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Value Investing: Tools and Techniques for Intelligent Investment

ISBN: 978-0-470-68359-0
424 pages
December 2009
Value Investing: Tools and Techniques for Intelligent Investment (0470683597) cover image


"As with his weekly column, James Montier's Value Investing is a must read for all students of the financial markets. In short order, Montier shreds the 'efficient market hypothesis', elucidates the pertinence of behavioral finance, and explains the crucial difference between investment process and investment outcomes. Montier makes his arguments with clear insight and spirited good humor, and then backs them up with cold hard facts. Buy this book for yourself, and for anyone you know who cares about their capital!"
—Seth Klarman, President, The Baupost Group LLC

The seductive elegance of classical finance theory is powerful, yet value investing requires that we reject both the precepts of modern portfolio theory (MPT) and pretty much all of its tools and techniques.

In this important new book, the highly respected and controversial value investor and behavioural analyst, James Montier explains how value investing is the only tried and tested method of delivering sustainable long-term returns.

James shows you why everything you learnt at business school is wrong; how to think properly about valuation and risk; how to avoid the dangers of growth investing; how to be a contrarian; how to short stocks; how to avoid value traps; how to hedge ignorance using cheap insurance. Crucially he also gives real time examples of the principles outlined in the context of the 2008/09 financial crisis.

In this book James shares his tried and tested techniques and provides the latest and most cutting edge tools you will need to deploy the value approach successfully.

It provides you with the tools to start thinking in a different fashion about the way in which you invest, introducing the ways of over-riding the emotional distractions that will bedevil the pursuit of a value approach and ultimately think and act differently from the herd.

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Table of Contents

Preface xi

Foreword xvii


1 Six Impossible Things before Breakfast, or, How EMH has Damaged our Industry 3

2 CAPM is Crap 19

3 Pseudoscience and Finance: The Tyranny of Numbers and the Fallacy of Safety 29

4 TheDangers of Diversification and Evils of theRelativePerformance Derby 39

5 The Dangers of DCF 47

6 Is Value Really Riskier than Growth? Dream On 57

7 Deflation, Depressions and Value 65


8 Learn to Love Your Dogs, or, Overpaying for the Hope of Growth (Again!) 75

9 Placebos, Booze and Glamour Stocks 85

10 Tears before Bedtime 93

11 Clear and Present Danger: The Trinity of Risk 105

12 Maximum Pessimism, Profit Warnings and the Heat of the Moment 113

13 The Psychology of Bear Markets 121

14 The Behavioural Stumbling Blocks to Value Investing 129


15 The Tao of Investing: The Ten Tenets of My Investment Creed 143

16 Process not Outcomes: Gambling, Sport and Investment! 165

17 Beware of Action Man 173

18 The Bullish Bias and the Need for Scepticism. Or, Am I Clinically Depressed? 181

19 Keep it Simple, Stupid 195

20 Confused Contrarians and Dark Days for Deep Value 205


21 Going Global: Value Investing without Boundaries 217

22 Graham’s Net-Nets: Outdated or Outstanding? 229


23 Grimm’s Fairy Tales of Investing 239

24 Joining the Dark Side: Pirates, Spies and Short Sellers 247

25 Cooking the Books, or, More Sailing Under the Black Flag 259

26 Bad Business: Thoughts on Fundamental Shorting and Value Traps 265


27 Overpaying for the Hope of Growth: The Case Against EmergingMarkets 281

28 Financials: Opportunity or Value Trap? 291

29 Bonds: Speculation not Investment 299

30 Asset Fire Sales, Depression and Dividends 309

31 Cyclicals, Value Traps, Margins of Safety and Earnings Power 315

32 The Road to Revulsion and the Creation of Value 325

33 Revulsion and Valuation 343

34 Buy When it’s Cheap – If Not Then, When? 355

35 Roadmap to Inflation and Sources of Cheap Insurance 361

36 Value Investors versus Hard-Core Bears: The Valuation Debate 371

References 379

Index 383

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Author Information

James Montier is a member of GMO's asset allocation team. Prior to that he was global strategist for Société Générale and Dresdner Kleinwort. He has been the top rated strategist in the annual extel survey for most of the last decade. He is also the author of three other books – Behavioural Finance (2000, Wiley), Behavioural Investing (2007, Wiley) and The Little Book of Behavioral Investing (Forthcoming, Wiley). James is a regular speaker at both academic and practitioner conferences, and is regarded as the leading authority on applying behavioural finance to investment. He is a visiting fellow at the University of Durham and a fellow of the Royal Society of Arts. He has been described as a maverick, an iconoclast, an enfant terrible by the press.
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Press Release

February 09, 2010






How Not to Be Your Own Worst Enemy




James Montier



James Montier’s THE LITTLE BOOK OF BEHAVIORAL INVESTING: How Not to Be Your Own Worst Enemy (Wiley; February 2010; $19.95; Hardcover) gives readers a guided tour of the most common behavioral challenges and psychological pitfalls investors encounter and provides straightforward strategies to eliminate these traits that time and again have proven to be the downfall of the vast majority of investors.

