Michael J. Mauboussin

And yes, we've spoken about, a lot about this, but we're revisiting it today.

Michael Mauboussin has done work in the past that said, "Be careful what you wish for." I think people think that, uh, parity in the stock market is a good thing, where you don't have, like, massive winners and losers.

Wrong.

When there is a w- uh, uh, a widening of breadth, when a lot of stocks are beating the market, that tends to happen in a bear market.

which is basically a combination of the equity risk premium, the beta, the cost of debt, and then you average it all out to get the WAC.

Michael Mauboussin writes a lot about this, and he and Aswath Damodaran specifically suggest using the WAC for the company on a company-by-company basis rather than a specific fixed discount rate.

I think it makes sense, although there's trade-offs.

So for example, let's say I'm valuing Hermes and I calculate the WAC to be roughly 9%.

I, I basically hear the exact same thing you're hearing, and I think Wall Street also hears that as well.

So we all know Michael Mauboussin, right, at this point.

Babe, look, Mauboussin just dropped a new report.

He did one the other day, and he showed the free cash flow for the big hyperscalers, Meta included, um, who are all spending all of this billions and billions and billions on data centers.

Yeah.

The Michael Mauboussin analysis around this stuff is so interesting 'cause he uses a metric of, like, effectively the price that a business is selling relative to the willingness to pay to not lose the product, and it's quite an interesting way to think about, uh, the, the embedded trust you've built up with your customer base.

So, so if I'm selling widgets down the road, as you've just said, like, Costco artificially keep their, their price below what a willingness to pay metric look like, and they're almost playing a different game where they're, they're measuring, how do I expand the ceiling in terms of the willingness of somebody to pay to not lose my service.

And they're measuring that yardstick over time and allowing that to compound out as a metric of trust levels within the system.

Not because confidence is bad, but because the lesson we extract from success may be less reliable than the success itself.

Michael Mauboussin explores this beautifully in his book, The Success Equation.

His argument is that many important outcomes sit somewhere on a continuum between skill and luck.

And the difficult part is not recognizing that both exist.

But investors who shy away from companies that burn cash may be making a mistake.

That's the takeaway from a new paper written by Michael Mauboussin of Morgan Stanley.

Since free cash flow, or FCF, is the money that a company can return to its investors, investors obviously want it to be positive eventually.

But that last word is key.

I worked on that.

And yeah, I got an MBA from Columbia, and Michael Mauboussin was one of my professors.

So I, I, I have, um, I- even though I've never worked in public markets, I've had to take plenty of exams and memorize the stuff to a point that the, the vernacular's kind of embedded in my brain.

Um, yeah.

I did and still do, although I've never had Joe on the same field as me.

I've had guys like Michael Mauboussin who are still playing when we're really old.

Well, I grew up in Baltimore, and as you know, Baltimore was for many years the center of lacrosse.

And this weekend, I spent a lot of time with some of my former lacrosse teammates.

Yeah.

I love one of the authors I've really enjoyed reading in the past, Michael Mauboussin.

He talks about even just base rates.

And he's saying that, hey, if you look at this certain stock and you look at what the stock price is, you can actually boil down what the market believes its future growth is.