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Adopting a Proper Psychological Attitude: Michael Mauboussin Wisdom


In 2013, the Nobel Prize in economics went to three men. One of the recipients, Robert Shiller, is a professor at Yale University known for showing that markets are inefficient. Another was Eugene Fama, a professor at the University of Chicago known for his advocacy of market efficiency. (The third was Lars Hansen, also at the University of Chicago.) This leads to the first point worth stressing: to be an active investor, you must believe in both inefficiency and efficiency. In other words, you have to think that both Shiller and Fama are right―just not at the same time. Naturally, if markets are perfectly efficient there’s no reason to try to beat them through active management. But it’s also true that there’s no reason to try to beat the market through active management if you think markets are always inefficient. That’s because even if you are savvy enough to buy a dollar for fifty cents, there’s no reason to believe that the price and value will ever converge in a perpetually inefficient market.

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