The Psychology of Investing

by Nofsinger, John R.

• ISBN13: 9780130930248
• ISBN10: 0130930245
• Format: Paperback
• Copyright: 2001-10-01
• Publisher: Taylor & Francis

Summary

The first book of its kind to delve into the fascinating and important subject of the psychology affecting investment. No other book provides this information because traditional finance focuses on developing the tools in which investors use to optimize expected return and risk. The author believes that understanding the psychology of investing is just as important as knowing the traditional investment topics. Combines behavioral knowledge from psychology, management, marketing, economics, and finance. Uses investment as well as non investment examples. For financial planners, investment managers, individual investors, or to be used as a training manual or reference in financial companies.

Table of Contents

Preface	xi
Psychology and Finance	1	(8)
A Simple Illustration	2	(1)
Prediction	3	(2)
Long Term Capital Management	5	(1)
Behavioral Finance	6	(1)
What to Expect	6	(3)
Overconfidence	9	(12)
How Overconfidence Affects Investor Decisions	10	(4)
Overconfidence and Risk	14	(1)
Illusion of knowledge	14	(2)
Illusion of Control	16	(1)
Online Trading	17	(1)
Online Trading and Performance	18	(3)
Fear of Regret and Seeking Pride	21	(10)
Disposition Effect	21	(1)
Disposition Effect and Wealth	22	(1)
Tests of Avoiding Regret and Seeking Pride	23	(2)
The Market for Houses	25	(1)
Selling Winners Too Soon and Holding Losers Too Long	26	(1)
Disposition Effect and News	27	(1)
Reference Points	28	(3)
Considering the Past	31	(12)
House Money Effect	31	(1)
Snake Bite (or Risk Aversion)	32	(1)
Trying to Break Even	32	(1)
Effect on Investors	33	(1)
Endowment (or Status Quo Bias) Effects	33	(1)
Endowment and Investors	34	(1)
Memory and Decision Making	35	(1)
Memory and Investment Decisions	36	(1)
Cognitive Dissonance	37	(1)
Cognitive Dissonance and Investing	38	(1)
Summary	39	(4)
Mental Accounting	43	(8)
Mental Budgeting	44	(1)
Matching Costs to Benefits	44	(2)
Aversion to Debt	46	(1)
Sunk-Cost Effect	46	(1)
Economic Impact	47	(1)
Mental Accounting and Investing	48	(3)
Forming Portfolios	51	(10)
Modern Portfolio Theory	51	(1)
Mental Accounting and Portfolios	51	(2)
Perceptions on Risk	53	(3)
Risk Perception in the Real World	56	(1)
Building Behavioral Portfolios	56	(2)
Naive Diversification	58	(1)
Retirement Plans	59	(2)
Representativeness and Familiarity	61	(10)
Representativeness	61	(1)
Representativeness and Investing	62	(2)
Familiarity	64	(1)
Familiarity Breeds Investment	65	(2)
Familiarity Breeds Investment Problems	67	(4)
Investor Socialization and Mania	71	(10)
Sharing Investment Knowledge	71	(1)
Herding	72	(1)
Speed is of the Essence (Not!)	72	(1)
Investment Clubs	73	(3)
Market Mania	76	(1)
A Rose.com by any Other Name	77	(1)
The More Things Change...	78	(3)
Self-Control and Decision Making	81	(12)
Short-Term versus Long-Term Focus	82	(1)
Controlling Yourself	82	(1)
Saving and Self-Control	83	(1)
401 (k) and IRA Plans	84	(1)
Self Control and Dividends	85	(2)
Beating the Biases	87	(3)
Additional Rules of Thumb	90	(3)
Index	93