Table Of ContentTable of Contents
Title Page
Copyright Page
Dedication
Preface
I Common Mistakes and Basic Biases
II The Professionals and the Biases
III The Seven Sins of Fund Management
IV An Investment Process as a Behaviour Defence
V Bubbles and Behaviour
VI Investment Myth Busters
VII Corporate Governance and Ethics
VIII Happiness
Acknowledgements
SECTION I - Common Mistakes and Basic Biases
Chapter 1 - Emotion, Neuroscience and Investing: Investors s Dopamine Addicts
SPOCK OR McCOY?
THE PRIMACY OF EMOTION
SELF-CONTROL IS LIKE A MUSCLE
HARD-WIRED FOR THE SHORT TERM
HARD-WIRED TO HERD
PLASTICITY AS SALVATION
Chapter 2 - Part Man, Part Monkey
THE BIASES WE FACE
BIAS #1: I KNOW BETTER, BECAUSE I KNOW MORE
BIAS #2: BIG ≠ IMPORTANT
BIAS #3: SHOW ME WHAT I WANT TO SEE
BIAS #4: HEADS WAS SKILL, TAILS WAS BAD LUCK
BIAS #5: I KNEW IT ALL ALONG
BIAS #6: THE IRRELEVANT HAS VALUE AS INPUT
BIAS #7: I CAN MAKE A JUDGEMENT BASED ON WHAT IT LOOKS
LIKE
BIAS #8: THAT’S NOT THE WAY I REMEMBER IT
BIAS #9: IF YOU TELL ME IT IS SO, IT MUST BE TRUE
BIAS #10: A LOSS ISN’T A LOSS UNTIL I TAKE IT
CONCLUSIONS
Chapter 3 - Take a Walk on the Wild Side
IMPACT BIAS
EMPATHY GAPS
COMBATING THE BIASES
Chapter 4 - Brain Damage, Addicts and Pigeons
Chapter 5 - What do Secretaries’ Dustbins and the Da Vinci Code have in
Common?
Chapter 6 - The Limits to Learning
SELF-ATTRIBUTION BIAS: HEADS IS SKILL, TAILS IS BAD LUCK
HINDSIGHT BIAS: I KNEW IT ALL ALONG
SKINNER’S PIGEONS
ILLUSION OF CONTROL
FEEDBACK DISTORTION
CONCLUSIONS
SECTION II - The Professionals and the Biases
Chapter 7 - Behaving Badly
THE TEST
THE RESULTS
OVEROPTIMISM
CONFIRMATORY BIAS
REPRESENTATIVENESS
THE COGNITIVE REFLECTION TASK (CRT)
ANCHORING
KEYNES’S BEAUTY CONTEST
MONTY HALL PROBLEM
CONCLUSIONS
SECTION III - The Seven Sins of Fund Management
Chapter 8 - A Behavioural Critique
SIN CITY
ALTERNATIVE APPROACHES AND FUTURE DIRECTIONS
Chapter 9 - The Folly of Forecasting: Ignore all Economists, Strategists, &
Analysts
OVERCONFIDENCE AS A DRIVER OF POOR FORECASTING
OVERCONFIDENCE AND EXPERTS
WHY FORECAST WHEN THE EVIDENCE SHOWS YOU CAN’T?
WHY USE FORECASTS?
DEBASING
Chapter 10 - What Value Analysts?
Chapter 11 - The Illusion of Knowledge or Is More Information Better
Information?
Chapter 12 - Why Waste Your Time Listening to Company Management?
MANAGERS ARE JUST AS BIASED AS THE REST OF US
CONFIRMATORY BIAS AND BIASED ASSIMILATION
OBEDIENCE TO AUTHORITY
TRUTH OR LIE?
CONCLUSIONS
Chapter 13 - Who’s a Pretty Boy Then? Or Beauty Contests, Rationality and ...
BACKGROUND
THE GAME
THE SOLUTION
THE RESULTS
A SIMPLE MODEL OF OUR CONTEST
COMPARISON WITH OTHER EXPERIMENTS
LEARNING
CONCLUSIONS
Chapter 14 - ADHD, Time Horizons and Underperformance
Chapter 15 - The Story is the Thing (or The Allure of Growth)
Chapter 16 - Scepticism is Rare (or Descartes vs Spinoza)
CARTESIAN SYSTEMS
SPINOZAN SYSTEMS
LIBRARIES
A TESTING STRUCTURE
THE EMPIRICAL EVIDENCE
STRATEGIES TO COUNTERACT NAÏVE BELIEF
Chapter 17 - Are Two Heads Better Than One?
