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Product Description
A detailed guide to overcoming the most frequently encountered psychological pitfalls of investing
Bias, emotion, and overconfidence are just three of the many behavioral traits that can lead investors to lose money or achieve lower returns. Behavioral finance, which recognizes that there is a psychological element to all investor decision–making, can help you overcome this obstacle.
In The Little Book of Behavioral Investing, expert James Montier takes you through some of the most important behavioral challenges faced by investors. Montier reveals the most common psychological barriers, clearly showing how emotion, overconfidence, and a multitude of other behavioral traits, can affect investment decision–making.
- Offers time–tested ways to identify and avoid the pitfalls of investor bias
- Author James Montier is one of the world′s foremost behavioral analysts
- Discusses how to learn from our investment mistakes instead of repeating them
- Explores the behavioral principles that will allow you to maintain a successful investment portfolio
Written in a straightforward and accessible style, The Little Book of Behavioral Investing will enable you to identify and eliminate behavioral traits that can hinder your investment endeavors and show you how to go about achieving superior returns in the process.
Praise for The Little Book Of Behavioral Investing
"The Little Book of Behavioral Investing is an important book for anyone who is interested in understanding the ways that human nature and financial markets interact."
—Dan Ariely, James B. Duke Professor of Behavioral Economics, Duke University, and author of Predictably Irrational
"In investing, success means¿being on the right side of most trades. No book provides a better starting point toward that goal than this one."
—Bruce Greenwald, Robert Heilbrunn Professor of Finance and Asset Management, Columbia Business School
"′Know thyself.′ Overcoming human instinct is key to becoming a better investor.¿ You would be irrational if you did not read this book."
—Edward Bonham–Carter, Chief Executive and Chief Investment Officer, Jupiter Asset Management
"There is not an investor anywhere who wouldn′t profit from reading this book."
—Jeff Hochman, Director of Technical Strategy, Fidelity Investment Services Limited
"James Montier gives us a very accessible version of why we as investors are so predictably irrational, and a guide to help us channel our ′Inner Spock′ to make better investment decisions. Bravo!"
—John Mauldin, President, Millennium Wave Investments
From the Inside Flap
Ben Graham, the father of value investing, once said: "The investor′s chief problem—and even his worst enemy—is likely to be himself." Sadly, Graham′s words are still true today. Bias, emotion, and overconfidence are just three of the many behavioral traits that can lead investors to lose money or achieve lower returns. Fortunately, behavioral finance, which recognizes that there is a psychological element to all investor decision making, is now firmly embedded in the mainstream of finance. Applying behavioral principles to an investment portfolio can help investors avoid some of the mental pitfalls that so often cost them, and financial institutions, billions.
In The Little Book of Behavioral Investing, behavioral finance expert James Montier takes you on a guided tour of the most common behavioral challenges and mental pitfalls that investors encounter, and provides you with strategies to eliminate these traits. Along the way, he shows how some of the world′s best investors have tackled the behavioral biases that drag down investment returns, so that you might be able to learn from their experiences.
Page by page, Montier explains the importance of learning to prepare, plan, and then commit to a strategy—that is, do your investment research while you are in a "cold" rational state, when nothing much is happening in the markets—and then pre–commit to following your analysis and action steps. He also stresses the folly of trying to forecast what the markets will do, and reveals how the idea of investing without pretending you know the future gives you a very different perspective. Throughout the book, Montier stresses why the need to focus on process rather than outcomes is critical in investing. Focusing upon process, he shows, frees us up from worrying about aspects of investment that we really can′t control—such as returns. By focusing upon process, we maximize our potential to generate good long–term profits.
The Little Book of Behavioral Investing offers a range of time–tested ways to identify and avoid the pitfalls of investor bias. By following these simple strategies, you will learn to overcome your own worst enemy when it comes to investments—yourself.
Inside This Book
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Most Helpful Customer Reviews
12 of 12 people found the following review helpful
Format:Hardcover|Amazon Vine™ Review
(What's this?)
During the 2000 tech bubble, I invested about 10k on the stock market. Within about 6 months, my investment had risen to 35k. Within another 6 months I had lost almost all of it.
Early in 2010, I thought I would give it another go, not least because I have a considerable amount of cash sitting in a bank account earning nothing.
