Over a decade ago, James Montier penned a white paper titled Seven Sins of Fund Management. It covers the most common behavioural biases among investors and makes for a timeless, enlightening read. The full report can be found here and is 105 pages long, so a brief summary is in order.
Sin 1: Forecasting
An enormous amount of evidence suggests that we simply cannot forecast. Montier suggests that anchoring bias and over-confidence cause investors to continue relying on forecasts in their investment decisions.
Sin 2: The illusion of knowledge
Investors appear to believe that they need to know more than everyone else in order to outperform. This stems from an efficient markets view of the world. If markets are efficient, then the only way they can be beaten is by knowing something that everyone else does not. This is paradoxical because it is the pockets of inefficiency that allow for ...
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