Podcast Review | Michael Mauboussin: AI, Base Rates, and Investing in the New Economy – The Intangible Economy with Kai Wu

Michael Mauboussin: AI, Base Rates, and Investing in the New Economy – The Intangible Economy with Kai Wu

Michael Mauboussin has spent decades at the intersection of academia and investing, most recently at Morgan Stanley, and has written extensively on expectations, competitive advantage, and luck versus skill.

The concept at the heart of this conversation is the base rate — a simple idea that most investors ignore. Before you accept a company's growth forecast, ask what has actually happened historically to companies attempting the same thing — which gives you a realistic probability rather than a story.

Mauboussin's work shows that few businesses of any size sustain rapid growth for long, and almost none sustain the sort of growth currently being priced into some of the highest profile companies today. That doesn't make it impossible. It just means you should know you are betting against history when you do it.

The other useful thread is what happens when investment shifts from factories to brands, software and data. Because those costs are expensed rather than capitalised on the balance sheet, reported profits can understate what a company is genuinely spending to grow. It also means outcomes have become more extreme — companies now tend to either win big or fail, with fewer muddling along in the middle. For a retail investor, that is a meaningful shift in how you assess risk.

An hour well spent, and a good reminder to sense-check expectations against evidence before you pay for them.

Link to Podcast

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