BEATING THE BIASES
SECTION IV - Investment Process as Behavioural Defence
Chapter 18 - The Tao of Investing
Chapter 19 - Come Out of the Closet (or, Show Me the Alpha)
THE ALPHA
THE EVOLUTION OF THE MUTUAL FUND INDUSTRY
CHARACTERISTICS OF THE FUNDS
CONCLUSIONS
Chapter 20 - Strange Brew
THE LONG RUN
THE SHORT RUN
BREAK THE LONG-ONLY CONSTRAINT
ADD BREADTH
NOT JUST AN EXCUSE FOR HEDGE FUNDS
TRULY ALTERNATIVE INVESTMENTS
CONCLUSIONS
Chapter 21 - Contrarian or Conformist?
Chapter 22 - Painting by Numbers: An Ode to Quant
NEUROSIS OR PSYCHOSIS?
BRAIN DAMAGE DETECTION
UNIVERSITY ADMISSIONS
CRIMINAL RECIDIVISM
BORDEAUX WINE
PURCHASING MANAGERS
META-ANALYSIS
THE GOOD NEWS
SO WHY NOT QUANT?
Chapter 23 - The Perfect Value Investor
TRAIT I: HIGH CONCENTRATION IN PORTFOLIOS
TRAIT II: THEY DON’T NEED TO KNOW EVERYTHING, AND
DON’T GET CAUGHT IN THE NOISE
TRAIT III: A WILLINGNESS TO HOLD CASH
TRAIT IV: LONG TIME HORIZONS
TRAIT V: AN ACCEPTANCE OF BAD YEARS
TRAIT VI: PREPARED TO CLOSE FUNDS
Chapter 24 - A Blast from the Past
THE UNHEEDED WORDS OF KEYNES AND GRAHAM
Chapter 25 - Why Not Value? The Behavioural Stumbling Blocks
KNOWLEDGE ≠ BEHAVIOUR
LOSS AVERSION
DELAYED GRATIFICATION AND HARD-WIRING FOR THE SHORT
TERM
SOCIAL PAIN AND THE HERDING HABIT
POOR STORIES
OVERCONFIDENCE
FUN
NO, HONESTLY I WILL BE GOOD
Chapter 26 - Bargain Hunter (or It Offers Me Protection)
THE METHODOLOGY
DOES VALUE WORK?
THE ANATOMY OF VALUE
THE SIREN OF GROWTH
GROWTH DOESN’T MEAN IGNORING VALUATION
THE DISAPPOINTING REALITY OF GROWTH
ANALYST ACCURACY?
VALUE VERSUS GROWTH
KEY POINTS
REGIONAL TABLES
Chapter 27 - Better Value (or The Dean Was Right!)
Chapter 28 - The Little Note that Beats the Markets
THE METHODOLOGY AND THE DATA
THE RESULTS
QUALITY MATTERS FOR VALUE
CAREER DEFENCE AS AN INVESTMENT STRATEGY
WHAT ABOUT THE LONG/SHORT VIEW?
THE FUTURE FOR THE LITTLE BOOK
TABLES AND FIGURES
Chapter 29 - Improving Returns Using Inside Information
PATIENCE IS A VIRTUE
USING INSIDE INFORMATION
A HEDGE PERSPECTIVE
RISK OR MISPRICING?
EVIDENCE FOR BEHAVIOURAL ERRORS
EVIDENCE AGAINST THE RISK VIEW
EUROPEAN EVIDENCE
CONCLUSIONS
Chapter 30 - Just a Little Patience: Part I
Chapter 31 - Just a Little Patience: Part II
VALUE PERSPECTIVE
GROWTH PERSPECTIVE
GROWTH AND MOMENTUM
VALUE FOR GROWTH INVESTORS
VALUE AND MOMENTUM
IMPLICATIONS
Chapter 32 - Sectors, Value and Momentum
VALUE
MOMENTUM
SECTORS: VALUE OR GROWTH
STOCKS OR SECTORS
Chapter 33 - Sector-Relative Factors Work Best
METHODOLOGY
THE RESULTS
