The problem is that the practical application of the idea is left hanging. For instance chapter 12 discusses rationality and emotion and shows that, contrary to what many may believe, emotion is actually beneficial and necessary to successful decision making. That's interesting but then comes the lame conclusion - "Yet successful investing requires a clear sense of probabilities and payoffs. Investors who are aware of affects are likely to make better decisions over time." So now I've read the book and am aware, does that mean I'm going to do a better job investing? I doubt it. I hoped for more since the author is not just a professor at Columbia Business School by the chief investment strategist at Legg Mason Capital Management.
To some degree, this book suffers from the "look how clever I am" syndrome, uncovering all these principles in arcane and non-obvious places. Perhaps this is not surprising since the author writes on page 2: "The experts who knew a little about a lot - the diverse thinkers - did better than the experts who knew one big thing." He is deliberately making himself more diverse. Still, it reminds me of a very smart friend who once was told by his very sensible wife, "oh, piss-off, N____, stop being such a smart-ass".
For those who are willing to take being teased, there is considerable delight and invitation to further thought and investigation (like any good prof all sources are cited and there is lots of further homework, er, reading).
- "... because there's such a focus on outcome vs process, most institutional investors have time horizons that are substantially shorter than what an investment strategy requires to pay off." (p.57)
- "... the talking heads on television satisfy a human need for an expert, without providing the value of an expert." (p.70)
- "markets can still be rational when investors are individually irrational." (p.95)
- "I find that thoughtful discussions about a firm's or and industry's medium- to long-term competitive outlook are extremely rare." (p.115) and maybe this is related to the first quote above?
- and a quote of a quote - "better-known forecasters - those more likely to be fêted by the media - were less calibrated than their lower-profile colleagues." (Phil Tetlock's study of media contact and poor predictions discussed on page 45) ... I believe some bloggers better than the mainstream media
After reading this book, one tends to feel that one knows less than before - that there is a whole lot more to know. It's not easy or comforting but maybe that's a good thing.
My rating: 8 out of 10.