Saturday, February 20, 2010

Current Reading Update

Actually, this will be for future, not current, reading. FLG caught an interview with Michael Mauboussin (mp3) recently. His discussion of how decisions are made, especially one part about how if a system is static and linear people eventually take a more intuitive approach toward it, sounded very interesting. (FLG is even more interested in the cases were people assume static systems and linearity when they aren't true.) Plus, Mauboussin is a Hoya. So, he's got that going for him. FLG will be ordering the book shortly.

Think Twice: Harnessing the Power of Counterintuition

UPDATE: FLG found a link to this article, which probably formed the basis for the book, on his website.

He makes explicit mention of something FLG has harped on numerous times:
I must concede that my occupation — active money management — may be one of the best examples of the illusion of control in the professional world. Researchers have shown that, in aggregate, money managers who actively build portfolios deliver returns that are lower than the market indices over time, a finding that every investment firm acknowledges. The reason is pretty straightforward: Markets are highly competitive, and money managers charge fees that diminish returns. The same is true for individuals. Even though doing a lot of research into what to buy and sell may give you confidence, over time the costs you incur make it likely that your portfolio returns will fail to keep up with someone who parked money in a garden-variety index fund and forgot about it.

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