Customer Reviews

Value Investing: Tools and Techniques for Intelligent Investment

5 star:		(4)
4 star:		(4)
3 star:		(1)
2 star:		(2)
1 star:		(1)

 

 

I purchased this book some weeks ago, but finally had a chance to sit down with it this weekend at a coffee shop. My initial thought before I opened the cover was that it was yet another book on value investing. I would have been thrilled if I gleaned just a little tidbit from this tome. Boy, what an understatement. Montier has written a gem. It is an honor to be the first to post a review on Amazon because I feel like I "discovered" this book

Value Investing: Tools and Techniques for Intelligent Investment is a compendium of the author's pieces and speeches while he was chief strategist at Societe Generale (he is presently at Grantham Mayo according to the dust jacket). For those fortunate enough to have all the author's pieces from his SG days, this book may not be worth purchasing. For those of us who are not so fortunate, this book has more kernels of wisdom on value investing than any book I have read in years.

A quick synopsis:

Part I
Montier debunks much of the academic literature on efficient markets and CAPM. He takes much of the issues Buffett has with modern finance theory and goes into further detail. Unlike many books on value investing which often give a mystical air to the subject of value investing, he backs up many of his assertions with a plethora of data and studies . . . and he doesn't mince words: Chapter Two is entitled CAPM is Cr-p*. Along the way, he provides value investing's definition of risk which is very different from how "modern finance" defines risk, but it is a definition of risk that investors post-2008 can readily identify with. His chapter on the Danger of Discounted Cash Flows echoes the work of Rappaport and Maboussin but does it succinctly in a scant 9 pages

Part II
This section delves into the area of Behavioral Finance, which I gather has been the topic of his previous three books. The last chapter in this section addresses why value investing is so hard for many investors to implement and hence its continuing source of advantage for those who can overcome the psychological hurdles.

Part III
This section covers the philosophy of value investing. His "Ten Tenets of his Investment Creed" should be taped as a list to every value investor's computer screen.

Part IV
This section focuses on empirical evidence from overseas and applies an old formula from Benjamin Graham's playbook to global markets.

Part V
This section is unique among books on value investing in my opinion. It is devoted to short-selling. He provides a methodology and framework to finding short-sale candidates and empirical data on how well the methodology has worked over the years.

Part VI
This section entitled Real-time Value Investing contains articles from the 2008 and 2009 period. Unlike economists and many market strategists who hedge their calls sufficiently so that it is difficult to prove whether they are right or wrong, Montier is intellectually honest enough to put his thoughts during the recent financial crisis out in the open. Time will eventually tell if he was mostly right or wrong, but you have to admire his willingness to show where he stands.

I own over 500 books on investing. After you've read the first hundred or so, I think it is easy to become jaded and think nothing new has been written in years. Montier's book proves me wrong. His book is an incredible "food for thought" for the thoughtful investor.

If you haven't read any of the other books available on behavioral economics, you didn't know that low p/e stocks (or p/b, p/s, etc) tend to outperform high p/e stocks, you think that markets are efficient, or you haven't heard of Ben Graham, then you'd probably get a lot out of this book. It's well written, and often entertaining.
Personally though, I was dissapointed. The first section spells out, in laborious detail, that the markets are not always rational. I'm sure there are a few academics around who disagree, but not many. Other writers made the same points long ago, and I seriously doubt that anyone who would buy a book with "value investing" in the title takes the idea seriously.

The second section is on behavioral economics. He goes over the same fifty or so experiments that every book on the subject seems to cover, and offers no new insights.

The third and fourth sections lay out what he thinks value investing is all about. He's more along the lines of Ben Graham than Warren Buffett, and has little or nothing in common with Marty Whitman, who also wrote a book with the title "Value Investing." (Whitman's book is poorly written, and a much less pleasant read, but ultimately far more insightful and valuable.) Montier is fond of developing numerical models, then back-testing them to see how they would have done over the last 30 years or more. His approach strikes me as a bit naïve. He rails against those who put too much faith in mathematical models based on past performance, then spends a lot of time discussing mathematical models based on past performance. Value investing, as I understand it, is figuring out much something is worth and buying it if you can get away with paying substantially less. Montier pays lip service to this idea, but that isn't really what he advocates in a lot of the book.

