Aside from the obvious Buffett & Munger, there are two investors I can never seem to get enough of. The first is Howard Marks – who thankfully puts out his regular memos from Oaktree. The second is Legg Mason Strategist and Columbia Business School Professor Michael Mauboussin who was recently interviewed on Consuelo Mack’s WealthTrack.
The October issue of Harvard Business review included an article by Legg Mason Strategist and Columbia Business School Professor Michael Mauboussin titled “The True Measures of Success”.
About a dozen years ago, when I was working for a large financial services firm, one of the senior executives asked me to take on a project to better understand the company’s profitability. I was in the equity division, which generated fees and commissions by catering to investment managers and sought to maximize revenues by providing high-quality research, responsive trading, and coveted initial public offerings. While we had hundreds of clients, one mutual fund company was our largest. We shuttled our researchers to visit with its analysts and portfolio managers, dedicated capital to ensure that its trades were executed smoothly, and recognized its importance in the allocation of IPOs. We were committed to keeping the 800-pound gorilla happy.
Part of my charge was to understand the division’s profitability by customer. So we estimated the cost we incurred servicing each major client. The results were striking and counterintuitive: Our largest customer was among our least profitable. Indeed, customers in the middle of the pack, which didn’t demand substantial resources, were more profitable than the giant we fawned over.
What happened? We made a mistake that’s exceedingly common in business: We measured the wrong thing. The statistic we relied on to assess our performance—revenues—was disconnected from our overall objective of profitability. As a result, our strategic and resource allocation decisions didn’t support that goal. This article will reveal how this mistake permeates businesses—probably even yours—driving poor decisions and undermining performance. And it will show you how to choose the best statistics for your business goals.
Both the article and book mention Michael Lewis’ Moneyball. I think this clip from Moneyball provides a perfect analogy for Professor Mauboussin’s premise.
Meanwhile, in concert with my last post, I will begin adding material to the VI Resources, SI Resources, and Security Analysis pages. Not all additions will make it to the front page of the blog, so check back to see what is new.
I recently discovered a great PBS Site for an NBR series called “Your Mind and Your Money.” I highly recommend taking some time to read and watch the interviews they have posted. One interview in particular features Columbia Business School Professor and Legg Mason Chief Strategist Michael Mauboussin.
I recently came across this interview with Michael Mauboussin who is a Columbia Business School Adjunct Professor and Strategist of Legg Mason. Mauboussin’s new book, Think Twice: Harnessing the Power of Counterintuition hits bookshelves on October 12, 2009. If it lives up to his past books, it will become a must read. I highly recommend checking out Cap@Columbia. The site provides a wealth of content on investing, including articles written by Michael Mauboussin. For those of you who live in the NY/NJ area, Professor Mauboussin will be speaking about his new book on Thursday, November 19, 2009 at The New York Society of Securities Analysts (NYSSA). Click here for more information on the NYSSA event.
Finally, I have created a new archive page for the Graham and Doddsville newsletter produced by the students of Columbia Business School. This morning at the 19th Annual Graham and Dodd Breakfast I learned that a new issue is imminent. I will post it to the archive as soon as it is released.
Isn’t it funny when you walk into a investment firm, and you see all of the financial advisors watching CNBC — that gives me the same feeling of confidence I would have if I walked into the Mayo-clinic or Sloan Kettering and all the medical doctors were watching General Hospital…