Value Investing

"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.

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