Decision Making and Counterintuition in Investing
Investing is more than just a numbers game. Having the requisite quantitative skills, while an essential component of success, is not all there is to it. Possessing a “contrarian streak” is just as vital, says Michael J. Mauboussin, managing director and head of global financial strategies at Credit Suisse.
In a Take 15 interview with Len Costa, Mauboussin discusses the psychological and behavioral elements that are key to effective investing, and he explains why cognitive diversity is imperative in building a strong team.
Mauboussin argues that going against the crowd is important in investing, even though your instincts may be telling you otherwise. “You don’t want to be a contrarian for the sake of being a contrarian, because sometimes the crowd is right,” he explains. “But by the same token, when the crowd goes off on one tangent or another, that’s when you want to be behaviorally set up to take advantage of it, and then bring in your analytical capabilities.”
Mauboussin also advocates a team approach, and believes that individual members’ unique skills combine for lucrative results. “When we talk about diversity in organizations, we almost always talk about social identity diversity . . . but really what you’re after in problem solving is cognitive diversity,” Mauboussin says. “Sometimes social identity diversity is a proxy for it, but they really are quite distinct things.”
Maboussin goes on to cite two crucial components to investment success: paying attention to the world beyond finance and carefully considering personality aspects.
“I think what allows good investors to be great investors is not that their spreadsheets are finer, but rather they have the proper temperament to make good decisions, especially in the face of stress or adversity.”
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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