This time around I promised myself I would learn the basics - how to look at a balance sheet and see if a company will still be around in a year, how to deduce whether a share price is fair value for the underlying company (or an overblown price driven by temporary sentiment).
Although I have a number of books to help me with this, there are two that I refer to often - The Little Book of Value Investing (Little Books. Big Profits), and this book.
The former book helped me see that the best way to profit in share dealing is exactly the same as any other deal making - buy quality items for less than they are worth, and sell when the going rate is worth more than you paid.
The Behavioral investing book is not about the technicalities of share dealing (or even winning strategies), but is more about background, mindset and process.
For example, one thing I realised from reading this book is that it is best to set your buy price AND sell price(s) well before you actually buy a share, and keep a dealing diary that lists why you think the share is worth having. That way, you (a) buy for a well defined reason, and (b) have a well thought out exit strategy for selling (and will not be swayed by later sentiment), and (c) if the reasons for buying the share in the first place ever become compromised, you can see this clearly.
The Behavioral investing book is full of such gems... from showing that most stockbrokers are not interested in making money on your investment (they simply want to keep their job, which is not the same thing!), that most professional forecasts for any time-frame longer than a year are historically no better than guessing, and - most importantly - that your worst enemy is in share dealing is usually yourself.
Behavioral Investing is a book I look at whenever the market is going against my position. It shows that panic selling or buying for a quick buck is not the way forward... instead, I should keep calm and look only to my original reasons for buying and my predefined exit strategy. If that strategy was right when I bought the share, it must be right now, so why follow sentiment?
In short, this book is my `Little book of calm' for investing. It helps me to stick to process and ignore the mob. My only wish is that I had the same strategy (and such useful reading material) back in 2000...
Early in 2010, I thought I would give it another go, not least because I have a considerable amount of cash sitting in a bank account earning nothing.
This time around I promised myself I would learn the basics - how to look at a balance sheet and see if a company will still be around in a year, how to deduce whether a share price is fair value for the underlying company (or an overblown price driven by temporary sentiment).
Although I have a number of books to help me with this, there are two that I refer to often - The Little Book of Value Investing (Little Books. Big Profits), and this book.
The former book helped me see that the best way to profit in share dealing is exactly the same as any other deal making - buy quality items for less than they are worth, and sell when the going rate is worth more than you paid.
The Behavioral investing book is not about the technicalities of share dealing (or even winning strategies), but is more about background, mindset and process.
For example, one thing I realised from reading this book is that it is best to set your buy price AND sell price(s) well before you actually buy a share, and keep a dealing diary that lists why you think the share is worth having. That way, you (a) buy for a well defined reason, and (b) have a well thought out exit strategy for selling (and will not be swayed by later sentiment), and (c) if the reasons for buying the share in the first place ever become compromised, you can see this clearly.
The Behavioral investing book is full of such gems... from showing that most stockbrokers are not interested in making money on your investment (they simply want to keep their job, which is not the same thing!), that most professional forecasts for any time-frame longer than a year are historically no better than guessing, and - most importantly - that your worst enemy is in share dealing is usually yourself.
Behavioral Investing is a book I look at whenever the market is going against my position. It shows that panic selling or buying for a quick buck is not the way forward... instead, I should keep calm and look only to my original reasons for buying and my predefined exit strategy. If that strategy was right when I bought the share, it must be right now, so why follow sentiment?
In short, this book is my `Little book of calm' for investing. It helps me to stick to process and ignore the mob. My only wish is that I had the same strategy (and such useful reading material) back in 2000...
6 of 6 people found the following review helpful
Format:Hardcover|Amazon Vine™ Review
(What's this?)
OK, up-front admission - I admit to owning just about every book written by Montier and the odd SocGen report he authored for them. Montier is an eloquent and occasionally sarcastic defender of the faith - i.e. Value Investing. His musings in paid employment were, originally, published as investor notes by Dresdner Kleinwort and Société Générale, and have recently been reissued by Wiley as Value Investing: Tools and Techniques for Intelligent Investment. Out of this paid work came Behavioural Investing: A Practitioners Guide to Applying Behavioural Finance (Wiley Finance), which is undoubtedly one of the reference works on behavioural investing to sit next to other great names such as Shefrin, Lo, Tvede, McKinlay and Thaler. The book under review is a condensed summary of Montier's prior work and highlights the key behavioural fallacies just about everyone is exposed to. That includes me, but also you. And in case you doubt it, Montier has incorporated enough brainteasers in his book to tempt your intuitive reasoning in gaining the upper hand over your rational mind.
