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The Little Book of Behavioral Investing: How not to be your own worst enemy Hardcover – January 26, 2010

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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

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Product Details

  • Hardcover: 236 pages
  • Publisher: Wiley; 1 edition (January 26, 2010)
  • Language: English
  • ISBN-10: 0470686022
  • ISBN-13: 978-0470686027
  • Product Dimensions: 5.3 x 0.9 x 7.3 inches
  • Shipping Weight: 10.6 ounces
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (50 customer reviews)
  • Amazon Best Sellers Rank: #82,127 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

57 of 62 people found the following review helpful By James East VINE VOICE on February 5, 2010
Format: 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.
Read more ›
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19 of 22 people found the following review helpful By Jaglean on May 17, 2010
Format: Hardcover Verified Purchase
Montier's book is almost an invaluable investment guide. As other reviews have detailed the book's contents I want to agree that the contents are worthwhile and, at times, amusing. Still, such tips as "don't watch CNBC" or "ignore Jim Cramer" are highly accurate but hardly qualify as a unique or a remarkable perspective.

More to the point, I found the constant use of previous behavioral studies a distraction that ended by simply getting in the way Montier's message. That would have been easily survivable, however, had the book included a closing summary of the author's points. As it is, I felt compelled to go back reread parts of the book 2 or 3 times to attempt to sort out what was essential and what was merely an effort to display the author's cleverness.

In the end, the writing style tends to defeat the book's purpose leaving the reader with an almost invaluable investment guide. Almost doesn't make it...
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11 of 12 people found the following review helpful By Anurag Gupta on November 7, 2010
Format: Hardcover
James Montier discusses roadblocks to rational decision making and mechanisms to unblock them:

1. Prepare, plan and commit to an approach ahead of time when the alternatives can be clearly analyzed instead of deciding on an approch in the heat of the moment.

2. Human mind can factor in a handful of variables; with more data accuracy remains the same but we're overconfident of our accuracy

3. Avoid forecasts

4. Look for evidence that refutes rather than confirms your hypotheses

5. Separate the facts; resist human tendency to follow a theme / story

6. Focus on improving underlying process / methodology; occassional wrong outcomes are expected and shouldn't derail one from its pursuit
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17 of 21 people found the following review helpful By Larry Underwood on March 7, 2010
Format: 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"!
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17 of 22 people found the following review helpful By J. Reeves on March 1, 2010
Format: Hardcover Verified Purchase
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.
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