The Base Rate Book (Mauboussin, Callahan & Majd)
| Author | Michael J. Mauboussin; Dan Callahan; Darius Majd |
|---|---|
| Published | September 26, 2016 |
| Format | Report |
| Original | Read the original |
TL;DR — Credit Suisse’s 2016 reference of historical base rates for corporate results, from sales growth to CFROI, and for what stocks did after sharp moves.
Published by Credit Suisse Global Financial Strategies on September 26, 2016, by Michael J. Mauboussin, Dan Callahan and Darius Majd, with data from the firm’s HOLT team. It collects and extends a run of 2015–16 reports on single metrics into one volume. The premise, framed with Daniel Kahneman’s work, is that forecasters lean on the “inside view” (their own information about a case) and underweight the “outside view” (how often the relevant reference class has achieved the outcome), and that the most accurate forecasts blend the two: more weight on the inside view where skill decides outcomes, more on the outside view where luck plays a large role.
The opening chapters set out how to combine the two views and how to treat regression toward the mean, using correlations to estimate both how fast results regress and the mean they regress to. The body then gives base rates, mostly for the top 1,000 global companies by market capitalization from 1950 to 2015 and including dead companies, for six measures: sales growth, gross profitability, operating leverage, operating profit margin, earnings growth, and cash flow return on investment (CFROI). Results are cut by starting size, sector and time horizon, with decile appendices. One example: 23 percent of companies in the sample had negative inflation-adjusted sales growth over three years, and 20 percent shrank over five.
The last two chapters, “Managing the Man Overboard Moment” and “Celebrating the Summit”, cover stocks that moved 10 percent or more against the S&P 500 in one day, show subsequent returns screened by momentum, valuation and quality, and give a checklist and case studies for deciding whether to buy, sell or hold.
What it is: Sell-side research, but unusually durable: a large, long-run dataset built to serve as a reference rather than a call on any stock. Its distributions describe the past, the sample has a modest survivorship bias the authors note, and the “current expectations” sections are pinned to September 2016 consensus estimates.
Where this came from
- A copy shared on Google Drive.
- Publicly available: the PDF is linked from the research archive on Mauboussin’s own site, michaelmauboussin.com, which hosts his Credit Suisse papers at the URL in the header.
152 pages. A copy is archived locally against link rot; the header links the original source.