The Little Book of Behavioral Investing: How not to be your own worst enemy (Little Books, Big Profits (UK)) [Hardcover]

James Montier (Author)

Book Description

Series: Little Books, Big Profits (UK) | Publication Date: February 3, 2010

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

Editorial Reviews

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.

From the Back Cover

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

See all Editorial Reviews

Product Details

• Hardcover: 236 pages
• Publisher: Wiley; 1 edition (February 3, 2010)
• Language: English
• ISBN-10: 0470686022
• ISBN-13: 978-0470686027
• Product Dimensions: 7.3 x 5.4 x 0.9 inches
• Shipping Weight: 10.6 ounces (View shipping rates and policies)
• Average Customer Review: 4.1 out of 5 stars  See all reviews (16 customer reviews)
• Amazon Best Sellers Rank: #75,129 in Books (See Top 100 in Books)

More About the Author

James Montier is a member of GMO's asset allocation team. Prior to that, he was the co-Head of Global Strategy at Société Générale and has been the top-rated strategist in the annual Thomson Extel survey for most of the last decade. Montier is the author of three market-leading books, Behavioral Finance: Insights into Irrational Minds and Markets, Behavioral Investing: A Practitioners Guide to Applying Behavioral Finance, and Value Investing: Tools and Techniques for Intelligent Investment. He is a Visiting Fellow at the University of Durham and a Fellow of the Royal Society of Arts. Montier has been described as a maverick, an iconoclast, and an enfant terrible by the press.

Customer Reviews

Most Helpful Customer Reviews

40 of 44 people found the following review helpful:

4.0 out of 5 stars A Very, Very, Good Introduction to Our Brain's Investment Pitfalls, February 5, 2010

By 

James East (Charlotte, NC) - See all my reviews
(VINE VOICE)    (REAL NAME)   

This review is from: The Little Book of Behavioral Investing: How not to be your own worst enemy (Little Books, Big Profits (UK)) (Hardcover)

The `Little Book' series continues to produce good work as this 10th installment is an exceptional introductory to our mental traps that we tend to slip into and then often repeat. The book is a quick and enjoyable read and is very clear with only the minimal amount of psychology jargon. This book comes highly recommended for any bookshelf on how to invest better and to make better decisions. Good reading and enjoy the journey of how not to be your own worst enemy :)

A sample of the first few chapters and mental traps are as follows: (seventeen chapters in total)

Chapter 1 - Paralysis Of Empathy Gap
Chapter 2 - Fear/Risk Aversion
Chapter 3 - Overoptimism
Chapter 4 - Authority Respect/Overconfidence
Chapter 5 - Anchoring
Chapter 6 - Information Overload
Chapter 7 - Reason Respecting
Chapter 8 - Conformational Bias


As a side note: I have pointed out in other reviews of additional books below that are in the same genre and which are some of my favorites. So if you like this very good introductory book, then you may be interested in other social influences and hidden traps our minds fall into. If so, I provide the following recommendations: Think Twice (introductory), Influence: The Psychology of Persuasion (polymath classic), How We Know What Isn't So (very good), Mean Markets and Lizard Brains (Hidden Gem), The Psychology of Judgment & Decision Making (Classic), and Poor Charlie's Almanack (Charlie's Insights).

Think Twice: Harnessing the Power of Counterintuition by Michael J. Mauboussin
Influence: The Psychology of Persuasion (Collins Business Essentials) by Robert B. Cialdini
How We Know What Isn't So: The Fallibility of Human Reason in Everyday Life by Thomas Gilovich
Mean Markets and Lizard Brains: How to Profit from the New Science of Irrationality by Terry Burnham
The Psychology of Judgment and Decision Making by Scott Plous
Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger by Peter D. Kaufman

15 of 18 people found the following review helpful:

5.0 out of 5 stars Avoiding Investment Pitfalls, March 7, 2010

By 

Larry Underwood "Author - St Louis Cardinals ... (Scottsdale, AZ) - See all my reviews

This review is from: The Little Book of Behavioral Investing: How not to be your own worst enemy (Little Books, Big Profits (UK)) (Hardcover)

Suppose someone handed you a blueprint for making the best long-term investment decisions, based on proven strategies that have stood the test of time. That's what we have here, thanks to the good work of the author, James Montier. This book picks up nicely where Think Twice: Harnessing the Power of Counterintuition left off. By following Montier's engaging and very sensible advice, chances are excellent that you will no longer be one of the world's worst investors (like me, for example).

If you're serious about avoiding all the common pitfalls the typical investor makes, you absolutely should grab a copy of this book; I only wish it had been written about ten years ago, but better "late than never"!

14 of 17 people found the following review helpful:

4.0 out of 5 stars Precise, Sometimes Profound, March 1, 2010

By 

J. Reeves "smithwickmachine2" (Chicago, Illinois United States) - See all my reviews
(REAL NAME)   

Amazon Verified Purchase

This review is from: The Little Book of Behavioral Investing: How not to be your own worst enemy (Little Books, Big Profits (UK)) (Hardcover)

The markets and economy these last few years have been and continue to be difficult to navigate through. It's hard for me to automatically default to being an intermediate or long term buy and hold type investor with lots of the long existing risks being pushed down the road and new risks being introduced via various fiscal and monetary measures taken in the last few years. Like the proverbial general fighting the last war, I don't want to just rely on familiar ways of investing The financial markets and the economy are separate animals so there are opportunities and i want to take advantage of them. The book is about recognizing and then overcoming behavioral biases that most of us have ( I certainly do) and then taking control over what we can control which is ourselves and not the markets. I particularly found beneficial the chapters on having a game plan in place when it can be created during a non-emotional time, and pre-committing to the strategy. This book can be very helpful in showing an investor how to better understand these behavioral flaws that may be preventing them from being better investors, perhaps better than many professionals. The book is very easy to read, enjoyable and makes sense, and has lots of short helpful and verifying anecdotes from successful investors such as Buffett, Soros, Klarman, Berkowitz etc,. I think this book can make me a more successful investor.