Wednesday, July 30, 2008

Good to Not-So Great

As I read recent news of problems at Fannie Mae, I recalled that it was one of the companies profiled in Jim Collins' smash book, Good to Great. Hmmm... I guess it's a lot easier to craft ex post explanations of success and find apparent patterns and causal explanations than it is to find a good predictive model of what companies are going to succeed in the future. As Steven Levitt of Freakonomics fame notes, a portfolio of the 11 companies featured in Good to Great has underperformed the S&P 500.

If you haven't had a chance, check out Phil Rosezweig's book, The Halo Effect, for a discussion of some of the problems in creating ex post explanations of success.

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