Now acknowledge that this battle of minds goes on all the time, especially when you invest your money, reputation and emotions, and you start getting the picture as to why this book might be a good read. Montier makes you aware of some of the key flaws in our reasoning (e.g. overoptimism, overconfidence, following authority, inability to distinguish noise from information, confirmatory bias, inherent conservatism, narrative fallacy, predictable surprises) or, in some cases, the complete absence of any reasoning whatsoever (e.g. groupthink). He posits some simple measures to help us become better investors such as avoiding procrastination, keeping a trading diary, reading his book regularly (actually, he doesn't say that but it he doesn't have to by the time you finished reading it), designing and documenting an investment process to help you stick to it (pre-commitment), reverse valuation analyses (backcasting DCF assumptions), the use of checklists, and the practice of a good measure of introspection.
There are some little nuggets of wisdom (often sourced from other investment gurus) in this book that Montier does not elaborate on, but that may warrant further investigation for those with an interest in finding where Montier got his mustard from, e.g. Seth Klarman, Sir John Templeton, David Einhorn, David Kahneman, Irving Janis and Michael Steinhardt. All in all, The Little Book of Behavioral Investing: How Not to be Your Own Worst Enemy (Little Book, Big Profits) is a great summary of the essence of behavioural science applied to the investment process. It serves as a good introduction to the matter, or as a quick reminder for those in practice needing to re-mind themselves about the flaws of our mind. It is as unreservedly recommended for your education as it was for mine.
James Montier's "Little Book of Behavioral Investing" is the 10th in the "Little Book Big Profits" series of investment titles. It publishes in a condensed fashion the main themes of prior work from some big names in the money management industry like Malkiel (Random Walk), Browne (Value Investing) and, now, Montier. I've read some of the other works and found this a good series. As to Montier himself, he's an asset allocation manager at GMO, a Boston based asset manager co-founded by Jeremy Grantham and Eyk Van Otterloo who practice value based investing as propounded by Benjamin Graham. I wonder how his funds perform...
Now acknowledge that this battle of minds goes on all the time, especially when you invest your money, reputation and emotions, and you start getting the picture as to why this book might be a good read. Montier makes you aware of some of the key flaws in our reasoning (e.g. overoptimism, overconfidence, following authority, inability to distinguish noise from information, confirmatory bias, inherent conservatism, narrative fallacy, predictable surprises) or, in some cases, the complete absence of any reasoning whatsoever (e.g. groupthink). He posits some simple measures to help us become better investors such as avoiding procrastination, keeping a trading diary, reading his book regularly (actually, he doesn't say that but it he doesn't have to by the time you finished reading it), designing and documenting an investment process to help you stick to it (pre-commitment), reverse valuation analyses (backcasting DCF assumptions), the use of checklists, and the practice of a good measure of introspection.
There are some little nuggets of wisdom (often sourced from other investment gurus) in this book that Montier does not elaborate on, but that may warrant further investigation for those with an interest in finding where Montier got his mustard from, e.g. Seth Klarman, Sir John Templeton, David Einhorn, David Kahneman, Irving Janis and Michael Steinhardt. All in all, The Little Book of Behavioral Investing: How Not to be Your Own Worst Enemy (Little Book, Big Profits) is a great summary of the essence of behavioural science applied to the investment process. It serves as a good introduction to the matter, or as a quick reminder for those in practice needing to re-mind themselves about the flaws of our mind. It is as unreservedly recommended for your education as it was for mine.
James Montier's "Little Book of Behavioral Investing" is the 10th in the "Little Book Big Profits" series of investment titles. It publishes in a condensed fashion the main themes of prior work from some big names in the money management industry like Malkiel (Random Walk), Browne (Value Investing) and, now, Montier. I've read some of the other works and found this a good series. As to Montier himself, he's an asset allocation manager at GMO, a Boston based asset manager co-founded by Jeremy Grantham and Eyk Van Otterloo who practice value based investing as propounded by Benjamin Graham. I wonder how his funds perform...
