{"id":1264,"date":"2012-12-01T21:01:24","date_gmt":"2012-12-01T15:31:24","guid":{"rendered":"http:\/\/teekhapan.wordpress.com\/?p=1264"},"modified":"2012-12-01T21:01:24","modified_gmt":"2012-12-01T15:31:24","slug":"in-short-run-even-playboy-bunnies-can-beat-fund-managers","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2012\/12\/01\/in-short-run-even-playboy-bunnies-can-beat-fund-managers\/","title":{"rendered":"In short run, even Playboy bunnies can beat fund managers"},"content":{"rendered":"
<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Michael J. Mauboussin\u00a0is Chief Investment Strategist at Legg Mason Capital Management in the United States. He is also the author of bestselling books on investing like \u00a0Think Twice: Harnessing the Power of Counterintuition\u00a0and\u00a0More Than You Know: Finding Financial Wisdom in Unconventional Places. His latest book\u00a0The Success Equation: Untangling Skill and Luck in Business, Sports, and … <\/p>\n Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"qubely_global_settings":"","qubely_interactions":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[14,33,43],"tags":[2207,2290,2293,2755,3721,3740],"qubely_featured_image_url":null,"qubely_author":{"display_name":"Vivek Kaul","author_link":"https:\/\/vivekkaul.com\/author\/vivekkaul\/"},"qubely_comment":0,"qubely_category":"Business<\/a> Firstpost<\/a> Interview<\/a>","qubely_excerpt":"Michael J. Mauboussin\u00a0is Chief Investment Strategist at Legg Mason Capital Management in the United States. He is also the author of bestselling books on investing like \u00a0Think Twice: Harnessing the Power of Counterintuition\u00a0and\u00a0More Than You Know: Finding Financial Wisdom in Unconventional Places. His latest book\u00a0The Success Equation: Untangling Skill and Luck in Business, Sports, and…","jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/1264"}],"collection":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/comments?post=1264"}],"version-history":[{"count":0,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/1264\/revisions"}],"wp:attachment":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/media?parent=1264"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/categories?post=1264"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/tags?post=1264"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\n<\/a><\/p>\n
\nWhat is the undersampling of failure?<\/b>
\nUndersampling failure means that when we review the past to see what may work in the future, we have a tendency to dwell on success and not examine failure. Think of it this way. Say companies could choose one of two strategies, risky or safe. Of the companies that choose the risky strategy, some succeed wildly and others fail. Of the companies that choose the safe strategy, some are mildly successful and others mildly disappointing, but all stay in business. In other words, the outcomes for the risky strategy have high variance and the outcomes for the safe strategy have a low variance.\u00a0Now you\u2019re a new company coming along and want to be successful. So you study the records of companies and see that the wildly successful ones are those that selected the risky strategy. You don\u2019t see the companies that chose the risky strategy and failed because they are dead. That is undersampling failure. The question is not: which strategy did the successful companies pursue? The question is: what are the outcomes of\u00a0all<\/i>\u00a0of the companies that chose this strategy?\u00a0A related point is that the success of a strategy only occurs with some probability. Major variables, including the tastes of consumers, the actions of competitors, and technological change, are simply impossible to fully anticipate.
\nCan you give us an example?
\n<\/b>Michael Raynor, a consultant at Deloitte, offers the example of Sony\u2019s MiniDisc. He argues that Sony\u2019s strategy was brilliantly conceived, yet the product totally flopped. There are no sure things.<\/div>\n
\n<\/b>This argument is an extension of the work done by Boris Groysberg, a professor at Harvard Business School. Groysberg has studied many cases in which stars switch organizations and found that in most cases their performance deteriorates. So skill is not as portable as we tend to think.\u00a0One example he provides is that that of executives from General Electric. GE is well known to have among the best management training programs in the world. Further, rising to the ranks of GE management undoubtedly requires skill. Groysberg studied 20 executives who left GE over a two decade span and who took leadership positions at other companies. What he found was that those who went to firms organizationally very similar to GE tended to do quite well, while those that went to firms that were different fared poorly. So it\u2019s not just skills that matter, but the match between skills and the environment.<\/div>\n
\n<\/b>There\u2019s an old saying in advertising that half of a company\u2019s advertising budget is wasted, it\u2019s just that no one knows which half it is. The broader point is that no one has been able to effectively measure the effect of advertising spending.\u00a0That is changing, and that is what I meant when I discussed better understanding cause and effect. Take online advertising as an example. One large retailer tested their advertising using a control group. In other words, they showed advertising to some people and compared the results to a demographically similar group that didn\u2019t see the ads. By comparing results, they could see the effectiveness of the ads.\u00a0This type of analysis is spreading fast, in large part because technology today allows it. It has also spread to realms including politics. Politicians in the U.S. used to spend money without knowing the payoff, measured in votes. Political scientists now have ways to measure the efficacy of spending much more accurately.
\nThe interview <\/a>originally appeared on www.firstpost.com on December 1, 2012.<\/div>\n