Behavioral Finance and Investor Types: Managing Behavior to Make Better Investment Decisions

238 Pages·2012·3.19 MB·English

by  Michael Pompian

Contents
Cover
Series
Title Page
Copyright
Dedication
Foreword
Preface
AN IMPERFECT SCIENCE
WHY THIS BOOK?
PLAN OF THE BOOK
WHO SHOULD USE THIS BOOK?
WHEN TO USE THIS BOOK
Acknowledgments
Part One: Introduction to Behavioral Finance
Chapter 1: Why Reaching Financial Goals Is Difficult
NONFINANCIAL EXAMPLES OF SELF-DEFEATING
BEHAVIOR
FINANCIAL EXAMPLES OF SELF-DEFEATING
BEHAVIOR
SUMMARY
Chapter 2: Overview of Behavioral Finance
BEHAVIORAL FINANCE: MICRO VERSUS MACRO
STANDARD FINANCE VERSUS BEHAVIORAL
FINANCE
THE ROLE OF BEHAVIORAL FINANCE WITH
PRIVATE CLIENTS
PRACTICAL APPLICATIONS
Chapter 3: The Building Blocks: Behavioral Biases
COGNITIVE BIASES
EMOTIONAL BIASES
SUMMARY
Part Two: Personality Theory
Chapter 4: Introduction to Personality Theory
HISTORY OF PERSONALITY THEORY
FOUR MAIN PERSONALITY THEORIES
Chapter 5: The History of Personality Testing
TYPES OF PERSONALITY TESTS
SUMMARY
Chapter 6: The Behavioral Investor Type Framework
REVIEWING THE ORIGINAL PROCESS
THE BEHAVIORAL ALPHA PROCESS: A TOP-
DOWN APPROACH
UPDATES TO THE PREVIOUS MODEL
UPDATED BIT THEORY AND APPLICATION
SUMMARY
Chapter 7: Behavioral Investor Type Diagnostic Testing
STEP 1: BIT ORIENTATION QUIZ
STEP 2: BIAS IDENTIFICATION QUIZ
SUMMARY
Part Three: Explanation of the Behavioral Investor Types
Chapter 8: The Preserver
UPSIDE/DOWNSIDE ANALYSIS
BIAS ANALYSIS
OTHER BIASES
ADVICE FOR PRESERVERS
Chapter 9: The Follower
UPSIDE/DOWNSIDE ANALYSIS
BIAS ANALYSIS
OTHER BIASES
ADVICE FOR FOLLOWERS
Chapter 10: The Independent
UPSIDE/DOWNSIDE ANALYSIS
BIAS ANALYSIS
ADVICE FOR INDEPENDENTS
Chapter 11: Chapter The Accumulator
UPSIDE/DOWNSIDE ANALYSIS
BIAS ANALYSIS
OTHER BIASES
ADVICE FOR ACCUMULATORS
Part Four: Plan and Act
Chapter 12: Capital Markets and Asset Classes
OVERVIEW OF ASSET CLASSES
PUBLICLY TRADED EQUITY INVESTMENTS
(STOCKS)
FIXED INCOME INVESTMENTS (BONDS)
HEDGE FUNDS
REAL ASSETS
SIMPLE PORTFOLIO CONSTRUCTION
SUMMARY
Chapter 13: Chapter What Is Asset Allocation?
THE IMPORTANCE OF ASSUMPTIONS
THE IMPORTANCE OF STRATEGIC ASSET
ALLOCATION
CONSIDERATIONS FOR INDIVIDUAL INVESTORS
WHY ASSET ALLOCATION IS SO IMPORTANT
SUMMARY
Chapter 14: Financial Planning: A Crucial Step
WHAT IS FINANCIAL PLANNING?
WORKING WITH A FINANCIAL PLANNER
WHAT IS A CERTIFIED FINANCIAL PLANNER?
WHO CAN PROVIDE FINANCIAL PLANNING
SERVICES?
SUMMARY
Chapter 15: Investment Advice for Each Behavioral Investor Type
FOUNDATIONS OF BEST PRACTICAL
ALLOCATION
GUIDELINES FOR DETERMINING WHEN TO
MODERATE AND WHEN TO ADAPT
BEST PRACTICAL ALLOCATION FOR
PRESERVERS
BEST PRACTICAL ALLOCATION FOR
FOLLOWERS
BEST PRACTICAL ALLOCATION FOR
INDEPENDENTS
BEST PRACTICAL ALLOCATION FOR
ACCUMULATORS
SUMMARY
Note
Index
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Copyright © 2012 by Michael M. Pompian. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Pompian, Michael M., 1963–
Behavioral finance and investor types : managing behavior to make better
investment decisions / Michael M. Pompian.
p. cm.—(Wiley finance series)
Includes index.
ISBN 978-1-118-01150-8 (cloth); ISBN 978-1-118-22181-5 (ebk);
ISBN 978-1-118-23560-7 (ebk); ISBN 978-1-118-26048-7 (ebk)
1. Investments—Psychological aspects. 2. Investments—Decision making. I.
Title.
HG4515.15.P657 2012
332.601′9—dc23
2011052854
This book is dedicated to my brother Dave and his family, Hali, Tyler, and
Sascha.