Behavioral Finance and Investor Types: Managing Behavior to Make Better Investment Decisions (Wiley Finance)
Format: PDF / Kindle (mobi) / ePub
Achieve investing success by understanding your behavior type
This groundbreaking book shows how to invest wisely by managing your behavior, and not just your money. Step by step, Michael Pompian (a leading authority in the practical application of Behavioral Finance concepts to wealth management) helps you plan a strategy targeted to your personality. The book includes a test for determining your investment type and offers strategies you can put into use when investing. It also includes a brief history of the stock market, and easy-to-comprehend information about stocks and investing to help you lay a solid foundation for your investment decisions.
Behavioral Finance and Investor Types is divided into two parts. Test Your Type, gives an overview of Behavioral Finance as well as the elements that come into play when figuring out BIT, like active or passive traits, risk tolerance, and biases. The book includes a quiz to help you discover what category you are in. Plan and Act, contains the traits common to your type; an analysis of the biases associated with your type; and strategies and solutions that compliment and capitalize on your BIT.
• Offers a practical guide to an investing strategy that fits both your financial situation and your personality type
• Includes a test for determining your tolerance for risk and other traits that will determine your investment type
• Written by the Director of the Private Wealth Practice for Hammond Associates—an investment consulting firm serving institutional and private wealth clients
Behavioral Finance and Investor Types offers investors a better sense of what drives them and what puts on their breaks. By using the information found here, you'll quickly become savvy about the world of investing because you'll come to understand your place in it.
assumptions in idealized financial behavior; behavioral finance grounds its assumptions in observed financial behavior. Efficient Markets versus Irrational Markets During the 1970s, the standard finance theory of market efficiency became the model of market behavior accepted by the majority of academics and a good number of professionals. The Efficient Market Hypothesis had matured in the previous decade, stemming from the doctoral dissertation of Fama. Fama persuasively demonstrated that in a
expanded its scope to assess “normal” individuals for such purposes as career guidance, military aptitude, and marriage counseling. The test is formulated to accurately assess what people think is going on in their lives, not what is actually going on in their lives. Accordingly subjects are asked to respond to such true or false items as “I believe I am being plotted against” and “I am sure I am being talked about.”11 Over the years the MMPI began to reflect a lifestyle that was rapidly
Independent client to reflect on how they make investment decisions and provide data-backed substantiation for recommendations. Offering education in clear, unambiguous ways is an effective approach. If advisors take the time, this steady, educational approach should yield positive results. JWBT703-c10 JWBT703-Pompian Printer: Courier Westford April 10, 2012 9:43 134 Trim: 6in × 9in JWBT703-c11 JWBT703-Pompian Trim: 6in × 9in Printer: Courier Westford April 10, 2012 9:45 Chapter 11
percent, the return to the U.S. investor will be 9 percent. A properly diversified portfolio should hold both domestic and foreign large-capitalization equities as core portfolio holdings. A key concern, however, is the correlation between these two asset classes (and, for that matter, with nonequity asset classes), which I discuss shortly. Foreign equities have historically provided diversification benefits to investors due to a historical lack of perfect correlation with U.S. equities. Given
with the investment. Trim: 6in × 9in JWBT703-c12 JWBT703-Pompian Printer: Courier Westford April 10, 2012 14:26 Capital Markets and Asset Classes 161 The PPM refers to another document called a Limited Partner Agreement (LPA), which is the actual binding agreement. The LPA establishes the rules of the operation of the fund, how the fund will be governed, and the limited partnership terms between participating parties. When there is a difference between the PPM and LPA, the LPA governs, so