A Practitioner's Guide to Applying Behavioural Finance
Author: James Montier
Publisher: John Wiley & Sons
Category: Business & Economics
Behavioural investing seeks to bridge the gap between psychology and investing. All too many investors are unaware of the mental pitfalls that await them. Even once we are aware of our biases, we must recognise that knowledge does not equal behaviour. The solution lies is designing and adopting an investment process that is at least partially robust to behavioural decision-making errors. Behavioural Investing: A Practitioner’s Guide to Applying Behavioural Finance explores the biases we face, the way in which they show up in the investment process, and urges readers to adopt an empirically based sceptical approach to investing. This book is unique in combining insights from the field of applied psychology with a through understanding of the investment problem. The content is practitioner focused throughout and will be essential reading for any investment professional looking to improve their investing behaviour to maximise returns. Key features include: The only book to cover the applications of behavioural finance An executive summary for every chapter with key points highlighted at the chapter start Information on the key behavioural biases of professional investors, including The seven sins of fund management, Investment myth busting, and The Tao of investing Practical examples showing how using a psychologically inspired model can improve on standard, common practice valuation tools Written by an internationally renowned expert in the field of behavioural finance
What drives investor behaviour? We would all like to think we always behave rationally but in reality we are often swayed by emotions. Most financial theories are based on the idea that everyone takes careful account of all available information before making investment decisions. However, researchers have uncovered a surprisingly large amount of evidence that this is not the case. Dozens of examples of irrational behaviour and repeated errors in judgement have been documented in academic studies. This book gives plenty of examples of investment mistakes, and analyses them from a Behavioural Finance perspective. Behavioural Finance is the study of the influence of psychology on the behaviour of investors and their subsequent effect on the markets. It combines the discipline of psychology and economics to explain why and how people make irrational or illogical decisions when they make investment decisions.
A detailed guide to overcoming the most frequently encountered psychological pitfalls of investing Bias, emotion, and overconfidence are just three of the many behavioral traits that can lead investors to lose money or achieve lower returns. Behavioral finance, which recognizes that there is a psychological element to all investor decision-making, can help you overcome this obstacle. In The Little Book of Behavioral Investing, expert James Montier takes you through some of the most important behavioral challenges faced by investors. Montier reveals the most common psychological barriers, clearly showing how emotion, overconfidence, and a multitude of other behavioral traits, can affect investment decision-making. Offers time-tested ways to identify and avoid the pitfalls of investor bias Author James Montier is one of the world's foremost behavioral analysts Discusses how to learn from our investment mistakes instead of repeating them Explores the behavioral principles that will allow you to maintain a successful investment portfolio Written in a straightforward and accessible style, The Little Book of Behavioral Investing will enable you to identify and eliminate behavioral traits that can hinder your investment endeavors and show you how to go about achieving superior returns in the process. Praise for The Little Book Of Behavioral Investing "The Little Book of Behavioral Investing is an important book for anyone who is interested in understanding the ways that human nature and financial markets interact." —Dan Ariely, James B. Duke Professor of Behavioral Economics, Duke University, and author of Predictably Irrational "In investing, success means¿being on the right side of most trades. No book provides a better starting point toward that goal than this one." —Bruce Greenwald, Robert Heilbrunn Professor of Finance and Asset Management, Columbia Business School "'Know thyself.' Overcoming human instinct is key to becoming a better investor.¿ You would be irrational if you did not read this book." —Edward Bonham-Carter, Chief Executive and Chief Investment Officer, Jupiter Asset Management "There is not an investor anywhere who wouldn't profit from reading this book." —Jeff Hochman, Director of Technical Strategy, Fidelity Investment Services Limited "James Montier gives us a very accessible version of why we as investors are so predictably irrational, and a guide to help us channel our 'Inner Spock' to make better investment decisions. Bravo!" —John Mauldin, President, Millennium Wave Investments
"As with his weekly column, James Montier's Value Investing is a must read for all students of the financial markets. In short order, Montier shreds the 'efficient market hypothesis', elucidates the pertinence of behavioral finance, and explains the crucial difference between investment process and investment outcomes. Montier makes his arguments with clear insight and spirited good humor, and then backs them up with cold hard facts. Buy this book for yourself, and for anyone you know who cares about their capital!" —Seth Klarman, President, The Baupost Group LLC The seductive elegance of classical finance theory is powerful, yet value investing requires that we reject both the precepts of modern portfolio theory (MPT) and pretty much all of its tools and techniques. In this important new book, the highly respected and controversial value investor and behavioural analyst, James Montier explains how value investing is the only tried and tested method of delivering sustainable long-term returns. James shows you why everything you learnt at business school is wrong; how to think properly about valuation and risk; how to avoid the dangers of growth investing; how to be a contrarian; how to short stocks; how to avoid value traps; how to hedge ignorance using cheap insurance. Crucially he also gives real time examples of the principles outlined in the context of the 2008/09 financial crisis. In this book James shares his tried and tested techniques and provides the latest and most cutting edge tools you will need to deploy the value approach successfully. It provides you with the tools to start thinking in a different fashion about the way in which you invest, introducing the ways of over-riding the emotional distractions that will bedevil the pursuit of a value approach and ultimately think and act differently from the herd.