14 of 15 people found the following review helpful
Format:Hardcover|Amazon Vine™ Review
(What's this?)
This book is an easy read, with short, pacy chapters full of anecdotal stories and studies. As with all books of this kind of genre, the central themes are pretty straightforward namely:
- financial analysts don't have a better a view of what to invest in than you do; they are simply paid to generate sales (i.e. buys or sells).
- financial commentators use the massive overload of market data that is available to comment on meaninglessly infinitessimal changes in market indices & prices, like it was an unarguable science.
- central bankers and economists were no better than you or me at predicting the crunch, despite this mass of data that is available to them.
- however much you deny it, people's intrinsic behaviour is governed more by pack mentality than you might care to admit (and there are some great examples of this throughout the book !).
So from an investor's standpoint, the author's suggestion is that we select our investments based on a simple set of parameters (such as risk appetite & desired return, investment timeframe, etc) which we should always set in the cold light of day. Once invested, we should then re-evaluate our investments only periodically against these parameters, and buy/sell the investment only when it is no longer satisfying the parameters we had set. In other words, ignore the market mania and mass of "noise" that most market data represents, and follow a simple set of investment principles only. Now then, if only there was a book that outlined how to do that ....
- financial analysts don't have a better a view of what to invest in than you do; they are simply paid to generate sales (i.e. buys or sells).
- financial commentators use the massive overload of market data that is available to comment on meaninglessly infinitessimal changes in market indices & prices, like it was an unarguable science.
- central bankers and economists were no better than you or me at predicting the crunch, despite this mass of data that is available to them.
- however much you deny it, people's intrinsic behaviour is governed more by pack mentality than you might care to admit (and there are some great examples of this throughout the book !).
So from an investor's standpoint, the author's suggestion is that we select our investments based on a simple set of parameters (such as risk appetite & desired return, investment timeframe, etc) which we should always set in the cold light of day. Once invested, we should then re-evaluate our investments only periodically against these parameters, and buy/sell the investment only when it is no longer satisfying the parameters we had set. In other words, ignore the market mania and mass of "noise" that most market data represents, and follow a simple set of investment principles only. Now then, if only there was a book that outlined how to do that ....
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Most Recent Customer Reviews
A great little book
Great little book on behavioural finance. Summarizes almost everything worth knowing on the topic, and contains a lot of useful anecdotes and stats on the subject. Read more
Published 1 month ago by SEK
an easy read...
this book is aneasy read, written in a way that most people should be able to get the messages he is saying... Read more
Published 8 months ago by Gcrikey
Think with your head, not heart
When I got the book I was expecting it to be pocket size, however, its about 200 pages!
The main message the book sends its to invest in a company you believe in, and... Read more
The main message the book sends its to invest in a company you believe in, and... Read more
Published 13 months ago by zenadox
Easy and interesting read
I'm not sure why I picked this book, as I'm really bad with money and haven't any to invest.
But should this all change (fingers crossed) I now have a clear, sensible... Read more
But should this all change (fingers crossed) I now have a clear, sensible... Read more
Published 15 months ago by C. Cousins
James Montier's Little Book
James Montier's reputation as the enfant terrible of behavioural finance put me off for a while. I'm glad I gave him a go: his analysis is always reasonable and accessible, rarely... Read more
Published 15 months ago by P Newall
The Truth Hurts
A basic book that covers what we all know and do but are afraid to admit, we all sell low, buy high and let emotions rule our trading decisions. Read more
Published 17 months ago by Brian Martin
A good introduction
This is a good guide to behavioural investing, written in an accessible style and with enough detail to be both interesting and insightful. Read more
Published 18 months ago by DWB1873
Punchy and to the point
This book helps break down the physchological investing principles into manageable bite sized chapters. Read more
Published 20 months ago by Glen Allan
beginners guide to behavioral finance
This is an easy and informative read for the rank beginner in behavioral finance, but I enjoyed Akerlof's Animal Spirits more, and learned more from it too.
Published 21 months ago by W. Jane
Well worth the read, but whether you'd come back to it...
If you need help with your decision making skills this book can help in a liberal way. It doesn't bombard you with academics and boring statistics of problems people face at a... Read more
Published 22 months ago by The Web Crawler
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