For many investment professionals James Montier is behavioural finance. Its largely through Montier that concepts like anchoring, hindsight bias, herding etc. Too few read books, instead the source of information is papers from investment banks. Hence there is a need for a bridge between theoretical advances and investment practitioners. For behavioural finance Montier has been this bridge and a whole generation of investment professionals is wiser as a result. This is Montiers second book.
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We had long discussions later the day and into the evening on value investing and investment strategy. James was kind enough to put me on his distribution list and I really looked forward to each of his articles as they always taught me something. Unfortunately James decreased his writings since taking a position with the asset manager GMO in I decided to put this resource page together so you can also benefit from James?
James Montier? Prior to that, he was the co-Head of Global Strategy at Soci? In this May article How to invest in a central bank sponsored speculative bubble James Montier gives his ideas on how to invest in the current zero interest rate environment. His advice:? Retail investors are free to hold as much cash as they like. The greatest challenge for retail investors is remaining patient in the current market while asset prices rise, but then again that is the difference between investing and speculation.?
At the keynote address at the October European Investment Conference in London James Montier made an interesting argument saying that shareholder value maximization is? James said it has not added any value for shareholders and has contributed to such major economic and social problems as short-termism and rising inequality.
In this 7 July panel discussion We will continue to swim in a sea of liquidity James Montier discusses the current investment environment with Felix Zulauf and David Iben. James Montier:? Even if we factor in low interest rates for the next twenty years, we? We can find stuff that may be fair value in that scenario, but it?
This is a?? Holding vastly different opinions are two strategists with decades of insight and experience. Richard Bernstein, former chief investment strategist at Merrill Lynch, now an adviser to funds for Eaton Vance, is bullish. A Defence Against the Dark Arts? Robert Huebscher in a 4 February article called What Worries Me Right Now uses a few articles James Montier wrote that shows why and how the US market is currently overvalued and returns are unlikely to be attractive.
The Possibility of No Mean Reversion? In this 22 July article James Montier explores why, with the current record low interest rates? Abandon austerity, forget inflation, and avoid Japan? In a 9 April radio interview James said that Value investors face a difficult opportunity set as asset prices increase. In a 15 February article entitled Hyperinflations, Hysteria, and False Memories James Montier explains why, in spite of all the money printing throughout the world it is unlikely to result in hyperinflation.
On the 24th of October James took part in an online conference, hosted by ValueConferences , and addressed the application of his Seven Immutable Laws of Investing to the European stock markets. James Montier White Papers ? A great resource, thank you Frank for putting it together. James reiterates the value of applying behavioural finance to your investment decisions and gives a lot of practical advice you can use such as keeping a written record of your investment decisions or your brain will just rewrite history.
In the article James questions the concept of relative performance saying Sir John Templeton was right when he said that the aim of investing was? James argues that the decision as to what asset class you should invest in is much more important than what manager to choose.
The simple although not easy answer is to use value across a wide range of assets. To buy when an asset is cheap and sell when as it gets expensive. In order to do this you need patience and a willingness to be a contrarian. The 22 August article Saving your portfolio? The interview is insightful as it talks about James? This January 18, Bloomberg article titled, Treasuries Are?
Ugly Sister? According to GMO? He further argued that investors are not compensated for the long-term risk of holding bonds. With year Treasuries yields having fallen to 3. In a January 11, issue of the Financial Times blog Alphaville titled, Economic forecasting delusions Cardiff Garcia writes about the perils of economic forecasting. He mentions James Montier? Interesting to note is that economists have almost completely able to correctly forecasts inflation, bonds yields and economic growth.
According to PIMCO, the term new normal creates an environment where the consensus expectations has shifted from traditional bell-shaped curves to a much flatter distribution of outcomes with fatter tails. PIMCO wrote that positioning for mean reversion will be a less compelling investment theme in a world where realized returns cluster nearer the tails and away from the mean. James argues mean-reversion strategies are alive and well as long as markets continue to swing from a cheery consensus to gloom and vice versa.
According to James, the real issue should be whether bonds offer a sensible rate of return to long term investors. The valuation of bonds is a relatively simple process having three components: the real yield, expected inflation and an inflation risk premium. He also simulated that under a? Japanese outcome of no inflation,? Cardiff writes that James Montier believes that although economic outcomes may have flatter distribution in the past, this is nothing new for asset markets.