A definitive guide to the growing field of behavioral finance This reliable resource provides a comprehensive view of behavioral finance and its psychological foundations, as well as its applications to finance. Comprising contributed chapters written by distinguished authors from some of the most influential firms and universities in the world, Behavioral Finance provides a synthesis of the most essential elements of this discipline, including psychological concepts and behavioral biases, the behavioral aspects of asset pricing, asset allocation, and market prices, as well as investor behavior, corporate managerial behavior, and social influences. Uses a structured approach to put behavioral finance in perspective Relies on recent research findings to provide guidance through the maze of theories and concepts Discusses the impact of sub-optimal financial decisions on the efficiency of capital markets, personal wealth, and the performance of corporations Behavioral finance has quickly become part of mainstream finance. If you need to gain a better understanding of this topic, look no further than this book.
The Effects of Behavioral Finance on Investment Choice and Bias
Author: Tim Richards
Publisher: John Wiley & Sons
Category: Business & Economics
Discover how to remove behavioral bias from your investment decisions For many financial professionals and individual investors, behavioral bias is the largest single factor behind poor investment decisions. The same instincts that our brains employ to keep us alive all too often work against us in the world of finance and investments. Investing Psychology + Website explores several different types of behavioral bias, which pulls back the curtain on any illusions you have about yourself and your investing abilities. This practical investment guide explains that conventional financial wisdom is often nothing more than myth, and provides a detailed roadmap for overcoming behavioral bias. Offers an overview of how our brain perceives realities of the financial world at large and how human nature impacts even our most basic financial decisions Explores several different types of behavioral bias, which pulls back the curtain on any illusions you have about yourself and your investing abilities Provides real-world advice, including: Don't compete with institutions, always track your results, and don't trade when you're emotional, tired, or hungry Investing Psychology is a unique book that shows readers how to dig deeper and persistently question everything in the financial world around them, including the incorrect investment decisions that human nature all too often compels us to make.
Investing with the Trend provides an abundance of evidence for adapting a rules-based approach to investing by offering something most avoid, and that is to answer the “why” one would do it this way. It explains the need to try to participate in the good markets and avoid the bad markets, with cash being considered an asset class. The book is in three primary sections and tries to leave no stone unturned in offering almost 40 years of experience in the markets. Part I – The focus is on much of the misinformation in modern finance, the inappropriate use of Gaussian statistics, the faulty assumptions with Modern Portfolio Theory, and a host of other examples. The author attempts to explain each and offer justification for his often strong opinions. Part II – After a lead chapter on the merits of technical analysis, the author offers detailed research into trend analysis, showing how to identify if a market is trending or not and how to measure it. Further research involves the concept of Drawdown, which the author adamantly states is a better measure of investor risk than the oft used and terribly wrong use of volatility as determined by standard deviation. Part III – This is where he puts it all together and shows the reader all of the steps and details on how to create a rules-based trend following investment strategy. A solid disciplined strategy consists of three parts, a measure of what the market is actually doing, a set of rules and guidelines to tell you how to invest based upon that measurement, and the discipline to follow the strategy
In this book, the author draws from finance, psychology, economics, and other disciplines in business and the social sciences, recognising that personal finance and investments are subjects of study in their own right rather than merely branches of another discipline. Considerable attention is given to topics which are either ignored or given very little attention in other texts. These include: the psychology of investment decision-making stock market bubbles and crashes property investment the use of derivatives in investment management regulation of investments business. More traditional subject areas are also thoroughly covered, including: investment analysis portfolio management capital market theory market efficiency international investing bond markets institutional investments option pricing macroeconomics the interpretation of company accounts. Packed with over one hundred exercises, examples and exhibits and a helpful glossary of key terms, this book helps readers grasp the relevant principles of money management. It avoids non-essential mathematics and provides a novel new approach to the study of personal finance and investments. This book will be essential for students and researchers engaged with personal finance, investments, behavioural finance, financial derivatives and financial economics. This book also comes with a supporting website that includes two updated chapters, a new article featuring a behavioural model of the dot com, further exercises, a full glossary and a regularly updated blog from the author.
A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors
Author: Wesley R. Gray
Publisher: John Wiley & Sons
Category: Business & Economics
A must-read book on the quantitative value investmentstrategy Warren Buffett and Ed Thorp represent two spectrums ofinvesting: one value driven, one quantitative. Where they align isin their belief that the market is beatable. This book seeks totake the best aspects of value investing and quantitative investingas disciplines and apply them to a completely unique approach tostock selection. Such an approach has several advantages over purevalue or pure quantitative investing. This new investing strategyframed by the book is known as quantitative value, a superior,market-beating method to investing in stocks. Quantitative Value provides practical insights into aninvestment strategy that links the fundamental value investingphilosophy of Warren Buffett with the quantitative value approachof Ed Thorp. It skillfully combines the best of Buffett and EdThorp—weaving their investment philosophies into a winning,market-beating investment strategy. First book to outline quantitative value strategies as they arepracticed by actual market practitioners of the discipline Melds the probabilities and statistics used by quants such asEd Thorp with the fundamental approaches to value investing aspracticed by Warren Buffett and other leading value investors A companion Website contains supplementary material that allowsyou to learn in a hands-on fashion long after closing the book If you're looking to make the most of your time in today'smarkets, look no further than Quantitative Value.
Publisher: Macmillan International Higher Education
Category: Business & Economics
This innovative new teaching text provides an introduction to personal investment in a world defined by uncertainty. With a focus on risk, socio-economic change and the regulatory framework, and a wealth of international case studies, the book covers all the key issues that affect personal investment decisions and their ultimate success or failure.