Swimming With Guppies

What does the development of human neural networks have to do with investing and markets? Everything, according to author Michael J. Mauboussin. Between birth and one's third birthday, it seems, our brains experience a huge growth in the number of synapses, or connections between neurons, followed by a pruning of the less useful links. This synaptic selection is an evolutionary winnowing that helps the individual in the struggle for survival. To Mauboussin, though, the messy and seemingly wasteful process has additional meaning: It's similar to what happens when a new industry emerges. Capital flows to the promising field despite uncertain returns. Lots of new companies are funded, and different business models are tried. Then as failed ideas are pruned, the number of companies falls. The parallels are so strong that a study of neural development yields valuable lessons for investors, says Mauboussin.

Mauboussin's More Than You Know: Finding Financial Wisdom in Unconventional Places draws investing insights from a wide range of scholarly disciplines, from cognitive science to fractal mathematics. It's also a fun read. The intellectually omnivorous author is chief investment strategist at Legg Mason Capital Management and an adjunct professor at Columbia Business School. He illustrates often abstract concepts, from the difference between risk and uncertainty to the distinction between individual and collective decisions, by drawing upon a diverse set of characters, from gambling legend Puggy Pearson to golfer Tiger Woods. "You will be a better investor, executive, parent, friend -- person -- if you approach problems from a multidisciplinary perspective," says Mauboussin. "It's the difference between moving into a fixer-upper home with a full set of power tools versus a simple screwdriver." The book's key shortcoming is that its brief essay chapters allow too little discussion of complex matters.