The fifth section covers short selling. I found this to be the best section of the book. In brief, he explores the idea that a value investor, when unable to find much that's cheap enough to buy, might want to sell short the most expensive stocks. There's a bit more to it than that, including the basics of looking for problems on the balance sheet, problem CEOs, etc. I wasn't entirely convinced that the risks of shorting the high-flyers are worth the possible gains, but he did provide food for thought. I'll probably read this section again.
The final section is largely a collection of thoughts on what to do when the market crashed in 2008-9. In a word, buy. Frankly, if you're a value investor, you didn't have to be told. A few other topics were covered, but I didn't find anything useful or insightful.

I should also note, as other reviewers have, that the book is repetitive in the extreme. This is largely a collection of articles, with no real effort made to put them together in a cohesive way. In fact, you can probably track down a lot of it on the internet. You'll sometimes find the same sentence, or even an entire paragraph repeated verbatim three, four, or even more times. Several times I thought I might have misplaced my bookmark, but the problem was with the book, not with me. Bruce Greenwald, who wrote the Foreward, views this as an advantage. He's wrong. I should also point out that Montier, though sometimes insightful, at other times just doesn't make sense. For example, he spills quite a bit of ink telling the reader not to forecast. He doesn't admit it, but a lot of his methods (strictly speaking, all of his methods) involve forecasting. I think he's trying to distinguish some sorts of forecasts from others, but he doesn't make this clear, and certainly doesn't offer any convincing argument for this view. Oh, and there are precious few of the "Tools and Techniques" referred to in the subtitle.

While this book contains interesting info and stats, it is mostly composed of articles/columns that were previously written over several years. Each chapter references the current crisis from a different spot on a time line. Because each chapter also comes from a different analytical perspective, there are a lot of variables between chapters so the book doesn't feel like it hangs together. There is not a lot of practical advice. The many screening variables mentioned are not available in the screens I have access to on my brokers' websites or online. The behavioral chapters are pretty much repeated in his "Little Book of Investing" which I liked a lot better. Interesting, but too haphazard.

James Montier is a disciple of the great value investors: Dodd, Graham, Grantham, Klarman, Templeton, Browne, Buffet, Munger, etc. And behavioral economists: Thaler, Kahneman, Shiller, and Tversky. His book "Value Investing" is a digestible and intelligent look at how the principles first laid out in 1934 by Benjamin Graham in his book "Security Analysis" are as true now as ever. Montier also, like his current colleague at GMO, Jeremy Grantham, leans heavily on behavioral science and modern advancements in social psychology to make sense of the "madness of the crowds", and of market bubbles and anomalies.

One frustrating aspect of this book is that is a compilation of research reports Montier wrote across 2007-09 as a strategist at the French investment bank, Soc Gen; so, it lacks a coherent narrative thrust, and is at times maddeningly repetitive. Also, Montier has a middle school girl's infatuation for the exclamation point! Everything seems worth highlighting! It is exclamatory inflation at its most egregious! Minor frustrations, though, over what is an otherwise insightful and noteworthy book. A nit with the editor more than anybody.

Worth your time, is the way that Montier provides empirical, convincing, and simple evidence for why understanding value investing principles is important for any investor (as opposed to speculator) to understand. Montier, I think successfully, debunks a number of popular investment theories that drive so many investment decisions: CAPM pricing techniques and notions of "beta" and "alpha", market forecasting, growth stock investing, and other common practices of many (retail and institutional) investors. Montier also, like Thaler and others before him, points out how we are all victims of our own biases and of the decision traps our brain architecture always wants to throw us into. To fight these tendencies, a read of this book may help.

Good book that more establishes the case for value investing rather than a step by step guide on how to evaluate individual stocks from a value perspective. That said, I really enjoyed reading it and found it informative.

Montier's collection of essays provides a solid foundation for thinking and reasoning through your investment selections. It provides the reader with foundational understanding and application of Graham & Dodd for contemporary times. The roots in G&D and human (and crowd) psychology formed a base for the application of Value Investing principles to insinuate where you are in the market cycle. His emphasis on working with the known versus unknown (making predictions about the future price movements) is both blatant and necessary.

There are numerous references to one of his earlier books littered through every article/chapter... was the repetition supposed to make me purchase it?...a repetitious shameless plug... maybe it's working!

Great book. Buy it. Read it. Apply it.

James Montier discusses several areas related to value investing. The book is a collection of articles he wrote. The book provides several insights - several of these have been tested for data going back a couple of centuries. Quite a bit of data / analysis overlaps amongst the different articles.

1. The first seven chapters are devoted to showing data and inferences that debunk the efficient market hypothesis. For those who have already bought into this argument, this may be a tad tiring.

