Value Investing: Tools and Techniques for Intelligent Investment

Foreword

Books about investing, like this one by James Montier, are written, bought and read because they promise to make the reader riches. Sometimes the promise is explicit as in Joel Greenblatt's outstanding book You Too Can Be a Stock Market Genius. More often it is unstated but implied. In all cases, the promise has to come to terms with the single most important brute fact about investing. Only in Lake Wobegon, Minnesota (the mythical town created by the American humorist Garrison Keillor where all the children are above average) can all investors outperform the market. The average return of all investors must mathematically be equal, before management fees and trading costs, to the average return on all investment assets. This is not a statement of the once dominant, but increasingly widely discredited, academic assumptions that markets are efficient; that no individual can expect, except by luck, to outperform the collective wisdom of all other investors which is embodied in market prices. Some individual investors, most notably Warren Buffett, do earn above average returns by wide margins in many years. But what is inescapable is that these above average returns for some investors must always be offset by below average returns for others.

Another way to say this is that every time a reader of this book buys an asset, thinking that it will produce relatively high returns in the future, another investor is selling that asset thinking that it will produce relatively low returns ...