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Capital Allocators – Inside the Institutional Investment Industry

Jan 8, 2018

Michael Mauboussin currently is the Director of Research at BlueMountain Capital, a multi-billion dollar hedge fund and asset manager.  He spent the majority of his professional career thinking and writing about decision making, behavior and complex systems, with long stints at Credit Suisse and nearly a decade alongside Bill Miller at Legg Mason.  Michael has been an Adjust Professor at Columbia Business School for 24 years.

Our conversation covers Michael’s early career, the paradox of skill, academic research more favorable to active management, decision-making, optimal size and composition of teams, unsettling features in the market, data analysis in sports, career risk, the Santa Fe Institute, and Michael’s new research on the horizon.

Every time I speak to Michael I come away thinking better and feeling smarter, and this time was no exception.

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Show Notes

1:48 - What was Michael like as a kid

2:26 – How Michael found his way to Wall Street

6:18 – His start as an analyst in consumer and packaged goods

7:52 – Why there are no .400 hitters in active management and the paradox of skill

            8:15 – Full House: The Spread of Excellence from Plato to Darwin

14:26 – Why have there been massive flows into index funds over the last 3-4 years

15:44 – Academic research supporting active management

            16:09 – Mutual Fund Flows and Performance in Rational Markets

            16:25 - On the Impossibility of Informationally Efficient Markets

            22:52 - Indexing and Active Fund Management: International Evidence

23:12 – Do these trends also apply in global markets

            24:01 - The Mutual Fund Industry Worldwide: Explicit and Closet Indexing, Fees, and Performance

25:22 – What has Michael discovered in his new role at Blue Mountain through his new credit lens

            27:49 – Amazon, the world’s most remarkable firm, is just getting started

30:02 – What are some of the lenses that Michael uses when dealing with allocators

35:02 – How does Michael go about interviewing for a team while taking into account their biases

            36:19 – The Rationality Quotient: Toward a Test of Rational Thinking

36:37 – Biggest risks in the markets today

            37:31 – Banks to Funds: Have Some Leverage With That Deal

39:45 – Liquidity in the markets

41:26 – What’s most interesting to Michael about the merging of data and sports

            41:34 – The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

            43:42 – Big Data Baseball: Math, Miracles, and the End of a 20-Year Losing Streak

            44:32 – Scorecasting: The Hidden Influences Behind How Sports Are Played and Games Are Won

45:57 – Psychological bias in sports

 46:16 - Malcom Gladwell Podcast: The Big Man Can't Shoot

47:23 – Psychological bias in investment management

            47:40 – Scott Malpass on Capital Allocators

48:44 – Michael’s work with the Santa Fe institute

            53:08 – Scale: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life in Organisms, Cities, Economies, and Companies

54:40 – Next big piece of research Michael is working on

            57:53 – The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction

57:59 – Should Michael be using his skills elsewhere in the context of a world where so many advocate for just indexing

            1:01:36 – Charley Ellis on Capital Allocators