Michael Mauboussin: Ben Graham’s Overarching Investing Lesson

Johnny HopkinsMichael MauboussinLeave a Comment

We’ve just been listening to Michael Mauboussin’s interview on the Jim Rutt Podcast. During the interview he spoke about the fact that while a number of Ben Graham’s methods have become dated, there is one overarching investing lesson. Here’s an excerpt from the interview:

Michael: So I just tried to create this sort of comprehensive framework and say, every time you put on a trade and you think you’re going to generate an excess return, just give some thought as to who’s on the other side of that and why you think specifically you have some sort of an edge. And I just think it’s a really rich way to think about things versus just thinking you’re the most clever person walking around. And if you’ve been in markets, by the way, for any period of time and you’re not humble about it, then something’s wrong. I mean, markets are the most humbling mechanism I can imagine.

Jim: Yeah, I can tell you the same experience over my 35 years or so. And to your point, nothing drives me crazier than hearing two morons at a restaurant discussing the tip they got from their broker as if this was God’s own truth.

Michael: Exactly. You are human so it’s all entertaining. So we love stories and we love to defer to experts, we love to defer to people who are “in the know”. But yeah, we can just know in real life that doesn’t work out so well.

Jim: Yeah. In fact, we’ll finish this section by a quote that you had in the paper from, I guess he’s your hero, Benjamin Graham. He said, “Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgement is sound, act on it, even though others may hesitate or differ. You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

Michael: Beautiful, right? And it’s interesting that the course that I teach at Columbia business school is actually sort of the same course that Ben Graham started teaching in the 1920. So it’s been around in Columbia for many, many years. And I think that if you read Graham’s work, Security Analysis from 1934 and The Intelligent Investor, it’s replete with examples that were at the time contemporary, but they feel very dated. And a lot of his methods actually today, I think, come across as very dated.

Michael: But Graham’s overarching lesson to all of us is really about temperament and philosophy of how you approach investing in general. And that quote, I think, really embodies something that will ultimately be timeless, which is people may go bonkers, but when the facts and you’ve done the work and the facts in your judgement align to just suggest you should do something, you should just go ahead with some conviction. So a lot of that is … The lasting lesson of Ben Graham is really about temperament and how you approach this philosophically. That’s a powerful thing that we’ll talk about in another 100 years from now, I think.

You can listen to the entire interview by clicking on the play button below, or you can find the original version on the Jim Rutt Show here.

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