paul Romer won the 2018 Nobel Prize for work on ideas and growth.
His team wrote a report on five areas where increasing returns apply today. His point is that a changing world gives old ideas new uses.
He learns the history of an idea before writing about it. His Columbia students know Ben Graham but not John Burr Williams, whose 1930s book on investing was profound. He now looks up ancient Greek daily as a source of paradigm shifts.
He likes to trace where an idea came from, why we are where we are, and where it may go.
He checks the precise meaning of the words he uses. His editor Lawrence Gonzalez asked whether he knew the difference between an error and a mistake, after he had used the words interchangeably in a book on the subject.
An error is doing wrong what you should have known how to do right. A mistake is simply doing wrong.
3How Mauboussin writes for experts and beginners at once
He starts only when he has a nugget he is excited to share. His rule number one is to have something to say. He starts from a finding he thinks the world should hear, and style depends on that.
Writing shows him what he does not yet understand. He often thinks he understands a topic, starts writing, and finds he has no idea what he is doing, which sends him back to first principles.
He opens his Columbia class with Gauss's line "Not notations, but notions", meaning learn the concepts and not just the formulas.
He writes as a peer beside the reader, not a teacher. He favors Pinker's classic style, where writer and reader look at the same world and talk about what they see. He contrasts it with Strunk and White, which is teacher to student.
"It's almost like I put my arm around the reader and we all gaze off into the world."
He tests drafts against a high schooler and a finance professor. A high schooler should get the basic ideas, and a sophisticated finance professor should still find something of interest. Acronyms and jargon are the usual traps.
Pinker's line, which he quotes, is that the curse of knowledge is what makes smart people bad writers.
He shows how every number was derived. When he gives a figure, he adds a short worked calculation so the reader can see where it came from. It takes little space, and people remember concrete things better.
His research reports include many small worked examples.
He starts on familiar ground, then takes one leap. His report Shift Happened bridged classic market theory and markets as complex systems. The reader starts with what school taught, then gains the added relevance of complexity.
David Perell compares it to rock climbing: get a firm grip, then reach for the next hold.
He puts a small personal story into dry analysis. He opened a book with a story of how he got a job, a random event that set up the theme of luck. Readers remember him as "the trashcan guy".
The sentence took iteration after iteration to get right. A piece with two hours spent on four Bible verses at a Schlotzky's in Texas Hill Country shows the same method of one placed detail. His editor tells him "I hear you, but I don't feel you."
4Mauboussin's writing process: outline, editor, silence
Mauboussin does most of his cutting in the outline. He checks that each idea builds on the last and kills ideas that don't fit the flow. A one-line core idea works as a razor: if a sentence relates to it, keep it, and if not, cut it.
For a book, each chapter should lead into the next so the reader has a reason to go on. He cut an idea from a current project on the day of the interview.
He hired an editor who knew nothing about finance. Lawrence Gonzalez, author of Deep Survival, offered to line edit Think Twice (2009). Mauboussin spent a week on the edits, then hired him as editor for The Success Equation.
Gonzalez kept asking why a technical term was used when a simpler one would do. Mauboussin says the lessons carried into everything he wrote afterward.
He tells would-be authors to get an editor before going too far. A good editor handles the nuts and bolts and checks the structure. An outsider to the industry also forces you to answer naive questions.
He calls a good editor "worth his or her weight in gold".
He writes in long blocks of time in complete silence. Writing on a train or plane did not work for his first, co-authored book. He used to play music while working and now works in complete silence.
He lets drafts sit, then polishes with fresh eyes. He and Dan Callahan edit each other's work, spending most of the time polishing words, structure, flow and analysis rather than cutting. He aims at the word limit so he avoids writing 150,000 words for a 50,000 word book.
Cormac McCarthy told him a manuscript is done when he pulls it from the drawer and does not want to change a single word. Mauboussin says by that standard he would never have finished his first paragraph.
He gets better at writing by doing it and taking feedback. Not everything he produces will be good, but he says there is no substitute for getting after it. He pairs the volume with feedback from a trusted editor.
He points to Stephen King's On Writing, which shows a hardworking reader and writer, and to the Beatles starting as a cover band.
Write Like Wall Street’s Best — Michael Mauboussin
Mauboussin argues that good writing starts with real understanding and a reader treated as a peer, so smart writers must fight the curse of knowledge with concrete examples and plain words. The habit worth hearing is his input and output loop: learn something deeply, outline hard and cut in the outline, then hand it to an editor who is not an expert.
Mauboussin works as a loop of learning, then writing or teaching. His job has three parts: helping investors with their process, doing research and writing, and speaking to outside audiences. He is in his 32nd year teaching security analysis at Columbia Business School.
Input without output leaves him unable to synthesize, and output without input leaves him feeling out of balance. He notes that his best teachers were all great learners.
He treats each research topic as a bounded project. Each topic gets a beginning and an end, which keeps research from becoming a rabbit hole. He researches what he feels he should know better, and notes loose ends as possible future projects.
The luck and skill chapter was his chapter two in Think Twice, and his editor moved it to the back. Readers kept asking for more on it, which led to The Success Equation.
He joined Fooled by Randomness and Moneyball to build The Success Equation. Fooled by Randomness (2001) showed life is more random than we thought, but not how much. Moneyball (2003) showed numbers can find skill where people don't look. He asked whether the two ideas could be combined to weigh luck against skill.
