Book Name : The Little Book of Behavioral Investing: How Not to be Your Own Worst Enemy
Book By : James Montier
Published In : 2010
Topic : Behavioral Economics
Pages : 236 pages
Why Little Book Of Behavioral Investment?
Rational mind is necessary for making good investment decision but when our money is at stake fear and greed subconsciously influence our decision making. These emotions are so strong that it also suppress out common sense.
Emotional imbalance has one of the prime reasons for formation of bubbles. In bubble investors become so greedy that they even forget to check price levels at which they are buying. Exactly opposite happens in crisis or depressions people tend to run away from stocks no matter at how attractive valuations are trading.
Outcome in both the situations is either opportunity loss or real loss.
Not only beginner investors but professionals also fall in this psychological trap .
For all of this it is necessary to understand how our mind works. So that we do not fall pray of same. And gain extraordinary returns by taking advantage of foolishness of others.
If you want to be rational thinker and learn to take unbiased decisions in market quickly then little book of behavioral investing is best for you.
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.
I will prefer this book over all other books written on behavioral economics (branch of economics that deals with human psychology) because of following reasons :
- Smaller in size relative to other books in the same field but covers all important topics in behavioral economics.
- Language used is lucid and very easy to understand for novice investors.
- Every chapter has lot of examples of researches conducted which had very surprising outcome and all beautifully linked with our investment decisions that we make.
- Because of its size you can use this book as checklist to see if our decisions is driven by emotion.
- What methods and tricks same famous investors are using to make rational decisions. (I think this is most important advantage of this book)
- Some of alternative methods that you can follow in investment analysis to cross check our judgment. (Like reverse discounted cash flow valuation)
Some important topics discussed in this books:
- Structure of human brain and how it has evolved from ancient ages
- Reasoning Tendency.
- Overconfidence.
- Prediction Tendency.
- Irrelevant Anchors.
- Social Pain.
- Confirming Evidences.
- Boggling Information.
- Preconceptions.
- Skill and luck.
Also Read | Psychological Tendencies That Cause Wrong Decision Making
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.
Other Books by Author
Behavioural Investing: A Practitioner’s Guide to Applying Behavioural Finance (The Wiley Finance Series)
Value Investing: Tools and Techniques for Intelligent Investment .
Alternative for this book
Charlie Munger: The Complete Investor
This book is elaboration of point discussed by famous investor Charlie Munger in his lecture titled ‘Psychology of Human Misjudgment‘.
Cons
Being a little book it does not have deep discussions on topics of behavioral investment.