Behavioural investing : a practitioners guide to applying behavioural finance /
James Montier.
- Chichester, England ; Hoboken, NJ : John Wiley & Sons, c2007.
- p. cm.
Includes bibliographical references and index.
Preface. Acknowledgments. SECTION I: COMMON MISTAKES AND BASIC BIASES. 1 Emotion, Neuroscience and Investing: Investors as Dopamine Addicts. Spock or McCoy? The Primary of Emotion. Emotions: Body or Brain? Emotion: Good, Bad of Both? Self-Control is Like a Muscle. Hard-Wired for the Short Term. Hard-Wired to Herd. Plasticity as Salvation. 2 Part Man, Part Monkey. The Biases We Face. Bias #1: I Know Better, Because I Know More. The Illusion of Knowledge: More Information Isn't Better Information. Professionals Worse than Chance! The Illusion of Control. Bias #2: Big -= Important. Bias #3: Show Me What I Want to See. Bias #4: Heads was Skill, Tails was Bad Luck. Bias #5: I Knew it all Along. Bias #6: The Irrelevant has Value as Input. Bias #7: I Can Make a Judgement Based on What it Looks Like. Bias #8: That's Not the Way I Remember it. Bias #9: If you Tell Me it Is So, It Must be True. Bias #10: A Loss Isn't a Loss Until I Take It. Conclusions. 3 Take aWalk on the Wild Side. Impact Bias. Empathy Gaps. Combating the Biases. 4 Brain Damage, Addicts and Pigeons. 5 What Do Secretaries' Dustbins and the Da Vinci Code have in Common? 6 The Limits to Learning. Self-Attribution Bias: Heads is Skill, Tails is Bad Luck. Hindsight Bias: I Knew it All Along. Skinner's Pigeons. Illusion of Control. Feedback Distortion. Conclusions. SECTION II: THE PROFESSIONALS AND THE BIASES. 7 Behaving Badly. The Test. The Results. Overoptimism. Confirmatory Bias. Representativeness. The Cognitive Reflection Task (CRT). Anchoring. Framing. Loss Aversion. Keynes's beauty contest. Monty Hall Problem. Conclusions. SECTION III: THE SEVEN SINS OF FUND MANAGEMENT. 8 A Behavioural Critique. Sin city. Sin 1: Forecasting (Pride). Sin 2: The Illusion of Knowledge (Gluttony). Sin 3: Me
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 of this book are it: is the only book to cover the applications of behavioural finance; contains an executive summary for every chapter with key points highlighted at the chapter start; provides information on the key behavioural biases of professional investors, including The seven sins of fund management, Investment myth busting, and The Tao of investing; offers practical examples showing how using a psychologically inspired model can improve on standard, common practice valuation tools; and, is written by an internationally renowned expert in the field of behavioural finance.