Thinking About the Stock Selection Process

 

 

 

“When investors talk about expectations, they are usually talking about the wrong expectations.”
-Michael Mauboussin

 

One of my very favorite MiB guests is Michael Mauboussin; his current gig is head of consilient research at Morgan Stanley Investment Management’s Counterpoint Global.

He recently updated and rewrote the book he co-authored with Alfred Rappaport, “Expectations Investing: Reading Stock Prices for Better Returns.” It was as good an excuse as any to get him back into the studio to discuss what has changed over the past 20+ years,

He explains why people confuse multiples for valuations, and how lots of assumptions about stocks prices so often go unexamined. He explains why so many measures like P/E, P/S, P/B etc. tend to be circular arguments.

We also spend some time discussing the impact of the rise of intangibles: patents, software, processes, copyrights, algos, logistics.

Discussed on the podcast:

Categorizing for Clarity: Cash Flow Statement Adjustments to Improve Insight (PDF) (Morgan Stanley)

Steven Crist on Value Investing and Horse Betting

Chapter 3 Crist on Value

The Impact of Intangibles on Base Rates (PDF) (Morgan Stanley)

Lifetime Earnings: Do IPO Prices Predict Future Earnings?

A The Idea Multiplier: An acceleration in innovation is coming (Vanguard)

 

A list of his favorite books is here; A transcript of our conversation is available here.

You can stream and download our full conversation, including the podcast extras on iTunesSpotifyStitcherGoogleBloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with, Max Chafkin is a features editor and tech reporter at Businessweek. His work has also appeared in Fast Company, Vanity Fair, and the New York Times Magazine. His most recent book is “The Contrarian: Peter Thiel and Silicon Valley’s Pursuit of Power.”

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