He also notes that James Montier is part of the asset allocation team of GMO, run by one of the high priests of mean reversion, Jeremy Grantham. In this August 25, GMO White Paper called, A man from different time free registration required James Montier argues that dividends are vital component of investment returns.
James explains that the concept of dividends is irrelevant for short term oriented investors. However, to those investors who have longer time horizon, dividends are an important part of the investment return equations. Finally, he also made a case for European dividend swaps which offer intriguing opportunity as they are still priced for a depression. As ever, patience is necessary as convergence between implied dividends and actual dividends is slow in longer maturities.
New Normal.? While implications that historical benchmarks will be challenged and less credit will be available to sustain leverage and high valuations are reasonable, the death of mean reversion appear premature. He argued that the authors are confusing the distribution of economic outcomes with asset market returns. While the distribution of economic outcomes may have a flatter distribution than in the past i. John Maynard Keynes mentions that mathematical economics are mere concoctions and tends to lose sight of the complexities and interdependence of the real world.
James Montier wonders why Westpac would question the provisions on restriction of lending when unconstrained lending was the cause of the global financial crisis. The Bloomberg article can be found here:? This can be likened to asking kids to make their own marks on their homework.
The paradox of thrift states that if everyone tries to save more, total income is lowered. If everyone isn? The economy ultimately ends up in a downward spiral.
James advises investors to construct portfolios that are protected under a number of different possible scenarios.? And to consider cheap insurance in circumstances where they simply don? In this July 22, post on his blog entitled, On the price of insurance and bull market in tail risk James Montier stresses the need for investors to buy cheap insurance.
James has noted that investment banks are launching a lot of new investment insurance products such as Deustche Bank? The key to buying insurance is that it must be cheap or at very worst fair. Buying expensive insurance is the same as buying an overpriced asset. Rather than wasting money on expensive insurance, he suggests holding cash. Economics is Hard. In the paper, Kartik Athreya makes an argument that economics should be left to those with a PhD in economics. He further makes an analogy that we won?
The full-page paper of Kartik Artheya can be found here: Economics is Hard. He then compares economics to medieval medicine by quoting Nassim Taleb,? Medicine used to kill more patients than it saved?
Be sure to add it to your RSS reader. The essence of investment was to seek out value; to buy what was cheap with a margin of safety. Investors could move up and down the capital structure from bonds to equities as they saw fit. If nothing fit the criteria for investing, then cash was the default option. But that changed with the rise of modern portfolio theory and, not coincidentally, the rise of?
Or, Ten Lessons Not Learnt from the financial crisis. What ever happened to EMH?. In this 2 June research paper Forever blowing bubbles: moral hazard and melt-up James Montier explored the bubble phenomenon and what happens in the future after a bubble pops. He explores the possibility that all the government rescue packages initiated in have the possibility to again inflate a substantial bubble. James Montier explains why the efficient markets theory is dead but still lives because of academic inertia.
In June James Montier? He also gives a few short ideas from his shorting screen. In this 27 January article Clear and present danger: the trinity of risk , James Montier writes about the three primary and interrelated sources of investment risk; Valuation risk, business or earnings risk and balance sheet or financial risk.
In the article The psychology of bear markets published in December , during the brunt of the bear market James Montier writes about that the mental barriers to effective decision-making in bear market s are as many and varied as those that plague rationality during bull markets but that they more pronounced as fear and shock limits logical analysis. In this 25 Nov article called The road to revulsion and the creation of value , James Montier argues that the road to revulsion — sharply declining prices — ends in an investment nirvana with unambiguously cheap assets.
In this 25 November Bloomberg article Montier Has?
Behavioural Investing : A Practitioner's Guide to Applying Behavioural Finance
All too many investors are unaware of the mental pitfalls that await them. Even once we are aware of our biases, we must recognise that knowledge does not equal behaviour. The solution lies is designing and adopting an investment process that is at least partially robust to behavioural decision-making errors. This book is unique in combining insights from the field of applied psychology with a through understanding of the investment problem. The content is practitioner focused throughout and will be essential reading for any investment professional looking to improve their investing behaviour to maximise returns.
James Montier’s Lessons on Behavioral Investing
Aug 20, Pete Klein rated it it was amazing Very good book in helping you understand your biases and overcoming them through process. Great examples used to showcase his points and help the reader understand the concepts. Jan 16, Eugenio Gomez-acebo rated it really liked it This is a very interesting book about human behaviour, biases, how our brains make mistakes and the consequences in investing. History of humankind is replete with bad choices by both individuals and nations. The interesting part is that we are predictably irrational.