James Montier: Value Investing Provides ‘Behavioral Self-Defence’

During this interview with Schroders, James Montier explains why value investing provides behavioral self-defence. Here’s an excerpt from the interview:

Montier: That value approach is inherently long-term and it gives you a margin of safety – and then whether you meet company managements or not is up to you. But we don’t very much – some of my colleagues do.

I’m not sure why – probably they have too much time on their hands and it’s good fun – but I don’t bother. For me, it’s a waste of time – unless you’re an activist investor, in which case maybe it’s a bit different. But if you’re not an activist, I don’t see the point.

Value investing is so naturally aligned with trying to protect yourself – you don’t try and know everything as a value guy, right? You focus on valuation – that’s the thing that matters most. If you only know one thing about a company – for me, it’s valuation.

That is just the most important criteria I can think of – everything else is secondary. So I also don’t get massively confident about stuff – I don’t run a hugely concentrated portfolios because, hell, I could be wrong about an awful lot of stuff.

So there’s a lot in investing that naturally aligns with behavioural mistakes people make and value investing is just a natural response to the problems. It’s not flawless – we’re still going to get stuff wrong – but it’s at least a lot of baby steps in the right direction. And that’s one of the most important things, right?

If you’re trying to build a behaviourally robust investment process, you can’t just solve everything in one go. It’s baby steps, right? It’s like, if you are dieting, it’s best if you don’t keep a jar of sweets on your desk.

Why? Because if you do, your hands are going to be in the bloody jar, right? I’m a sucker for liquorice – I’ll eat liquorice all day long – so guess what? I don’t have liquorice around. That way, I can’t eat it. It is those kinds of ‘easy wins’ that I think value investing helps bring to the table to combat some of these behavioural biases.

You can listen to the the entire discussion here: