Invest Like The Best
Episode 126 The Four Sources of Alpha
Invest Like The Best

Episode 126: The Four Sources of Alpha

Invest Like The Best

Episode 126

The Four Sources of Alpha

Michael J. Mauboussin is Head of Consilient Research at Counterpoint Global. We cover the sources of alpha, behavioral finance, and decision making.

[00:01:23] – (First Question) – An outline of the syllabus for the course he teaches

[00:04:02] – What are smart people missing when it comes to decision making

[00:05:33] – Why Michael went down the path of defining major investing concepts

[00:09:14] – Beware behavioral finance

[00:12:03] – What are the behavioral errors that people can take advantage of in a trade

[00:15:14] – Timing opportunities

[00:17:47] – Where the analytical edge comes from

[00:21:16] – Is there an advantage to exhibit time arbitrage

[00:23:53] – Technical arbitrage

[00:29:34] – What impact do flows into ETFs play on the market

[00:32:25] – Informational edge and how you source that edge

[00:36:39] – Biggest changes that he has seen on the buy side

[00:43:18] – How would Michael apply this as a sports GM

[00:48:35] – His views on stock buybacks

[00:52:55] – EBIT to EBITDA paper

[00:59:28] – The concept of benign myths

[01:02:06] – What the future holds of Michael

The Four Sources of Alpha

Introduction

Patrick
My guest this week for the third time is Michael Mauboussin. If there's a major question about markets and investing, Michael has usually written one of the best pieces of research on that topic. Today's conversation is a mix of several of his research pieces, but focuses on the sources of alpha. The framing of the conversation is the brilliant question, who is on the other side of a given trade. If you're buying, who is selling, and why? Knowing the answer to this question is one of the keys to understanding where excess return comes from. As is usual with Michael, we explore tons of other interesting ideas that will serve as food for thought. Please enjoy.

Michael, maybe a fun place to start this time, because we were talking about it before we hit record, is for you not to go into each vertical, but give the rough syllabus for the class that you teach, because these chunks, I think, represent a great way for people to think about building out their own market education. And then we're going to spend a lot of time talking about the sources of alpha today and valuation measures. But as framing, I think that the outline of the course would actually be a great place to start.

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