2. The next seven chapters discuss theory and practical ways to incorporate behavioral aspects into investment decisions.

3. The third section discusses his philosophy of investing, focusing on process instead of outcomes, becoming aware of confirmation bias, becoming aware of action bias, and need for skepticism.

4. The fourth section validates value investing approaches by analyzing data from companies across the globe.

5. The fifth section deals with shorting from a value investing perspective. Past results in this section are the least compelling compared to the other sections.

6. The final section is a collection of articles analyzing financial events as they unfolded over the last couple of years around the globe.

The book could have been shorter if articles were combined into a cogent book form. We would, however, lose real-time aspects of analysis as events unfolded.

I have always liked reading James Montier, his work generally helps one remember to take a step back and assess objectively from all angles whatever one is analysing. This book is a collection of essays written leading up to and during the financial crises we have been witnessing. Despite his continual claims that investors are unable to time markets with any consistency, the number of times in which the author seems to be able to do so gives some pause for thought. The book is a nice mixture of case evidence of major human biases as well as investment themes that hold true by hanging on to simple consistent measures.

The behavioral investment biases we all have are too numerous to state, but the author always does a remarkable job of reminding us that, they are always with us. These identifications and experimental evidence of our various cognitive biases are always fun to read, one often finds themselves falling into the same buckets as those who are making those "categorical" errors. The use of case examples is not without imperfection though as there are definitely some cases presented for which either the case does not correspond to a financial example or the case is a poor case study to begin with. As a quick example there was a scenario given in which a football(soccer) coach suffered a horrendous defeat and then played a subsequent game and either won or lost, and the audience was asked how the coach would feel in these two situations depending on whether he had changed the strategy after the first defeat, the audience tilted towards saying the coach would feel worse on the second defeat had he not changed the squad. This was then used towards arguing that people use results as the means of judgement rather than process. Had the experiment been roulette black/red bets, yes, for a 90 minute match suffering a massive defeat implies a process error. Anyway, minor issue, but every so often the points dont necessarily follow from the examples.

The investment theses of the book are very fun to read. The author is very vocal about the need to have simplicity at the heart of ones investment thesis, using a larger and larger set of variables generally does not improve predictive ability, in fact the author believes that information overload reduces predictive ability. He generally argues for the long run return of value over growth and backs it up with simple screening and subsequent return profiles of going long value short growth. One of the more remarkable results, though implicit in the previous sentance, was when the author discusses the negative correlation of GDP growth and stock market returns, ie the faster the economies were growing, the worse their equity returns (meaning that people's expectations tend to run ahead of reality). Slightly isoteric, but the the authors article on dividend swaps was perfect timing and an excellent call on a versatile hedge to many states of the world.

All in all, great reading. It was repetitive at times due to the combined essay approach rather than focused subject appraoch of the work. The author is always consistent and his conservatism allowed him to buy the markets he had been waiting for to be cheap and avoid the losses most of the crowds had been elusively chasing. His timing was excellent despite having no desire nor confidence in being able to do. The author forcefully argues that that at deep value, yes prices can go against you as they always can, the margin of safety that one has if right manifests itself in short/medium/long term outperformance. Strategies that are used with the goal of making consistent short term returns at the expense of long run value are more likely to be similar to picking up pennies in front of a steam roller.

A collection of various articles written by Montier that neatly describe his investment philosophy while also demonstrating why value is the "right" way to think about investing.

As one would expect from Montier, there is an interesting treatment of behavioural investing throughout.

Well written and about as funny as a treatment of this subject can be.

Once, I believe the author had a blog. Then you got his material live. Then he started working for a bank and his columns were no longer public. He is an interesting guy, but honestly who wants to read old newsletters - even if they're good? Not many I think. I bought the author's previous book Behavioural Investing: A Practitioners Guide to Applying Behavioural Finance (The Wiley Finance Series) and found it somewhat interesting. However, just pasting newsletters into a book with minimal editing makes for an awful reading. So I haven't really looked much at that book after the initial excitement. I did remember liking his direct style of writing. When I browsed investment books the other day, I saw this volume and it is more newsletters.

I do understand that the author writes for his clients and that the only way to get access to his thinking without being a client is to buy his newsletter collections. I'm not trying to discourage everyone from reading the book. I have no issue with behavioral finance and value investing. I just want the potential reader to be aware of the fact that the book consists of old newsletters.