Michael Mauboussin: Investors Should Always Compare Opportunities With Appropriate References

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During his recent interview with Tim Ferriss, Michael Mauboussin explained why investors should always consider comparing opportunities with appropriate references. Here’s an excerpt from the interview:

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Michael Mauboussin
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Mauboussin: But the broader lesson is that no matter what you’re thinking of doing, moving to a new city, taking a new job, anything you’re thinking about doing is asking, Is there an appropriate reference class? Is there a base rate that I can look at to see if I can get some information about… a little bit about my prospects?

Where we spent a lot of time on this for example things like corporate performance, right. So I know that you do a little bit of investing as well, but questions like, “If a company has sales of a billion dollars, what’s the distribution of growth rates I should expect? Right.”

Let’s look at history to figure out how good could it be, how bad could it be, what’s the average, then where do I think my company’s going to fall within this distribution, and how optimistic or pessimistic it might be.

You can listen to the entire discussion here:

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Article by The Acquirer’s Multiple.

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Tobias Carlisle is the founder of The Acquirer’s Multiple®. He is also the founder of Acquirers Funds®. The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates.