Value Investing: Tools and Techniques for Intelligent Investment

Montier, a strategist who worked at Societe Generale and later GMO, collected his research notes into a book combining behavioural finance with value investing practice. It is organised in sections on why everything you learned in business school is wrong, the behavioural foundations of value investing, the private equity and short-selling applications, and the evidence.

His attacks on standard finance are direct. He argues that the capital asset pricing model is empirically refuted and should not be used to set discount rates, that beta does not measure risk in any sense investors care about, that risk is the permanent impairment of capital rather than volatility, and that discounted cash flow models are so sensitive to inputs that they produce whatever answer the analyst wanted. He proposes reverse-engineered valuation and simple screens instead.

The behavioural material covers overconfidence, confirmation bias, the tendency to seek more information rather than better information, and the specific institutional pressures that prevent professional investors from acting on value criteria: career risk, benchmark tracking and the requirement to explain each position.

He also presents empirical work on quality and value screens, on short-selling candidates identified through accounting red flags and the C-score, and on the Graham net-net approach applied to modern markets.

The book is a collection of research notes and it repeats itself. Montier is combative and states positions more strongly than the evidence sometimes supports, and the material was written between 2005 and 2009, so the market context is specific. The behavioural and institutional analysis is the most durable part.