One of the best books ever written on Behavioral Investing is – The Little Book of Behavioral Investing by James Montier. There’s a great passage in the book in which Montier emphasises the key lesson that investors can learn from the world’s greatest investors saying:
Small manageable steps are likely to be the best way towards sustainable weight loss. The same is likely to be true when it comes to investing. We shouldn’t try to change everything in one swoop, as we’ ll fail. Working out which biases you suffer from the most, and addressing these first, should help improve returns.
Over the course of this book I’ve tried to suggest ways in which you can protect yourself against the most common mental pitfalls and shown you the ways in which some of the world ’s best investors have put processes in place to defend themselves.
The key lesson from these investors is that we must concentrate on process. Process is the set of rules that govern how we go about investing. As we have seen time and time again in this Little Book, some of the worlds greatest investors (from Sir John Templeton’s research on a quiet day to George Soros’s diaries, from Bruce Berkowitz’s kill the company to Michael Steinhardt’s selling the entire portfolio) have integrated measures into the way in which they approach investment to act as a guard against mindless investing. The reason they have codified the process is that they know that unless they force themselves to behave in this fashion, they will slip back into old habits.
So think carefully about the way you invest. Which of these errors have you committed most regularly? What might you be able to do to prevent yourself from stumbling down this path again? Thinking about these issues is the first step in overcoming your own worst enemy when it comes to investment—yourself!
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