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James Montier's Little Book,
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This review is from: The Little Book of Behavioral Investing: How Not to be Your Own Worst Enemy (Little Books, Big Profits (UK)) (Hardcover)
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 divisive for the sake of it; he does a great job of summarising academic research; and he regularly quotes investing greats such as John Maynard Keynes and Benjamin Graham as well as modern day gurus.
It's a great shame that the classical and behavioural finance schools don't have a more open dialogue. Classical finance should be a "normative" theory -- how things would be in a perfect world. Behavioural finance is a "positive" theory -- how things actually work in the messiness of reality with imperfect decision-makers. By investigating and ironing out flaws in the real-world we can slowly move things closer to the classical idyll. This can be through arbitraging stock market anomalies (e.g. the size and value effects), or by helping investors to avoid common errors (Richard Thaler and Cass Sunstein - Nudge). The trouble started when early empirical tests failed to reject the classical models, and theorists with a bias for rational models starting seeing them as accurate descriptions of reality (Justin Fox - The Myth of the Rational Market).
Like any new field, behavioural finance is rapidly developing. This book therefore benefits from its recent release date, and Montier summarises some of the most interesting developments (such as the technique of fMRI brain scanning), as well as all the classic findings such as overconfidence and loss aversion. Overall, I think this is the best non-technical introduction to behavioural finance out there.
This book is an easygoing quick read, and would benefit anyone who needs to make decisions for a living, as well as individual and professional investors.