Although I am clearly partial to a blog post and enjoy a good tweet or thread, few things can beat reading a great book. The beauty of a book is not just the depth in which a topic can be explored but the focus it necessitates – the physical act of buying and reading one can act as a commitment device, encouraging us to learn something new or think about something differently. Books do not make us immune to the enticement of other attractions competing for our attention, but they can add a healthy element of friction between us and the next shiny object.
I often get asked which books an investor keen to learn more about behaviour should read, and almost certainly give wildly inconsistent answers. To rectify that, here is a list of some of the books that have most influenced my thinking and are also brilliant reads. The majority of those listed are not explicitly related to behavioural finance, but they are all about how and why we make the decisions we do:
Annie Duke – ‘Thinking in Bets’: A fantastic book which not only extols the virtues of probabilistic thinking but manages to do so in an engaging and captivating fashion.
Jeffrey A. Friedman – ‘War and Chance’: Something of a hidden gem, ‘War and Chance’ is a fascinating study of decision making under conditions of uncertainty through the lens of international politics. Particularly insightful around why people are reluctant to talk in probabilistic terms.
Tren Griffin – ‘Charlie Munger – The Complete Investor’: Nobody speaks more lucidly on investor behaviour than Charlie Munger, and Griffin does an excellent job of distilling his wisdom. Those short on time should read Munger’s speech: “The Psychology of Human Misjudgement”, which is probably the single best piece of work on investor behaviour.
James Montier – ‘Behavioural Investing’: If my unreliable memory serves me correctly it was James Montier’s forthright and humorous writing on the vagaries and inconsistencies of investor behaviour that really got me engaged in the subject. This book is hard to get and expensive, but Montier has a ‘Little Book’ version, which incorporates some of the insight and ideas of its larger sibling.
Daniel Crosby – ‘The Behavioral Investor’: Not only does Crosby’s book provide a great overview of how behavioural concepts interact with our investment decisions, but he also offers practical ideas about dealing with our most damaging foibles.
Daniel Kahneman – ‘Thinking Fast and Slow’: Just in case this hasn’t been read by everyone, it is worth highlighting the book that became the foundation stone for the burgeoning interest in behavioural science. No, not every study cited replicates; but yes, it is a great introduction to human behaviour and the choices we make.
Gerd Gigerenzer – ‘Risk Savvy: How to Make Good Decisions’: Gigerenzer’s work is incredibly underrated. His focus on the effectiveness of simple heuristics and decision rules to navigate complex systems is essential for investors who are constantly faced with a volatile and unpredictable environment.
Peter Bernstein – ‘Against the Gods – The Remarkable Story of Risk’: Achieves the extraordinary feat of explaining the history of risk – from Greek mythology to portfolio insurance – in an entirely fluent and engaging manner.
Nassim Nicholas Taleb – ‘Black Swan – The Impact of the Highly Improbable’: Although the term ‘black swan’ is now widely misused, Taleb – in his own inimitable style – covers the folly of predictions, the dangers of models and the often-neglected impact of extreme events. Essential lessons for any investor.
Michael Mauboussin – “The Success Equation: Untangling Skill and Luck in Business, Sports and Investing”: No investment writer has a higher signal to noise ratio than Michael Mauboussin, his hit rate for producing distinctive and rigorous work is unsurpassed. “The Success Equation” is particularly important for investors because one of our primary failings is our inability to distinguish between luck and skill – a consistent and costly mistake.
Will Storr – ‘The Science of Storytelling’: Not obviously about investing or behaviour, Storr’s book looks at humanity’s fascination with stories and how and why they have such a profound impact on us. It is hard to think of any investment behaviour that doesn’t have a story at its heart, which makes understanding narratives essential to understanding our decisions.
Rory Sutherland – ‘Alchemy’: Aside from being very funny, Sutherland’s book challenges conventional wisdom about our behaviour and encourages counter-intuitive thinking.
Robert Cialdini – ‘Influence’: A timeless psychology book. As investors we are always being influenced or trying to influence others. Cialdini breaks this process down into six critical principles.
Morgan Housel – ‘The Psychology of Money’: The beauty of Housel’s wildly successful book is its coupling of vivid storytelling with broad appeal. It is a book about our relationship with money but it’s not for investors, it’s for everyone.
I have inevitably missed some personal favourites that weren’t in my mind at the time of writing and there are also those which, tantalizingly, I have not yet discovered!