9 of 9 people found the following review helpful
A concise introduction to flawed thinking by investment managers,
This review is from: The Little Book of Behavioral Investing: How Not to be Your Own Worst Enemy (Little Books, Big Profits (UK)) (Hardcover)
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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...