            The latest advances in behavioral psychology tell us that humans are prone to make decisions emotionally rather than rationally. More often than not, fear and desire trump IQ when it comes to investing. Yet emotional self-control is more important than education. As Warren Buffett has pointed out, “Success in investing doesn’t correlate with ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” Indeed, Benjamin Graham, the father of value investing, said that “the investor’s chief problem—and even his worst enemy—is likely to be himself.”

            THE LITTLE BOOK OF BEHAVIORAL INVESTING will teach readers how to recognize and avoid the mental pitfalls most investors make while exploring the underlying psychology behind these mistakes. Better still, James Montier will show you what you can do to try to protect your portfolio from their damaging influence on your returns.  Among the many topics THE LITTLE BOOK OF BEHAVIORAL INVESTING examines include:

  • The Importance of Pre-Commitment. Smart investors never invest in the heat of the moment. Nor do they procrastinate until the last minute. Discover a sure-fire secret Sir John Templeton used to take his emotions out of his investing.

  • The Dangers of Overconfidence. The tendency to overrate our abilities is matched only by the illusion to think we can determine the outcome of events. Learn what Benjamin Graham and Warren Buffet have to say about the perils of self-serving optimism—and what you can do to defend yourself against it.

  • Stop Listening to the Experts! The shocking truth is that, when it comes to portfolio success, the majority of so-called experts of investing fare no better and often worse than the man or woman in the street. Discover the real reason why people listen to Jim Cramer—and why you never want to make this fatal mistake.

  • The Folly of Forecasting. Those who have knowledge don’t predict. Those who predict don’t have knowledge. Yet most of the investment industry obsesses with trying to guess the future. Don’t predict, says Montier. Instead, be prepared.

  • Information Overload. When it comes to investing, we seem to be addicted to knowledge. More is better when it comes to information, right? Not so. Too much information, argues Montier, is just as bad as too little. Learn how to focus on what really matters in investing rather than the mountains of data Wall Street spews daily.

  • The Siren Songs of Wall Street. Of all the dangers that investors face, none is more seductive than the stories Wall Street spins in order to lure investors and part them from their money. THE LITTLE BOOK OF BEHAVIORAL INVESTING shows readers how to immunize themselves against these tall tales by knowing instead how to focus on cold, hard facts.

  • Your Edge over the Pros. Believe it or not, the ordinary investor has one huge edge over professional investors and James Montier shows how to exploit that edge to produce superior returns.


The key lesson that the world’s greatest investors have learned is that you must concentrate on the process of investing. Process is the set of rules that govern how we go about investing. Successful investors do so by integrating safeguards that protect them from mindless investing. The reason that they have codified the process is that they know that unless they force themselves to behave in this fashion, they will slip back into their old bad habits.  James Montier’s THE LITTLE BOOK OF BEHAVIORAL INVESTING will teach readers to think more carefully about the way they invest and that is the first step in overcoming your own worst enemy when it comes to investment—yourself!


About the Author

James Montier is a member of the asset allocation team at GMO, London. He has been the top rated strategist in the annual Thomson Extel survey for the last five years.  He was on the 50 must-read analysts list complied by the Business magazine and has been described as a Maverick by the Sunday Times, an enfant terrible by the FAZ, the Dean of behavioural finance by the FT and a prophet by the Fast Company.  Montier is the author of three market leading books: Behavioural Finance: Insights into Irrational Minds, and Behavioural Investing, A Practitioners Guide to Applying Behavioural Finance, Value Investing: Tools and Techniques for Intelligent Investment  and was one of 12 investors featured in John Mauldin’s Just One Thing: Twelve of the World's Best Investors Reveal the One Strategy You Can't Overlook (Wiley 2005; 9780471738732).  He is widely regarded as the leading authority on behavioural finance and his investments and analysis are regularly quoted in investment media including The Technical Analyst, Value Investing World, Micromotives, Turtletrader.com, greenlightinvestor.com, FTAdvisor, RGE Monitor, Investor Insight.com, Trade2win.com, and many more.



The Little Book of Behavioral Investing:

How not to be your own worst enemy

By James Montier

Hardcover; February 2010; 978-0-470-68602-7; $19.95

                                                                                    James Montier’s recent book -


  Tools and Techniques for Intelligent Investment

ISBN:  978-0-470-68359-0

 Is now available in the United States

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