Preface xi

Foreword xvii

Part I Why Everything You Learned in Business School Is Wrong 1

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 The Dangers of Diversification and Evils of the Relative Performance Derby 39

5 The Dangers of DCF 47

6 Is Value Really Riskier than Growth? Dream On 57

7 Deflation, Depressions and Value 65

Part II The Behavioural Foundations of Value Investing 73

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

Part III The Philosophy of Value Investing 141

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

Part IV The Empirical Evidence 215

21 Going Global: Value Investing without Boundaries 217

22 Graham’s Net-Nets: Outdated or Outstanding? 229

Part V The ‘dark Side’ of Value Investing: Short Selling 237

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

Part VI Real-time Value Investing 279

27 Overpaying for the Hope of Growth: The Case Against Emerging Markets 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

About the Author

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.

Reviews

'Any disciple of value investing will benefit greatly from reading this book.' (UK Analyst.com, May 2011).

Table of Contents

About the Author

Reviews