Nassim Taleb says all his books were born out of the ribs of his previous book. Mauboussin follows the same pattern of one question opening the next.
He borrows frameworks from other fields to explain how industries develop. The brain's synaptic connections surge until about age three, then get pruned. Steven Klepper's work shows industries follow the same pattern, with competitors multiplying, peaking, then thinning out.
The dot-com era fits it, such as shipping 50-pound bags of dog food, which looks wasteful in hindsight but was the industry searching the space. He credits Stephen Jay Gould fully for the paradox of skill.
Measuring the Moat was one of his hardest syntheses. He read Porter, Christensen and microeconomics, but nothing combined them into a checklist. He organized it from the big picture to industry issues to firm-specific issues.
It was written more than 20 years ago and still circulates widely. It looks obvious now that he teaches it, but building it was extremely difficult.
Mauboussin holds that markets can never be perfectly efficient, so there is always work to do. The 1980 Grossman and Stiglitz paper, On the Impossibility of Informationally Efficient Markets, argues that gathering information has a cost someone must be paid to bear. Investors who dig up information trade on it and leave an efficient price behind.
Ordinary people who buy an index fund benefit from that work. He turns the same logic on writers: the reader's ignorance is the writer's opportunity.
He revisits topics everyone calls finished. Paul Krugman was told in the late 1970s that international trade was done, reworked it, and won a Nobel Prize. Increasing returns goes back to Adam Smith's pin factory in 1776, yet Paul Romer won the 2018 Nobel Prize for work on ideas and growth.
His team wrote a report on five areas where increasing returns apply today. His point is that a changing world gives old ideas new uses.
He learns the history of an idea before writing about it. His Columbia students know Ben Graham but not John Burr Williams, whose 1930s book on investing was profound. He now looks up ancient Greek daily as a source of paradigm shifts.
He likes to trace where an idea came from, why we are where we are, and where it may go.
He checks the precise meaning of the words he uses. His editor Lawrence Gonzalez asked whether he knew the difference between an error and a mistake, after he had used the words interchangeably in a book on the subject.
An error is doing wrong what you should have known how to do right. A mistake is simply doing wrong.
He starts only when he has a nugget he is excited to share. His rule number one is to have something to say. He starts from a finding he thinks the world should hear, and style depends on that.
Writing shows him what he does not yet understand. He often thinks he understands a topic, starts writing, and finds he has no idea what he is doing, which sends him back to first principles.
He opens his Columbia class with Gauss's line "Not notations, but notions", meaning learn the concepts and not just the formulas.
He writes as a peer beside the reader, not a teacher. He favors Pinker's classic style, where writer and reader look at the same world and talk about what they see. He contrasts it with Strunk and White, which is teacher to student.
"It's almost like I put my arm around the reader and we all gaze off into the world."
He tests drafts against a high schooler and a finance professor. A high schooler should get the basic ideas, and a sophisticated finance professor should still find something of interest. Acronyms and jargon are the usual traps.
Pinker's line, which he quotes, is that the curse of knowledge is what makes smart people bad writers.
He shows how every number was derived. When he gives a figure, he adds a short worked calculation so the reader can see where it came from. It takes little space, and people remember concrete things better.
His research reports include many small worked examples.
He starts on familiar ground, then takes one leap. His report Shift Happened bridged classic market theory and markets as complex systems. The reader starts with what school taught, then gains the added relevance of complexity.
David Perell compares it to rock climbing: get a firm grip, then reach for the next hold.
He puts a small personal story into dry analysis. He opened a book with a story of how he got a job, a random event that set up the theme of luck. Readers remember him as "the trashcan guy".
The sentence took iteration after iteration to get right. A piece with two hours spent on four Bible verses at a Schlotzky's in Texas Hill Country shows the same method of one placed detail. His editor tells him "I hear you, but I don't feel you."
Mauboussin does most of his cutting in the outline. He checks that each idea builds on the last and kills ideas that don't fit the flow. A one-line core idea works as a razor: if a sentence relates to it, keep it, and if not, cut it.
For a book, each chapter should lead into the next so the reader has a reason to go on. He cut an idea from a current project on the day of the interview.
He hired an editor who knew nothing about finance. Lawrence Gonzalez, author of Deep Survival, offered to line edit Think Twice (2009). Mauboussin spent a week on the edits, then hired him as editor for The Success Equation.
Gonzalez kept asking why a technical term was used when a simpler one would do. Mauboussin says the lessons carried into everything he wrote afterward.
He tells would-be authors to get an editor before going too far. A good editor handles the nuts and bolts and checks the structure. An outsider to the industry also forces you to answer naive questions.
He calls a good editor "worth his or her weight in gold".
He writes in long blocks of time in complete silence. Writing on a train or plane did not work for his first, co-authored book. He used to play music while working and now works in complete silence.
He lets drafts sit, then polishes with fresh eyes. He and Dan Callahan edit each other's work, spending most of the time polishing words, structure, flow and analysis rather than cutting. He aims at the word limit so he avoids writing 150,000 words for a 50,000 word book.
Cormac McCarthy told him a manuscript is done when he pulls it from the drawer and does not want to change a single word. Mauboussin says by that standard he would never have finished his first paragraph.
He gets better at writing by doing it and taking feedback. Not everything he produces will be good, but he says there is no substitute for getting after it. He pairs the volume with feedback from a trusted editor.
He points to Stephen King's On Writing, which shows a hardworking reader and writer, and to the Beatles starting as a cover band.