Big Money Thinks Small: Biases, Blind Spots, and Smarter Investing (Columbia Business School Publishing)

Any single number can be a misplaced anchor—be it a stock’s previous highs, a historical valuation ratio, or estimated earnings. It usually isn’t relevant to compare today’s price/earnings ratio (P/E) for a small-cap or growth stock to its five-year average, because its growth profile and market conditions may have shifted radically. Instead, care

The facts I seek often look like stale background information; they have been, and will continue to be, true for a long time. I’m searching for important facts with a long shelf life; for example, a description of a company’s competitive position or how management has historically used its cash flow. You’ll rarely hear these topics on Fox News or C

Seek out the refuting evidence or bearish story. Invert. Consider whether the opposite story also makes sense.

When analysts speculate on the ultimate potential of a product, they often fantasize the crowning moment of glory and assume that it lives happily ever after.

Real estate investment trusts, master limited partnerships, and royalty trusts often trade on their yield rather than their asset value. In some of those cases, analysts disagree about the economic meaning of depreciation and depletion—in particular, whether those items are akin to earnings or not. Without looking at the specific situation, I could

shine a spotlight on the evidence that is silent. Lurking in the background are unexamined assumptions about society and institutions. To fix recency bias, study history—the longer and broader, the better. To envision the future, investors need some idea of the normal baseline. Discover which things change and which endure. Statistics, probability,

This book is about succeeding in investing by avoiding mistakes. The organizing framework of this book, in five parts, is that we will reap pleasing investment rewards if we (1) make decisions rationally, (2) invest in what we know, (3) work with honest and trustworthy managers, (4) avoid businesses prone to obsolescence and financial ruin, and (5)

Most companies lack a strong character. This does not mean that they will be poor investments—only that they are less apt to be exceptional.

Be quick to recognize mistakes, not necessarily losses.