Little Book of Behavioral Investing - James Montier

Currently reading, but here are my notes so far:

1. Warren Buffet: "Success in investing doesn't correlate with IQ once you're above the level of 100. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."

2. Willpower alone is unlikely to be a sufficient defense against behavioral biases

   1. People were told not to eat any food for the three hours prior to a mental exercise

   2. They were put into one of three groups and taken into different rooms:

      1. A room with the aroma of freshly baked chocolate cookies. This room has two trays, one laid out with the cookies and the other full of radishes. They couldn't eat the cookies but could eat the radishes.

      2. A room with two trays with the same stuff as the first, excpet they are told they can eat the cookies.

      3. The third group is taken to an empty room

   3. After 10 minutes the groups were moved to another room to take a test, where you must trace a shape but without going over a line you have drawn before.

   4. Those who resisted the temptation of the cookies in room 1 attempted half the problems compared to the rest and gave up more. Their willpower had been diminished by simply resisting the temptation of cookies.

3. You can't predict the future

   1. Howard marks wrote in a 2001 memo "In my opinion the key to dealing with the future lies in knowing where you are, even if you can't know precisely where you're going. Knowing where you are in a cycle and what it implies for the future is different from predicting the timing, extent and shape of the move."

   2. Keynes: "I'd prefer to be approximately right than precisely wrong"

4. Power of checklists

   1. In a study, a 19-point surgical checklist was implemented in a hospital to help save lives. It was simple things. But it caused the patient death rate to half!

   2. It is far better to focus on what really matters, rather than succumbing to the sirens of Wall Street.

   3. Instead of trying to know everything about an investment, focus on the few key things you really need to know.

5. Analysts are exceptionally good at one thing, and possibly one thing alone-telling you what has just happened. They only change their mind when there is irrefutable proof they were wrong, and then they only change their minds very slowly-a process known as anchoring and slow adjustment.

6. Characteristics of "Predictable Surprises" (another word for black swans)

   1. At least some people are aware of the problem.

   2. The problem gets worse over time.

   3. Eventually the problem explodes into a crisis, much to the shock of most.

7. A study of soccer goalkeepers showed that they either dived left or right (94 percent of the time), hardly ever choosing to remain in the center of their goal. Yet, they would have been much more successful if they had just stood in the center of the goal. The goalkeepers were asked why they choose to dive rather than stand in the center. The defense offered was that at least they feel they are making an effort when they dive left or right, whereas standing in the center and watching a goal scored to the left or the right of you would feel much worse.