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FNArena Book Review: The Little Book of Behavioral Investing

Book Reviews | May 16 2016

By Rudi Filapek-Vandyck

James Montier, of 2008 Bear Market fame, wrote a book about you and about me. Actually, it's about investors, experts and "gurus", collectively known as "humans".

We humans tend to overflow with self-confidence, in particular when we accumulate knowledge and experience, but, as a matter of fact, all of us are very much flawed. We make wrong choices and wrong decisions all the time.

So "life" and "investing" become a matter of do we acknowledge our faults, or don't we? Montier suggests, strongly, we should. It'll only work to our benefit.

Montier uses an extensive arsenal of anecdotes and real-life observations, both inside and outside financial markets, to support his thesis. It makes for a highly enjoyable read. I read "The Little Book of Behavioral Investing" a few years ago . Never followed through on my intention to write a dedicated book review, until now. There you have it, I am but human too.

Reminiscing on the old pleasures while reading this book the first time, I can only admit my mind is itching to read it again, in full. Anyone looking for a timeless distraction for the next overseas trip? Montier's might be just the idea you're looking for. It's only 200-odd pages, and that's including a foreword by John Mauldin, a US left-of-field fund manager who's amassed a gigantic mailing list throughout the years, so you've probably heard about him too. Montier's style of writing is quick and witty; you'll probably surf through his words quicker than you'd like to on a long haul flight.

Spoiler alert! I am only doing this because once you think about it, it'll become but the sole logical outcome of the dilemma that no matter our level of experience, our maturity of mind, or the state of play, we are and remain human, and we're hopelessly and structurally flawed. So how do we become (more) successful investors? We employ less of our ourselves. Simple isn't it?

Time to remind ourselves, those "experts" who populate financial media and publish all kinds of books, newsletters, videos and courses, they are but human too! As Montier points out (repeatedly, trust me) we are naturally drawn to expert people. We like them to give us guidance, or confirmation, or confidence, or all of the above. "Not only do we like our experts to sound confident, but our brain actually switches off some of our natural defenses when we are told someone is an expert".

Yup. And that's where trouble starts. Most "experts" have a terrible track record. Not just in investing. Try weather forecasting, surgeons, economists, et cetera. "It might be tempting to think that fund managers are more akin to weathermen, but sadly the evidence suggests that investment professionals are the one group of people who make doctors look like they know what they are doing."

Oh, humans. We are so full of ourselves! More humility, without the slightest doubt, is better. So don't trust yourself, your partner, your neighbour, nor the experts overlooking the crowd. Don't trust me or the author either. Trust yourself when trusting less in humans, including yourself. Makes sense?

The Little Book of Behavorial Investing. How Not to Be Your Own Worst Enemy. By James Montier. Wiley. 219 pages. ISBN 9780470686027

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